Janjivan Bureau / NEW DELHI/MUMBAI : Finance Minister Arun Jaitley blamed the Reserve Bank of India (RBI) on Tuesday for failing to stop a lending spree between 2008-2014 that left banks with huge bad debts, inflaming a row that recently erupted between the government and the central bank.
On Friday, RBI Deputy Governor Viral Acharya warned that undermining a central bank’s independence could be “potentially catastrophic”, in an indication that it is pushing back hard against government pressure to relax its policies and reduce its powers ahead of a general election due by next May.
Government official were very upset by Acharya’s comments, which included a reference to problems created in Argentina when its government meddled in central bank affairs, senior sources in the administration said on Monday.
They said the RBI should not air confidential matters in public and expressed fears it could tarnish India’s image among investors.
Yet, Jaitley was publicly critical of the RBI on Tuesday, saying the central bank’s lax policies had contributed to banks’ current woes.
“During 2008-14 after the global economic crisis to keep the economy artificially going, banks were told to open their doors and lend indiscriminately,” he said in a speech at a conference attended by heads of U.S. companies.
“The central bank looked the other way. I am surprised that at that time the government looked the other way, the banks looked the other way, I do not know what the central bank was doing. It was a regulator of these. They kept pushing truth below the carpet.”
Indian banks’ loans grew close to 20 percent annually on average during 2008-2014 as they financed rapid growth across the economy. But in 2016, the central bank conducted a special asset quality review of all banks that determined there were $150 billion of non-performing loans, forcing the RBI to impose lending restrictions on some.