Even as the central government, the Reserve Bank of India and the State Bank of India are working against time to bring Yes Bank back on rails, there are critics who feel these actions should have been initiated even earlier. The latest to voice his opinion is Raghuram Rajan, the former Governor of Reserve Bank of India. Rajan stepped down as RBI Governor in 2016, after completing a 3-year term.
In an interview to CNBC, Rajan has said there were sufficient indications from Yes Bank that it was nearing a crisis and the RBI could have acted much earlier. The former Governor, however acknowledges that the plan announced by the RBI where SBI picks up 49% equity in Yes Bank and brings in other investors is the best available plan under the circumstances. He does add that he is not in possession of the details and therefore does not want to indulge in any second guessing.
In his opinion, the central government and the RBI ought to be more aggressive in their approach to setting right the finance sector in the country. He felt there is still a lack of confidence among the borrowers at large in the financial institutions, whether it is the banks, NBFCs or others. This has led to a stagnation in the credit offtake and this has a direct impact on the economic growth.
Raghuram Rajan is currently a professor of finance at the University of Chicago Booth School of Business.
Answering some more questions, Rajan has said merely reducing the interest rates is not helping in the credit offtake going up.
"I think you have to look at it holistically rather than saying let us do another rate cut as we have room. The question is, are companies willing to borrow and invest on the basis of lower interest rates? We certainly are not at zero and therefore we have room. The question is, is the financial sector healthy enough to pass through these in terms of new credit growth, new lending,” he told CNBC.
He feels the country’s economy can grow at 6-7% again provided the government takes appropriate actions.