Rajan took many steps to put system in right direction: Pranab

He said that the banking industry had undergone a major change in the last few years

Former Reserve Bank of India governor Raghuram Rajan took many steps to put the system in the right direction, said President Pranab Mukherjee.

Speaking on the completion of 100 years of Karur Vysya Bank, he said the banking industry had undergone a major change in the last few years.

“Of course, more than often you listen to non-performing assets (NPAs) of banking system, which is no doubt a matter of concern. And the governor of Reserve Bank of India who has just retired, Mr Rajan, took many appropriate steps to put the system in the right direction,” he said.

The stressed advances to gross advances of scheduled commercial banks have increased from 10.90 per cent in March 2015 to 11.40 per cent in March 2016, he said, adding the aggregate provisions for NPAs has increased from Rs 73,887 crore to Rs 1,70,630 crore.

Also, net profits of the banks have come down from Rs 79,465 crore in March 2015 to Rs 32,285 crore in March 2016, he said. Rising NPAs is “not a desirable situation,” he said, adding those resources must be available for commercial disbursement.

Rajan, who completed his three-year term as the governor of the Reserve Bank of India on September 4, had forced banks to recognise the true state of their bad loans. This culminated in a six-month asset-quality review that led to banks reporting a surge in bad-debt disclosures and higher losses this year.

Mukherjee said Indian economy and its banking system has done reasonably well considering “indiscretion of a private bank (abroad) could create such an international financial crisis from which world is yet to recover.”

Forecasts of the International Monetary Fund  and World Bank are revised and re- revised year after year because world economy is hit by one after another crisis and overall performance of major economies of world are not so bright and prosperous, he said.

“Everybody at that point of time pointed out that when the major banking institutions in international arena were suffering, Indian banking system stood firmly and solidly because of its prudent management not indulging in some sort of profligation. I am happy to note that because of the basic foundations, and strength of our macroeconomic indices, Indian economy is doing reasonably well,” he said.

“I had the privilege of being the minister of revenue and banking in 1975, six years after nationalisation of banks,” the President said.  At that point, there were 6,800 bank branches in the country. India now has over 1,17,000 bank branches.  

Mukherjee recalled presenting, as finance minister, the case of India’s banking system at a G-20 meeting when western banks were facing a financial crisis after 2008.

With the passage of the goods and services tax Bill, Mukherjee said he hoped the finance ministry would take appropriate steps to set up the GST (goods and services tax) Council to determine a rate for the tax. “It is the responsibility of the council to have a uniform GST rate. It will also be a single-point tax and its cascading effect will not be serious,” Mukherjee added.