Fri Dec 20 13:58:22 UTC 2024: ## Rajan Blames Corruption, Delays for India’s Pre-2014 Banking Crisis

**New Delhi, [Date]** – Former Reserve Bank of India (RBI) Governor Raghuram Rajan attributed the surge in non-performing assets (NPAs) in Indian banks prior to 2014 to corruption and delays in obtaining planning and environmental clearances. In an interview with The Print, Rajan stated that these issues, exacerbated by the global financial crisis, led to a build-up of bad loans that were only revealed after a 2015 asset quality review (AQR).

Rajan, who served as RBI Governor from 2013 to 2016, explained that the AQR, initiated with the approval of then-Finance Minister Arun Jaitley, unearthed a significant number of loans incorrectly classified as “performing.” He highlighted that a moratorium on classifying troubled loans as NPAs during his predecessor’s tenure had allowed the problem to fester.

The former governor emphasized that while the global financial crisis played a role, India-specific issues like corruption and bureaucratic delays significantly contributed to the crisis. He recalled a period of “exuberance” before the crisis, where projects thrived, leading to reckless lending. However, subsequent delays and scandals resulted in numerous projects failing and loans turning sour.

Rajan’s statements follow recent announcements by Finance Minister Nirmala Sitharaman, who highlighted the recovery of over ₹10 lakh crore in bad loans between 2014 and 2023 and the recent recovery of ₹15,000 crore in assets from fugitive businessmen like Vijay Mallya and Nirav Modi. Sitharaman has previously criticized the previous Congress-led government’s handling of the banking sector.

Rajan warned against complacency, stating that the banking system needs to learn from past mistakes and avoid creating a new crisis, citing potential risks from unsecured retail loans and potential defaults in the MSME sector. He stressed the importance of both proactive identification of bad loans by the RBI and government recapitalization of banks to maintain a healthy financial system.

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