Jaitley flays Rajan’s prediction

Jaitley flays Rajan’s prediction


The Union Finance Minister, Arun Jaitley, has ridiculed the former Reserve Bank of India Governor, Dr. Raghuram Rajan for predicting that the next banking crisis would be triggered by micro, small and medium enterprises (MSME) lending. He said postmortem is easier than taking action when it was required.

Dr Rajan, who had, as the chief economist at IMF warned of the impending financial crisis of 2008 as far back as 2004, in a note to a parliamentary committee warned against ambitious credit targets and loan waivers, saying that these could be the sources of the next banking crisis.

'I think for anyone to do postmortem is easier than action when it was required,' Jaitley said when asked to comment on Dr Rajan's view about MSME to be next source of banking sector crisis.

'The Government should focus on sources of the next crisis, not just the last one. In particular, the government should refrain from setting ambitious credit targets or waiving loans. Credit targets are sometimes achieved by abandoning appropriate due diligence, creating the environment for future NPAs,' Dr. Rajan said in the note. 'Both MUDRA loans as well as the Kisan Credit Card, while popular, have to be examined more closely for potential credit risk.'

The Credit Guarantee Scheme for MSME run by the Small Industries Development Bank of India is a growing contingent liability and needs to be examined with urgency, he had said in the note submitted to the PAC committee headed by Dr.Murali Manohar Joshi.