Know what RBI Guv Rajan’s warning to the growth-desperate BJP government is

The Reserve Bank of India governor Raghuram Rajan has warned banks against excessive lending to the infrastructure sector as it could override could disturb the overall financial stability of the economy. The statement comes in following the steady rise in the non-performing assets (NPAs) of the banks.

“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 was quoted in an ET report.

It should be noted that the NPA of banks has been recorded at over Rs 3 lakh crore as on December 2014.

According to the report by ET, the cancellation of coal mines by the Supreme Court had severely impacted the power companies, thus adversely impacting the banks as well.

Interestingly, in a bid to boost investments in the infrastructure, Finance Minister Arun Jaitley has allocated Rs70,000 crore increase for the sector along with slew of measures to speed up the stalled projects.

"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," added Rajan.

Interestingly, rumors have been rife that there are differences between the RBI and the Ministry of Finance after the government decided to take away some of the bank’s regulatory powers.

“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,” reaffirmed Rajan.