What is at the root of India’s bad loan problem? The Economic Survey 2020-21 responds to this in a no-holds-barred manner. Shorn of jargon, it pins the blame on “accounting sleight of hand” that the Reserve Bank of India (RBI) allowed around 2013-16, broadly coinciding with the time Raghuram Rajan was the central bank governor.
“Early resolutions of banking crises limit the damage from the same to the economy. Yet, the RBI dragged its feet in biting the bullet while attempting to persuade banks to recognise that the distinction between NPAs and restructured assets is nothing but accounting sleight of hand. The consequent result was a further exacerbation of the situation," the survey said.
Remember “Lipstick On A Pig?”
This is a throwback to a similar phraseology Rajan had himself used in 2013 when he argued against allowing defaulters to restructure loans.