As Raghuram Rajan said, are UPA and NDA both responsible for NPA crisis?


So, when both the UPA and NDA governments are busy lamenting each other over the letter by former RBI governor, the question is who is to be blamed for the current NPA crisis?

Former Reserve Bank of India (RBI) governor Raghuram Rajan’s written submission to the Parliament estimates committee on the issue of Non-Performing Assets (NPAs) in banks has triggered a war of words between the Congress and the Bharatiya Janata Party (BJP), with each blaming the other for the crisis which threatens to hobble Indian banks and hurt the world’s sixth-largest economy.

In the main, the BJP trained its guns on the Congress on the basis of Rajan’s statement that most bad loans originated between 2006 and 2008; and the Congress on the BJP because Rajan said he set up a fraud monitoring cell and sent a list of high-risk offenders to the Prime Minister’s Office (PMO) but nothing much came of this. Rajan doesn’t mention when he sent the list to the PMO, although the fraud monitoring cell was set up in 2016.

Raghuram Rajan’s Letter to a Parliamentary committee headed by Murli Manohar Joshi

However, a careful reading of Rajan’s submissions, which have been uploaded to his website, shows that both parties are cherry-picking parts of his statement to suit their purposes. While the statement notes that “a larger number of bad loans were originated in the period 2006-08”, it also adds that the roots of these lay in irrational exuberance which was driven by extrapolation of past growth and prospects of future performance.

So, when both the UPA and NDA governments are busy lamenting each other over the letter by former RBI governor, the question is who is to be blamed for the current NPA crisis? or as Rajan said, are UPA and NDA regime equally responsible for it? HW News brings you reactions from experts:

Narendra Kotiawala, Member, Maharashtra Committee of All India Bank Officer’s Association:


“It is RBI governor who has pointed out to the government and it was well informed to the PMO office and there were no instructions to act from UPA government. And hence, I hold UPA government responsible for this. This government has no role as everything was over and they are here just for recovery which they are doing. NPAs do not occur overnight. For an account to be NPA it takes years. Why did NPAs occur? NPAs are because of faulty loans. When the loan is given and we call it asset quality if you don’t give a loan to a proper person and there is no monitoring then there is an NPA. So loans given during that period, prior to 2014 were not of good quality, were not monitored. The classic example is Vijay Mallya of Kingfisher. He has siphoned off money and no one had checked that. Then who is responsible? The loans are given at that time. And if you say bankers are responsible, then I think not at all. Because bankers were influenced by the government. There was Phone Banking. Phone Banking means over the phone they would threaten our people. I am a banker myself. They would threaten bankers of transfers to faraway places. It has hampered in the banking policy. Public Sector banks were influenced by the government, interfered left, right and center which is not the case in the private bank. However, in private banks like ICICI, there are top bosses who run the show. In public Sector banks, politicians run the show. Thus, both have doomed.”

Sunil Shah, Market Expert:


“I can tell you one thing. This amounts to the act of omission. Because when the government was warned, it didn’t do anything. So the act of omission is on both the governments. Raghuram Rajan, when he said this, that means he had the evidence, he tried to communicate to the ministry, he had tried to warn and no action was taken. So basically, what Raghuram Rajan is trying to say is, “You can’t blame me for the NPA crisis. I had warned you, warned you about the system, warned you about the flaws in the system.” The corrective measures were to be taken by the government. There have been several allegations on Raghuram Rajan by Niti Aayog Vice Chairperson Rajiv Kumar as well. What I feel is, everybody, is trying to exonerate from the responsibility saying that I had warned you.”

Vishwas Utagi, All India Banks Employees Association:


“The allegations are being imposed by both the governments. The present government has awarded the responsibility for handling the NPA. Now they are shifting their onus on to the earlier government. Their estimate committee is now calling Mr. Raghuram Rajan, questioning his role. In this one thing must be clear that in 2015, in the month of January, in Pune were there were esteemed people right from Prime Minister, finance minister to other banking and insurance associates, in fact, SEBI chairman and Mr. Raghuram Rajan were present at the event of Gyan Sangam Programme. The entire finance sector was present at the event. NDA government led by Mr. Narendra Modi said that our government wants to have a bank recall policy. In that, they had a programme named Indradhanush declared in June 2015. Raghuram Rajan present in the meeting asked the banks to come clean and disclose their balance sheet on the bank reform policies of the NDA government. During this period there were 3 Lakh Crore NPAs, which was shown in the public sector out of which almost 85% belongs to Public sector banks. He insisted on to the profits made to dilute the NPA to help it to become zero. But the fact remains not a single account recovery was made from a single account. Who should be blamed?. Since 2015, because of the policies made under the RBI Governor, Mr. Raghuram Rajan and the NDA government led by Modi together have virtually killed the public sector banking system. Now Raghuram Rajan is trying to shift the blame on the earlier government. Raghuram Rajan was the governor during the tenure of the UPA government why didn’t he act then, to curb the NPA’s? ”

Y Sudarshan, All India Bank Officer’s Confederation:


“Not just the government including the RBI policies. The micro-economic policies are by the RBI itself. Thereafter the Asset Quality Review, about two years back, this was done which helped identify a lot of NPAs. All of a sudden, we had to make provisions for Standard Assets. We also restructured that but it was considered as NPA. Because of the Asset Quality Review, we cannot say this in isolation, a serious of committees beginning from Narshiman committee, Khandelwal committee, Kuda committee or Raghuram Rajan Committee, in which he himself had set up a committee. The PJ Nayak committee was also under Raghuram Rajan’s. These were all things and the contribution from the government, the Gyan Sangam Programme. These things led to newer RBI policies that threw a lot of NPA’s. The sudden policies formed by the sitting government, prompt corrective measures identifying 11 weak banks. All this created a situation due to which NPA’s emerged. The banks are now left weak one has to tag a bank as a weak bank and take corrective measures to operate i.e lending, not take high-cost deposits or high-value lending, cutting down the cost or salaries. All the subsequent government has played with the policies and then the RBI is also responsible.”

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