Enough reason for 2nd term? Here’s how Raghuram Rajan recently guarded Indian banks from a Lehman-like crisis

Governor of Reserve Bank of India (RBI), Raghuram Rajan, can be credited with introducing a host of initiatives in the Indian banking sector to spur growth and reduce bad debt.

Apart from reforms, Rajan has also saved India from a major crisis. Remember Lehman Brothers crisis in 2008?

Yes, Rajan, whose term ends in September this year, did enough to prevent the collapse of the Indian banking system, that too very recently.

"Even though the economic recovery is not happening at the desired pace, RBI and the bank boards have made it reasonably clear that they would not la Lehman moment occur in India," Saurabh Mukherjea, CEO Institutional Equities, Ambit Capital, said in an interview with ET Now.

Rajan has many a time stressed that he would make sure India does not have to go through Lehman-like crisis.

"The banking system is not going to the dog house and that is why I took the crisis call off the table. So, assuming a modest scenario of around 10 per cent earnings growth this financial year, it will lead Sensex to around 29,000-29,500 in FY17," said Mukherjea.

Here are initiatives that RBI and the government took to sail banking system in the right direction

Asset Quality Review (AQR): It was introduced by the RBI to make sure that banks were taking steps to clean up their balance sheets and reduce Non-Performing Assets (NPAs).

Indradhanush scheme: In a bid to resurrect some life in the public sector banks, the government will launch ‘Indradhanush’ and infuse Rs 70, 000 crore.

The Indradhanush plan is already in works with an allocation of Rs 250 billion in the Union budget for 2016-17 for capital infusion into PSBs.
It is expected that PSBs will raise the remaining Rs 1,10,000 crore from the market. Also, the government is committed to making extra-budgetary provisions in FY18 and FY19 too.

Bankruptcy code- This will make companies and businesses to exit in a smooth manner and start afresh. The bankruptcy code will solve issues in a swift manner and ensure a data base of serial defaulters is in place.

Structuring of stressed assets: This will enable banks to fight their own challenges over stressed assets coming from loans given to large companies that have turned sour.

As per Crisil estimates, weak assets in the Indian banking system will touch 8 lakh crore by the end of this financial year.

Transmission of repo rates: The banks haven’t passed on the slashed rates. The repo rate stands at 6.50 per cent and the faster transmission would help credit growth in the system to pick up which has remained almost flat in the last 4-8 quarters.

The banks have reduced their lending rates between 0.6% and 0.8% only.

(Image: Indiatimes)