Sage advice: on Raghuram Rajan’s suggestions

 

Sage advice: on Raghuram Rajan’s suggestions

Raghuram Rajan’s suggestions on preventing a financial crisis must be heeded
Former RBI Governor Raghuram Rajan’s note of caution(सतर्कता/चेतावनी) on the next financial crisis(संकटकाल) that could be building up needs to be taken in all seriousness(गंभीरता/अहमियत). In his note to Parliament’s Estimates Committee on bank non-performing assets (NPAs), Mr. Rajan has flagged three major sources of potential(संभावित) trouble(परेशानी): Mudra credit, which is basically(अधिकांश/मूल रूप से) small-ticket loans granted to micro and small enterprises; lending(उधार) to farmers through Kisan Credit Cards; and contingent liabilities under the Credit Guarantee Scheme for MSMEs, run by the Small Industries Development Bank of India. The disbursement (भुगतान/वितरण)under Mudra loans alone is ₹6.37 lakh crore, which is over 7% of the total outstanding bank credit. These loans have been sanctioned(स्वीकृत/अधिकृत करना) under the Pradhan Mantri Mudra Yojana, which aims to ‘fund the unfunded’, and is a signature scheme of the NDA government. Given that these are small loans up to ₹10 lakh each, with the borrowers(उधारकर्ताओं) mostly from the informal sector, banks have to monitor them very closely. It is debatable(विवादास्पद/संदेहयुक्त) whether banks have the resources(संसाधन) and manpower to do this when they are chasing the bigger borrowers for business and, increasingly(तेजी से/वृद्धि से) these days, recoveries(वसूलियां). The risk is that these small-ticket loans will drop under the radar and build into a large credit issue in course of time. The same logic holds true for crop loans made through Kisan Credit Cards.

Mr. Rajan’s advice on loan waivers has been made by him and others in the past. But the political class has chosen to turn a deaf ear to this advice, vitiating(बिगाड़ना/हानि पहुंचाना) the credit culture and creating a moral(नैतिक ) hazard(जोखिम) where farmer-borrowers assume(कल्पना करना/मान लेना) that their loans will invariably(बेबदलता से/स्थिरता से) be waived off. The former RBI Governor has strongly defended the RBI against criticism(आलोचना/समीक्षा), often unfair, over its policies on NPA recognition(मान्यता/पहचान) and resolution. He rightly termed as “ludicrous(ऊटपटांग /निस्सार)” the allegations(आरोपों/अभिकथन) that the economy slowed down because of the RBI. Recognition is the first step in a clean-up, and unless banks are cleaned of their non-performing loans, they cannot make fresh loans. The Central government should also take note of some forward-looking statements that Mr. Rajan has made on the governance of banks. Among his suggestions to avert(रोक देना/टालना) a recurrence(पुनरावृत्ति) of the current mess are, professionalising(व्यवसायीकरण) bank boards with appointments done by an independent Banks Board Bureau; inducting(शामिल करना) talent from outside banks to make up for the deficit within; revising(संशोधन) compensation(मुआवजा) structures( संरचनाओं) to attract the best talent; and ensuring(सुनिश्चित) that banks are not left without a leader at the top. It is a comment on the state of our polity that despite the important issues that Mr. Rajan raised, political parties have chosen to pick only the points that are convenient(सुविधाजनक/आसान) to them — about the period when these bad loans were made and the purported(कथित/दावा करना ) inaction(निष्क्रियता/आलस्य) over a list of high-profile fraud cases highlighted by him.

