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CPI(M) General Secretary Sitaram Yechury Tuesday wrote to Prime Minister Narendra Modi asking him to reject the proposal of creating a “bad bank”, a state-backed entity that will buy all the non-performing loans of banks.
Pointing out that the idea was “publicly rejected by former RBI governor Raghuram Rajan,” Yechury asked the PM to junk the proposal and start the recovery of bad loans on priority. “Anything less would be tantamount to dereliction of your constitutional duty as the prime minister of this country,” he said.
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Rajan, he said, had identified the ‘moral hazard’ problem of the proposal, where banks would continue to lend money to the same big borrowers who would show scant regard for returning these loans.
“Before any attempts at whitewashing the bad loans by recapitalising the banks, the principle of “Recovery First, Recapitalise Later” must be followed in letter and spirit of your government. To not do so would confirm our worst fears of your government — which has written off Rs 1,12,089 crore of loans of big borrowers — being beholden to crony capitalism,” he said.
“There has been a lack of concerted effort to recover these bad loans, and your government has instead waived Rs 59,547 crore of bad loans of big borrowers in 2015-16… farmers continue to be hounded for repayment of minor amounts in drought years,” Yechury said.