Letters: Why lenders always lose

This refers to the report "Current system protects large promoters: Rajan" (November 26). Reserve Bank of India (RBI) Governor Raghuram Rajan's narrative of clever large borrowers, ignorant public sector lenders and the associated faulty banking system is excellent. In fact, his Dr Verghese Kurien lecture will be recorded as one of the masterpieces on how large promoters have held their lenders hostage due to a flawed system.

However, some caveats are in order. What about the diversion of funds by the promoters and failure or inability of lenders to detect it at the incipient stage? This is despite the presence of an elaborate system of follow-up reports submitted by the borrowers to lenders. Either the reports are incorrect or the lenders have not been able to detect the misuse of funds. Second, the banks' lack of expertise, and the mechanical follow-up are facts more known to the borrowers than the lenders. Third, the borrowers have learnt the art of showcasing the proper end-use of funds, even when they have used the funds against the declared purpose. Moreover, the current legal system has benefitted borrowers, and kept the lenders at the receiving end.

K V Rao Bengaluru

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