Arun Jaitley hits out at Raghuram Rajan for MSME banking crisis statement

Finance Minister Arun Jaitley Tuesday hit out at former RBI governor Raghuram Rajan for predicting that the next banking crisis would be triggered by MSME lending, saying postmortem is easier than taking action when it was required.

Rajan, who had as the chief economist at IMF warned of impending financial crisis of 2008, in a note to a parliamentary committee warned against ambitious credit targets and loan waivers, saying that they could be the sources of next banking crisis.

"I think for anyone to do postmortem is easier than action when it was required," Jaitley said when asked to comment on Rajan's view about MSME to be next source of crisis for the banking sector.

"Government should focus on sources of the next crisis, not just the last one. In particular, government should refrain from setting ambitious credit targets or waiving loans. Credit targets are sometimes achieved by abandoning appropriate due diligence, creating the environment for future NPAs," Rajan said in the note. 

"Both MUDRA loans as well as the Kisan Credit Card, while popular, have to be examined more closely for potential credit risk. The Credit Guarantee Scheme for MSME (CGTMSE) run by SIDBI is a growing contingent liability and needs to be examined with urgency," he had said in the note submitted to the committee headed by Murli Manohar Joshi. 

Rajan also said that a list of high profile cases related to banking frauds was sent to the Prime Minister's Office (PMO) for a coordinated action.

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Rajan, who was RBI governor for three years till September 2016, is currently teaching at the Chicago Booth School of Business.