 

 

Important Vocabulary

1.Caution(सतर्कता/चेतावनी)
Synonyms: attention, care, discretion, foresight, prudence,
Antonyms: carelessness, disregard, ignorance, indiscretion, neglect

2.Trouble(परेशानी):
Synonyms: anxiety, oncern, danger, difficulty, dilemma
Antonyms: benefit, calm, calmness, contentment, ease

3.Disbursement (भुगतान/वितरण)
Synonyms:expenditure, outlay, spending, cost, disposal
Antonyms: deposit, hoard, savings

4.Sanctioned(स्वीकृत/अधिकृत करना)
Synonyms: accepted, allowed, approved, licensed, permitted
Antonyms: refused

5.Borrowers(उधारकर्ताओं)
Synonyms: bum, panhandler, vagabond, asker, borrower

6.Disbursement (भुगतान/वितरण
Synonyms: expenditure, outlay, spending, cost, disposal
Antonyms: deposit, hoard, savings

7.Debatable(विवादास्पद/संदेहयुक्त)
Synonyms; arguable, doubtful, dubious, moot, problematic
Antonyms: certain, clear, decided, definite, proven

8.Vitiating(बिगाड़ना/हानि पहुंचाना)
Synonyms: annihilate, negate, quash, abate, abolish
Antonyms: allow, help, permit, affirm, approve

9.Criticism(आलोचना/समीक्षा)
Synonyms: assessment, comment, critique, judgment, opinion
Antonyms: heedlessness, neglect, approval, compliment, estimation

10.Avert(रोक देना/टालना)
Synonyms:avoid, deter, fend off, foil, forestall
Antonyms: aid, allow, assist, help, support

11.Convenient(सुविधाजनक/आसान)
Synonyms; acceptable, advantageous, agreeable, available, beneficial
Antonyms: bad, disadvantageous, disagreeable, harmful, hindering

12.Inaction(निष्क्रियता/आलस्य)
Synonyms:acceptable, advantageous, agreeable, available, beneficial
Antonyms: bad, disadvantageous, disagreeable, harmful, hindering

13.Ludicrous(ऊटपटांग /निस्सार)
Synonyms:bizarre, comical, crazy, fantastic, farcical
Antonyms: bizarre, comical, crazy, fantastic, farcical

 

 

Credit To The Hindu News Paper

Former RBI Governor Raghuram Rajan’s note of caution on the next financial crisis that could be building up needs to be taken in all seriousness. In his note to Parliament’s Estimates Committee on bank non-performing assets (NPAs), Mr. Rajan has flagged three major sources of potential trouble: Mudra credit, which is basically small-ticket loans granted to micro and small enterprises; lending to farmers through Kisan Credit Cards; and contingent liabilities under the Credit Guarantee Scheme for MSMEs, run by the Small Industries Development Bank of India. The disbursement under Mudra loans alone is ₹6.37 lakh crore, which is over 7% of the total outstanding bank credit. These loans have been sanctioned under the Pradhan Mantri Mudra Yojana, which aims to ‘fund the unfunded’, and is a signature scheme of the NDA government. Given that these are small loans up to ₹10 lakh each, with the borrowers mostly from the informal sector, banks have to monitor them very closely. It is debatable whether banks have the resources and manpower to do this when they are chasing the bigger borrowers for business and, increasingly these days, recoveries. The risk is that these small-ticket loans will drop under the radar and build into a large credit issue in course of time. The same logic holds true for crop loans made through Kisan Credit Cards.

Mr. Rajan’s advice on loan waivers has been made by him and others in the past. But the political class has chosen to turn a deaf ear to this advice, vitiating the credit culture and creating a moral hazard where farmer-borrowers assume that their loans will invariably be waived off. The former RBI Governor has strongly defended the RBI against criticism, often unfair, over its policies on NPA recognition and resolution. He rightly termed as “ludicrous” the allegations that the economy slowed down because of the RBI. Recognition is the first step in a clean-up, and unless banks are cleaned of their non-performing loans, they cannot make fresh loans. The Central government should also take note of some forward-looking statements that Mr. Rajan has made on the governance of banks. Among his suggestions to avert a recurrence of the current mess are, professionalising bank boards with appointments done by an independent Banks Board Bureau; inducting talent from outside banks to make up for the deficit within; revising compensation structures to attract the best talent; and ensuring that banks are not left without a leader at the top. It is a comment on the state of our polity that despite the important issues that Mr. Rajan raised, political parties have chosen to pick only the points that are convenient to them — about the period when these bad loans were made and the purported inaction over a list of high-profile fraud cases highlighted by him.

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