Key task: Keeping inflation low, well into the future, says Rajan

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He said US Fed’s decision to delay a rate hike may be due to slow growth in the US and other big economies, and sought to convey it does not change RBI’s monetary policy machinations. “What we’ll have to do is continue doing what we’ve been doing, which was anyway the intention, regardless of the Fed decision,” he said after delivering the CK Prahalad Memorial Lecture.

Analysts and government officials have been pushing for further reduction in rates by the Reserve Bank. On the bad loans, Rajan said, “We also need to clean up the banking system of distressed assets so that it is in a position to fund growth again.”

Also, batting strongly for Aadhaar cards, Rajan today sought greater clarity on the apex court ruling on the matter, saying its usage can help a person get credit, avoid overborrowing and plug leakages. “We need greater clarity on the matter, especially after the recent Supreme Court ruling which says having Aadhaar card is not mandatory for availing of benefits,” Rajan said.

‘Act tough against fund diversion’

RBI Governor Raghuram Rajan said siphoning money out of a business is a crime against lenders and investors, and should be dealt with as such by the investigative authorities. “One gentleman accosted me the other day and asked why, when he was paying his debt regularly, his competitor who had siphoned money out of the firm through over-invoicing was getting his debt written down because it was unpayable,” Rajan said. The reality is that firms have got into trouble for a variety of reasons, only one of which is over-invoicing. Wherever possible, of course, promoters should share fully in the costs of restructuring. But the restructuring process is not meant to deal with criminality, he said.

‘Project consultants managing bad loans’

The country needs many more finance professionals with specific skills for the enormous financing needs that lie ahead, Reserve Bank of India Governor Raghuram Rajan said on Friday. “Too many of our project decisions are made by banks listening to the same set of consultants, which means that too few independent views get embedded in the evaluation decision. Ironically, the same consultants who advised on the project initiation are also called in when the project goes bad,” he said. Banks need to have these skills in-house so they are not forced to follow the herd. This problem is most apparent in public sector banks, though private banks are also not immune, Rajan said.