Finance Minister Arun Jaitley today hit out at former Reserve Bank of India governor Raghuram Rajan for predicting that the next banking crisis would be triggered by lending to micro, small and medium enterprises.
Jaitley said that "for anyone to do postmortem is easier than action when it was required”.
Rajan, who had as the chief economist at the International Monetary Fund warned of an impending financial crisis of 2008, in a note to a Parliamentary committee warned against ambitious credit targets and loan waivers, saying that they could be the sources of next banking crisis.
"Government should focus on sources of the next crisis, not just the last one. In particular, government should refrain from setting ambitious credit targets or waiving loans,” Rajan had said in the note. “Credit targets are sometimes achieved by abandoning appropriate due diligence, creating the environment for future NPAs."
"Both, MUDRA loans as well as the Kisan Credit Card, while popular, have to be examined more closely for potential credit risk,” he had said in the note submitted to the committee headed by Murli Manohar Joshi. “The Credit Guarantee Scheme for MSME (CGTMSE) run by SIDBI is a growing contingent liability and needs to be examined with urgency."
Rajan also said that a list of high-profile cases related to banking frauds was sent to the Prime Minister's office for a coordinated action. Rajan, who was the RBI governor for three years till September 2016, is currently teaching at the Chicago Booth School of Business.
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