The central banking institution of the nation, the Reserve Bank of India (RBI) which controls the nation’s monetary policy with regard to the Indian Rupee, appears to have an a significant difference of opinion with the Finance Ministry in the country right now. While disagreements and differences of opinions are not new between the RBI and the finance ministry, a request such as the one covered in this story being denied is certainly something that piques our interest.

What the Finance Ministry wants and why

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The Finance Ministry of India has asked the RBI to provide all  information about large borrowers who have defaulted on their loans. The database of all details regarding loans over the amount of Rs 5 crores has been called for by the ministry. The reason provided for this demand is that the ministry wants to monitor the process of sanctioning loans. According to government officials, this would help the government address systemic sector-specific issues as well. This is a proactive move that will also supposedly move along loan disbursal at a faster rate.

This is likely a fall out of Vijay Mallya imbroglio where details are emerging to increasingly indicate that the sanctioning process was overlooked, sufficient security was not provided and the checks that needed to have been in place were simply not there.  And Mallya is not even the country’s No 1 defaulter. There are many more willful defaulters and people are now questioning how these people managed to obtain such obscenely large loans and then claim inability to pay while still leading lavish personal lifestyles.

 

What the RBI said and why

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News has emerged that the RBI is not at all keen to divulge the information and provide access to the Central Repository of Information on Large Credits. This was one of the systems put in place by RBI to prevent borrowers from cheating the system while asking for loans. The RBI is not convinced that this information is required by the finance ministry and does not want to provide it.

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According to RBI Governor Raghuram Rajan, the RBI is developing its own system of making public the names of willful defaulters of large loans while protecting the privacy of those who are not guilty of any wrongdoing. The CRILC has the details of all large loans and borrower info along with credit rating and asset classification is also available but the RBI says that under section 45 E of the RBI Act, the confidentiality clause prohibits the making public of such info. Also private lenders may not be happy if such information is shared with the government.

So why does the government really want this information? Specifically what will they be able to do with this information that they would not be able to do otherwise? And what is the point of facilitating faster disbursal of loans (one of the purported reasons for asking for the info from the RBI)?  Wasn’t fast disbursal without sufficient security a problem that contributed to the currently ongoing Vijay Mallya embarrassment?

Author – Reena Daruwalla

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