As banks bad loans pile up, Rajan moves to soothe frayed nerves

14 May, New Delhi

As bad loan problem of Indian banks continues to get bigger, fueling widespread concern, RBI Governor Raghuram Rajan Saturday moved to assure by saying there is no chance of a “Lehman moment”.

He, however, added that it is important for banks to clean up their balance sheets.”There is absolutely no chance we will have a ‘Lehman’ moment,” Rajan told a TV channel, referring to the collapse of the American bank whose collapse in September 2008 triggered global financial meltdown.

“It is about ensuring that the assets are cleaned up and investors have a good idea of the balance sheets of the bank and that process is under way and some banks have cleaned up much faster than the pace that we had set for them,” Rajan added.

“I think we are a recovering economy and when you talk about structural reforms, we have seen a playout in the past few days. For example, we have a bankruptcy bill that was legislated last week and we also have a monetary policy committee that lays the framework that was also legislated last week,” the RBI Governor said

He summed up his assessment of the economy by saying, “I think structural reforms are happening, are on their way and you see more green shoots.”

On piling up of bad loans, Rajan said, “Ours is not a retail problem. It is a wholesale problem. There are big projectsand it is not because of corrupted lending or corruption. It was because the world changed.”