Finance Minister Arun Jaitley on Tuesday said the Reserve Bank of India had “looked the other way” when banks were lending “indiscriminately” between 2008 and 2014, PTI reported. The remark came amid reports that the Centre is upset with the central bank for publicly talking about a rift with the government.
Speaking at the India Leadership Summit organised by the United States-India Strategic Partnership Forum, Jaitley said: “You see [from] 2008 to 2014, after the global economic crisis, to keep the economy artificially going, banks were told, ‘open your doors and lend indiscriminately’. The central bank looked the other way, there was indiscriminate lending.”
The Congress-led government at the time pushed banks to lend, resulting in credit growth rising to 31% in a year from a normal average of around 14%, Jaitley alleged. The total bank credit rose from Rs 18 lakh crore in 2008 to Rs 55 lakh crore in 2014, and this was something that neither the banks nor the borrowers could sustain, Jaitley said. He said this led to the bad loans crisis that Indian banks are now dealing with.
“The government looked the other way, the banks looked the other way,” Jaitley said. “I don’t know what the central bank was doing, which was the regulator of these. They kept pushing the truth below the carpet.”
Meanwhile, Jaitley chaired a meeting of the Financial Stability and Development Council on Tuesday afternoon, ANI reported. RBI Governor Urjit Patel and Deputy Governor Viral Acharya also attended the meeting.
On Friday, Acharya had warned that governments that do not respect a central bank’s independence sooner or later incur the wrath of financial markets. Acharya said undermining a central bank’s independence was “potentially catastrophic” indicating that it was pushing back against government pressure to relax its policies and reduce its powers.
Government officials recently called for the RBI to relax lending restrictions on some banks. The RBI also opposed a suggestion by the central government’s inter-ministerial committee to set up an independent regulator for payment systems.
An unidentified official in the Prime Minister’s Office told Reuters it was “very unfortunate” that RBI took the matters public. “The government is very upset,” the official said. “It was not expected from the RBI.”
Another official said it was vital that what happened between the government and RBI was kept confidential. “The government respects the autonomy and independence of the RBI but they must understand their responsibility,” the official added.