Crony capitalists may be behind oust-Rajan calls, hints Pai

Rajan has been facing continuous attacks by Bharatiya Janata Party MP Subramanian Swamy and some other sections, who have alleged that he has failed to lower interest rates and boost the economy

Vested interests and crony capitalists forced to pay back their loans may be behind calls to oust Reserve Bank of India Governor Raghuram Rajan, tech investor T V Mohandas Pai, bottom, left, has hinted.

"Market sources are saying that vested interests and cronies who have been forced to pay back their loans by banks are instigating all this against Rajan," Pai, the former chief financial officer, HR head and board member of Infosys, told PTI.

Rajan has been facing continuous attacks by Bharatiya Janata Party MP Subramanian Swamy and some other sections, who have alleged that he has failed to lower interest rates and boost the economy.

Stating that Rajan is a globally recognised central banker, and the financial and economic community respects him for his views, Pai said the RBI Governor has gone after cronies who have not paid back to banks.

"He (Rajan) has asked banks to clean up (their balance-sheets). Now the banks are turning their screws on defaulters.

"Earlier, banks lived on hope that the defaulters will somehow pay. Many defaulters paid one bank, did not pay other banks, went on rolling their accounts. Now, they are all asked to pay back. He has forced them (defaulters to pay back their loans) and the banks' balance sheets have become more transparent.

"Earlier banks were not recognising and hiding their (stressed) loans, hoping that things will be okay. They were scared that if public comes to know the true extent of these loans, their image will be hurt. Rajan has proved honesty is the best policy," he added.

Maintaining that Rajan has liberalised many of the functions to make the central bank more open and reduced unnecessary controls, Pai, a prominent angel investor, said he has rightly focused on Consumer Price Index (CPI) instead of Wholesale Price Index (WPI).

"In any economy, savers should also get real interest rates so that savings remain high. He has corrected this anomaly and rightly focused on CPI as against WPI because CPI is where the real impact of inflation is. Great majority of Indians depend on bank interest," he said.

Pai, chairman of Manipal Global Education Services, rejected suggestions that Rajan kept interest rates unnecessarily high.

Even though Rajan reduced interest rates by 150 basis points, banks have reduced their rates by 60-70 basis points only as their NPAs accounted for 15 per cent of total loans and stressed loans did not yield any interest.

"All this blame, all this criticism is by vested interests, especially by crony capitalists who are being forced to pay back their loans," he said.

"Market sources indicate that crony capitalists who have been forced to sell assets and forced to pay back loans are instigating people to do all this," Pai added.

Photograph: PTI