Arun Jaitley: RBI looked the other way when banks lent freely

Arun Jaitley

Finance Minister Arun Jaitley on Tuesday held the central bank responsible for the mountain of bad loans, saying the Reserve Bank looked the other way when banks lent indiscriminately during 2008-14 to keep the economy humming.

Jaitley's comments reflect a growing tension between the RBI and the government, days after the central bank Deputy Governor Viral Acharya made a bold pitch for autonomy and independence in the banking regulator's functioning.

The Finance Minister said that after the global financial crisis in 2008 and until 2014, banks were told to open their doors and lend indiscriminately to keep the economy going "artificially".

"The central bank looked the other way (when) there was indiscriminate lending... Total bank credit in India from Rs 18 lakh crore in 2008 went up to Rs 55 lakh crore by 2014. And this was something that banks couldn't sustain, the borrowers couldn't sustain and you had the NPA problem," Jaitley said at an event.

"I am suprised that at that time, the government looked the other way, the banks looked the other way. I don't know what the central bank was doing. It was a regulator of these. They kept pushing the truth below the carpet," he said.

"And we were told that the total NPA (non-performing assets) was Rs 2.5 lakh crore. But when we did the asset quality review in 2015, with the central bank doing it, we found that the NPA was already Rs 8.5 lakh crore," he added.

At a lecture on October 26 in Mumbai, Acharya stressed the need for independence in the central bank's functioning, saying that the market can make the government pay for eroding the bank's independence.

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