Arundhati Bhattacharya, the SBI chairman has shown she is made of stern stuff. As a banker she understands, better than any of the candidates in the running—most of all, the academics—the importance of client relationships. (PTI)

Raghuram Rajan was not done in by BJP MP Subramanian Swamy as much as by India’s industrialists—the type that have got used to borrowing from banks and not repaying them as if it was their birthright.

Rajan has been the first Governor to call out these errant entrepreneurs; he even referred to them as ‘freeloaders’ pointing out, rightly, that it was the high risk-premium that banks were compelled to charge corporate borrowers that had resulted in high interest rates.

While making it clear there are entrepreneurs genuinely in trouble due to the economic slowdown, he has not hesitated to say there are many who have gamed the system, helped by an inefficient legal framework.

He has tried to help banks get control over these companies—persuading Sebi to loosen the pricing norms—but with the economy in a trough, banks have had little luck.

It is not just one Vijay Mallya, there are hundreds of others who have used their political clout to get their way while hapless bankers have given in for fear of being penalised. There are stories of even lightweight industrialists threatening bankers to loan them more money on the back of their strong political connections.

The one banker who has borne the brunt of this legacy is Arundhati Bhattacharya. With State Bank of India (SBI) being the country’s largest state-owned lender, it automatically became the consortium leader for most large accounts—IDBI Bank is the other lender that has a large exposure to companies.

At a time when the central bank has been asking banks to clean up their balance-sheets, SBI has needed to make large provisions. Slippages from large- and mid-corporates in Q4FY16 alone were of the order of R20,000 crore. But in a weak economic environment, Bhattacharya has done a commendable job of recovering dues; recoveries in FY15 and FY16 totalled nearly R14,000 crore.

It is not easy because promoters use every trick in the book to stall the efforts of banks. The legal process has been virtually ineffective; finance ministry data shows loans worth close to R4.5 lakh crore were pending at debt recovery tribunals (DRT) till December 2015, up from R4 lakh crore in March 2015.

It took banks more than a year to seize just one property in Goa, pledged to them because the company to whom it belonged used every tactic it could to stop them; finally, it turned out the house papers were missing from two official locations.

But banks are fighting back. Probably, for the first time ever, top promoters—who owe banks R30,000-40,000 crore—are being summoned to discuss repayments. To be sure, Bhattacharya must have the backing of the central government which wants to prove it doesn’t practise crony capitalism.

Nevertheless, the SBI chairman has shown she is made of stern stuff. As a banker she understands, better than any of the candidates in the running—most of all, the academics—the importance of client relationships. At the same time, she’s tough, feisty and, above all, fair in her dealings.

Her integrity is unquestionable and she has had the courage to take tough calls—not loaning the Gautam Adani group $1 billion for a project in Australia, when the industrialist is known to be close to the prime minister, could not have been easy.

If she becomes RBI Governor, she will continue to clean up—not just the banks’ balance-sheets but also the lending environment, which has been muddied by decades of crony capitalism. It is hard to believe anyone else in the reckoning would be able to do this—most are economists who would focus on monetary policy, a job better left to a deputy governor.

The priority right now for the country is cleaning up the banks and bringing promoters to book. As Governor Rajan has pointed out, “the problem is that the sanctity of the debt contract has been continuously eroded in India in recent years, not by the small borrower but by the large borrower. And this has to change if we are to get banks to finance the enormous infrastructure needs and industrial growth that this country aims to attain”.

The reality, as Rajan observed, “is that too many large borrowers see the lender, typically a bank, as holding not a senior debt claim that overrides all other claims when the borrower gets into trouble, but a claim junior to his equity claim”.

In much of the globe, as the Governor observed, when a large borrower defaults, he is contrite and desperate to show that the lender should continue to trust him with management of the enterprise. In India, too many large borrowers insist on their divine right to stay in control despite their unwillingness to put in new money.

It is unfortunate that the prime minister did not speak up in support of Rajan. But if the Modi government does want to prove it is not a suit boot ki sarkar, this is its chance to do so. Appoint Bhattacharya as the RBI Governor; she is the best man for the job.