RR was closely associated with India's economic policy at the very highest levels from 2007 to 2016, nearly a decade. He also has the distinction of being perhaps the only economist with a mainstream following from among the Rahguram Rajan (RR) is indeed a well known personality from the field of global economics. The son of a bureaucrat in India, RR went on to study in some of the most elite universities in the world. He came to be associated closely from Indian economic policy-making in 2007 when he worked with Montek Singh Ahluwalia on financial sector reforms. In 2008, he assumed the role of honorary economic advisor, a role he presumably served till his appointment as the Chief Economic Adviser to the Indian Ministry of Finance. In 2013 he took over as the governor of the Indian central Bank, the Reserve Bank of India and remained in the role till 2016 when reportedly his teaching duties in the USA beckoned and he left. While, this description can be read by anyone on RR's wiki page (as I have), the point I endeavor to make here is that. He also has the distinction of being perhaps the only economist with a mainstream following from among the glitterati of India.





Nowadays however it is refreshing to see RR finding time from his onerous teaching duties to enlighten us with his views on the Indian economy. Why, just the other day RR " issued a warning " on the economic slowdown. For good measure, he also drew attention to the possibility of India's GDP being 'overstated' as presented by his friend Arvind Subramanian (who incidentally had this insight almost immediately after resigning from Indian policy making positions). While this is only the latest in a series of advisories from him, I have no doubt that Indian economic thought has been richer from his regular commentary since his departure.





It is now well understood that apart from the global slowdown, a large part of Indian economic issues are a result of a NPL (Non Performing Loans) crisis at Indian banks. A problem that is widely seen to have originated between 2005-2011.





over-optimism, slow-growth, government red-tape, loss of banker/ promoter interest, malfeasance, and fraud, as some of the reasons. The letter is replete with Rajan-isms like " it is hard to tell banker exuberance, incompetence, and corruption apart" and highlights the problems plaguing the Indian banking industry. In fact sometime late in 2018, RR had written a letter to a parliamentary panel on the causes of the bad loan crisis in India. In the letter he enlightened us on the causes of this problem. He lists,, malfeasance, and fraud, as some of the reasons. The letter is replete with Rajan-isms like " it is hard to tell banker exuberance, incompetence, and corruption apart" and highlights the problems plaguing the Indian banking industry.





While this author does not have the academic credentials of RR, it would appear that the first four reasons (italicized) are generic and not the key cause of the magnitude of the asset quality problem. I believe the problem lay more in the malfeasance and fraud aspects mentioned earlier. I base this on the simple fact that the first four reasons are generic in nature, and thus applicable to both the private banks and public sector banks. However, there is a clear divergence in the trend of Gross NPLs (in % terms) in both, suggesting that it was a ethics issue, and not an economic one.





Source: RBI data, Working Paper 200 Institute of Studies in Industrial Development by Das/ Rawat (March 2018)





Surely the argument cannot be that in % terms the over optimism, or slow growth, etc impacted public sector banks at a vastly greater scale than private banks? Nor can it be said that ordinary individuals running these private banks (and even MNC banks) were somehow consistently able to do a much better job than the government officials running public sector banks, and the civil servants supervising them.





It can then be surmised that a significant of these NPLs were due to loans being given to unscrupulous borrowers by bankers, who were either deceitful or were under some pressure to extend these loans. The 'pressure' argument makes sense because private bankers and MNC bankers are less amenable to political pressure.



