“I am a regulator… I act based on the guidelines of the government and don’t have executive powers,” said Reserve Bank of India Governor Raghuram Rajan, during a three-hour-long meeting with Parliament’s Public Accounts Committee (PAC).

This is the first time in 15 years that an RBI Governor has appeared before the panel to talk about issues in the banking sector. Rajan’s predecessor D Subbarao had also appeared before the PAC, but that was to explain his role as Finance Secretary during the spectrum allocations.

The RBI Governor was called by the PAC to provide clarity on the non-performing assets (NPAs) of banks, as it was not satisfied with the explanations given by public sector banks.

Expressing concern at the growing volume of non-performing assets, Rajan hoped that banks would take “responsible and prudent decisions” while funding major projects.

He said the RBI and banks would have to work together with the government and Parliament to find a solution to the banks’ burgeoning non-performing assets.

Cautious approach In his submission before the PAC, Rajan said banks would have to finance major infrastructure projects and loans to such projects cannot be compared with personal loans. He hoped that banks would be careful while processing big loans.

The RBI note to the PAC members said the domestic and global economic slowdown, delays in approvals, aggressive lending practices during the upturn, laxity in credit risk appraisal and loan monitoring, lack of appraising skills and wilful default were the key reasons for the non-performance of loans.

Rajan told the PAC that the RBI has given guidelines to all banks on formulating a loan and loan recovery policy with the approval of the board of directors. Members also took up individual cases with him.

They asked him about the alleged favour some public sector banks had shown industrialist Vijay Mallya.

Some members sought Rajan’s views on the Bank of Baroda money laundering scam, to which he said the system has taken action against the culprits, a PAC member told BusinessLine .

Report on NPAs Rajan assured the panel, headed by Congress MP KV Thomas, that he would give a report on what the RBI, the government and Parliament can do to address the issue of non-performing assets.

“He said he will give us a report on the issue within 15 days. We will go through it before taking the next course of action,” the senior member added.

Members also asked him about the possibility of the banks appointing a director in a company where they have provided huge loans.

“It is interesting to see that NPAs of private and foreign banks are much lower than those of public sector banks. Foreign banks send their officials to boards of companies to ensure that their loans are paid back on time,” a member of the Public Accounts Committee added.

Rajan, he said, told the panel members that all such possibilities would be discussed in his note, which would be sent to them soon.

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