The Reserve Bank of India’s (RBI) move to direct banks to take the major debt defaulters through the route of insolvency in order to tackle non-performing assets (NPAs) was principally “not correct”, former RBI Governor Y.V. Reddy said on Friday.
“It is essentially a problem of the public sector banks, which are owned by the sovereign. In a way asking RBI to take the initiative in solving the problem (of NPAs) is extraordinary,” Reddy said here at the 20th JRD Tata Memorial Lecture organised by the Associated Chambers of Commerce and Industry of India (Assocham).
“In principle, I agree it is not correct. I didn’t say it is not the best option. But the regulator’s measure is special.”
Reddy said banking was a business where one needed to take risks. “Essentially, it is a macroeconomic, banking and public sector problem.
“If it (NPAs) is fixed quickly, the better,” he added.
Reddy also said that if there was a difference in the public and private sector banks’ performance, then it should be attributed to its governance.
“Overall, the problem in public sector banking is a structural problem,” he added.