BackRaghuram Rajan leaves unprecedented bank reforms for successor to finish
RBI governor Raghuram Rajan to step down in September after three years in role
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Mumbai: The Indian central-bank governor who takes over from Raghuram Rajan in September will inherit unprecedented banking reforms, which include a drive to get lenders to clean up their bad debts and efforts to bring financial services to millions of new customers.
Rajan’s most significant contribution was in pressuring lenders to recognize and make provisions for soured credit, though his successor still has “much work" to do such as getting banks to pass on interest-rate cuts and regulating financial technology, said Nirmal Bang Institutional Equities analyst Hatim Broachwala.
Rajan made two speeches last week defending his policies, as he urged his successor to continue his campaigns against bad loans and inflation. Below is a list of his key banking reforms and an analysis of what’s needed to advance them:
Bad-loan clean up
Rajan, who has continually warned about hidden bad debt on Indian banks’ books, had given lenders until 31 March next year to clean up stressed assets that have surged since 2010 and amounted to about $120 billion in February. The project was a step toward eventually reviving credit growth and bolstering India’s $2 trillion economy.
Also Read: India will miss Raghuram Rajan as teacher more than as banker
Increased competition in the banking system
In a bid to give more Indians access to financial services, Rajan took steps to introduce more institutions into the banking industry. Analysts say that will push traditional lenders to become more efficient as they will have to fend off competition from new entrants for low-cost deposit streams and some fee-earning businesses.
Leveraging technology
Under Rajan, the RBI backed technology-based efforts to extend formal financial services to hundreds of millions of Indians, many of them poor and disadvantaged.
Transmission of rate cuts
The RBI took steps to ease a funding squeeze for lenders to encourage banks to pass on reductions in official interest rates, and also moved to improve the transparency of how charges on borrowings are calculated. Bloomberg
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