Tuesday, November 24, 2020

Former RBI governor Urjit Patel blames UPA govt for banking mess, says RBI too fell short on several counts

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— Consider reading the article Former RBI governor Urjit Patel blames UPA govt for banking mess, says RBI too fell short on several counts on OpIndia website —

Former Reserve Bank of India Governor Urjit Patel in his book ‘Overdraft – Saving The Indian Saver’ which releases on July 24, has launched a scathing on the UPA government for the non-performing assets crisis at public sector banks (PSBs) stating that they failed to create risk controls or ensuring adequate management.

In his new book the former RBI Governor Urjit Patel writes, “The government is responsible for ensuring adequate capital for banks that are under its ambit on a durable/sustainable basis. The dominant owner pre-2014 didn’t question risk controls in government banks even as it received significant dividends. A number of government banks did not have senior management in place, and governance suffered”.

The former RBI governor in his yet-to-be-released book writes that several government banks did not have senior management in place, and governance suffered. This is a perennial shortcoming on account of bureaucratic inertia and political meddling, he noted.

Urjit Patel, who was appointed as the RBI governor in 2016, had faced with a tremendous challenge of rising NPAs in the banking system, especially in the Public sector banks. The gross NPAs stood at 3.8 per cent in FY14 before rising every year to peak at 10.5 per cent in FY18.

Urjit Patel also questions RBI

In the book, Patel has also questioned the RBI’s failure in identifying bad loans before 2014. “The RBI failed to challenge assumptions through, for example, more rigorous stress-test scenarios at the bank level, as well as sensitivity analysis on (demand) assumptions, and sector (policy) risks,” Patel writes in the book.

The book reads, “The regulator fell short on several counts in the period leading up to 2014. It failed to challenge assumptions through, for example, more rigorous stress-test scenarios at bank level, as well as sensitivity analysis on (demand) assumptions, and sector (policy) risks. The scale of exposure – or risk build-up – was not appreciated enough and contested by the regulator to effectively slow down or tighten the lending norms, say, by increasing sector risk weights to ensure protection by increasing capital requirements.”

He writes, “Had the central bank identified the build-up of risks, it could have tightened lending norms by, for instance, increasing risk weights allotted to various sectors.”

In his new book, Patel writes about the ‘9R’ strategy which would have saved public savings, rescued the banks and protected them from unscrupulous racketeers. The note on the publisher’s website also says “Urjit Patel would have cleared the NPA mess if he hadn’t been prevented” but does not elaborate.

Patel quit on December 11, 2018, midway as the RBI Governor, citing personal reasons. He was recently appointed as Chairman of the National Institute of Public Finance and Policy (NIPFP).

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