Guwahati: The war of words between the RBI and the government seems to have reached another level now with the Finance Minister Arun Jaitley criticizing the Reserve Bank of India for failing to check the “indiscriminate lending” between 2008 and 2014. This failure has led to the present bad-loan crisis in the banking industry. Jaitley made his criticizing remark on RBI on Tuesday.
The war was first started by the RBI Deputy Governor Viral V. Acharya who had said that due to RBI being undermined and its independence being cut short, the outcome may be “potentially catastrophic”. As there was already a silent fight between the Finance Ministry and the RBI, Acharya’s comment led to fueling up the mounting tension.
Mr. Jaitley got the opportunity to open his mouth while attending the India Leadership Summit organised by the U.S.-India Strategic Partnership Forum. He said, “You see [between] 2008 and 2014, after the global economic crisis, to keep the economy artificially going, banks were told to open your doors and lend indiscriminately. The central bank looked the other way; there was indiscriminate lending.”
Jaitley further states that “RBI failed in its duty as a regulator”. He added, “Total bank credit from Rs.18 lakh crore in 2008 went up to Rs. 55 lakh crore by 2014. And this is something the banks couldn’t sustain, the borrowers couldn’t sustain and you had the NPA problem.”
Before this, Dr. Acharya had asked for more power for the RBI so that they can regulate the public sector banks. However, although Jaitley has spoken in the public gathering in India Leadership Summit, no official statement has been made by him or by his ministry.
Such instances of a clash between the RBI chiefs and the finance ministry is not new as in the past as well the RBI governors had run-ins with the government over various issues.