Warning of excessive lending to infrastructure posing a possible threat to the country's security, RBI Governor Raghuram Rajan on Thursday said such loans should not override overall financial stability, which is "key to national security"."The nation has enormous financing needs in infrastructure, and far too many of our banks already have too much exposure. Big corporate infrastructure players have also taken too much debt," Rajan said at the event to mark the 80th anniversary celebrations of the Reserve Bank of India, attended, among others, by Prime Minister Narendra Modi and Finance Minister Arun Jaitley."The required national push to finance infrastructure should not override financial stability, which is key to national security," he added.The non-performing assets (NPAs), or distressed loans of banks in the country stood at over Rs.300,000 crore as on December 2014. NPAs of public sector banks rose to 5.33 percent of total advances in September 2014, from 4.72 percent in March 2014.
Stalled projects have been adding to banks' NPAs and the finance ministry's latest Economic Survey says that, as of December-end, these amounted to Rs.880,000 crore-worth."Strong national institutions are hard to build. Therefore, existing ones should be nurtured from the outside, and constantly rejuvenated from the inside, for there are precious few of them," Rajan said in a reference to the RBI."There has always been a constructive dialogue between the government and the bank, informed by their respective time horizons and attitudes towards risk. And history records that successive governments have invariably appreciated the wisdom of the Reserve Bank's counsel," he added.
Speaking on the occasion, Jaitley said the RBI's professionalism has served the country well."Starting from 1935 till today, a large part of the country's sovereign functions rests on shoulders of the RBI. From management of the country's monetary policy, inflation, rates, banking sector regulator, manager of public debt, RBI has performed them in a commendable manner," he said.