Why RBI has picked KV Kamath to restructure loans and kick the can down the road

The Reserve Bank of India logo | Photo: Suraj Singh Bisht | ThePrint

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Mumbai: When former Reserve Bank of India (RBI) Governor Raghuram Rajan had begun a clean-up of the Indian banking sector with the asset quality review (AQR) in 2015, officials in commercial banks who faced the maximum heat were those at general manager positions in departments like credit and recovery.

Five years down the line, some of them are now at the helm of different public sector banks (PSBs) — as chief executives or executive directors.

What was their one learning from the AQR episode?

Don’t kick the can down the road.

Because after retirement — usually PSB CEOs have two-three year tenures or less — the successor will do ‘kitchen sinking’, which would lead to investigative agencies littering their premises.

The 2015 AQR had sought to uncover bad loans, which banks had hidden under the carpet. Typically, these PSBs used to see a jump in bad loans at the time of change in leadership. The new CEO would announce higher non-performing assets (NPAs) while blaming his predecessor for the problem, and then repeat the same near his retirement.

The Rajan-led exercise and the ‘enthusiasm’ of investigative agencies — Central Bureau of Investigation and others — in the subsequent years under the Narendra Modi government nearly ended this culture. But the scar it left was far deeper.

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