As RBI chides banks to act tough on bad debts, RBI governor Raghuram Rajan has asked his colleagues to ensure that the central bank is not seen as mere “paper tiger” and even rich and powerful wrong-doers are not spared.
He also wondered whether there was a need to be “more intolerant of sloppy practices at regulated entities, so that these do not result in massive scams years later?”
In his New Year message to all RBI employees, the academic-turned-central banker said the country is often described as “a weak state.”
“Not only are we accused of not having the administrative capacity of ferreting out wrongdoing, we do not punish the wrong-doer unless he is small and weak.
“This belief feeds on itself. No one wants to go after the rich and well-connected wrong-doer, which means they get away with even more. If we are to have strong sustainable growth, this culture of impunity should stop,” Mr. Rajan wrote in a five-page letter to the 16,800-strong RBI staff.
However, he was quick to add that “this does not mean being against riches or business, as some would like to portray, but being against wrong doing“.
Calling for strong and concerted action from and by them, Rajan, who has been chasing banks to arrest the rising tide of defaults by large borrowers, said RBI cannot and should not be seen as a ‘paper tiger’
“My sense is that we need a continuing conversation about tightening both detection as well as penalties for non—compliance throughout the hierarchy. We cannot be seen as a paper tiger,” he wrote .
“As the premier and most respected regulator in the country, we should take the lead. We have motivated staff with the highest integrity at every level. Yet there is a sense that we do not enforce compliance,” he said.
Mr. Rajan also asked whether RBI was allowing regulated entities to get away year after year with poor practices even though these are noted during inspections or scrutinies?
“Should we haul up accountants who do not flag issues they should detect?” he wondered.
Rajan, who has set a March 2017 deadline to banks to clean up their balance sheets which are mired in a bad loan mount of close to Rs 4 lakh crore, said RBI is changing its attitude towards compliance, but this is ‘work in progress’.
The central bank has also identified as many as top 150 defaulters and asked banks to set aside more funds as provisions on one hand and on the other chase them and make them pay up.
