Former Reserve Bank of India governor Raghuram Rajan has told a Parliamentary panel that the full list of high-profile cases related to banking frauds was sent to the Prime Minister's Office (PMO) for a coordinated action. In a note to the Estimates Committee Murli Manohar Joshi, Rajan said the size of frauds in the public sector banking system has been increasing, though still small relative to the overall volume of NPAs, PTI reports. "The RBI set up a fraud monitoring cell when I was Governor to coordinate the early reporting of fraud cases to the investigative agencies. I also sent a list of high profile cases to the PMO urging that we coordinate action to bring at least one or two to book. I am not aware of progress on this front. This is a matter that should be addressed with urgency," Rajan was quoted as saying in the note. 

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Rajan served as the RBI governor for three years till September 2016. He is currently teaching at the Chicago Booth School of Business.Rajan said that the system has been singularly ineffective in bringing even a single high-profile fraudster to book. He also emphasized that frauds are different from normal non-performing assets (NPAs).  "The investigative agencies blame the banks for labelling frauds much after the fraud has actually taken place, the bankers are slow because they know that once they call a transaction a fraud, they will be subject to harassment by the investigative agencies, without substantial progress in catching the crooks," said the former RBI governor. 

In the wake of unearthing of banking scam carried out by Nirav Modi and his uncle Mehul Choksi in connivance with certain bank officials, Rajan's statement assumes significance. With the help of officials, Nirav Modi and Choksi allegedly cheated Punjab National Bank of about Rs 14,000 crore through issuance of fraudulent Letters of Undertaking (LoUs).

On the question of whether the banking regulator could have done better, Rajan said it was hard to offer an objective self-assessment but the RBI should probably have raised more flags about the quality of lending in the early days of banking exuberance. "With the benefit of hindsight, we should probably not have agreed to forbearance, though without the tools to clean up, it is not clear what the banks would have done. Forbearance was a bet that growth would revive, and projects would come back on track. 

"That it did not work out does not mean that it was not the right decision at the time it was initiated. Also, we should have initiated the new tools earlier, and pushed for a more rapid enactment of the Bankruptcy Code. If so, we could have started the AQR (asset quality review) process earlier," Rajan said. 

The former RBI governor further said that the central bank could have been more decisive in enforcing penalties on non-compliant banks. 

Rajan's statement has created a political furore in the run-up to Lok Sabha elections 2019. But he has asserted that things have been improving in the last few years. "Fortunately, this culture of leniency has been changing in recent years. Hindsight, of course, is 20/20," he said. 

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The former RBI Governor has also said that a large number of non-performing assets (NPAs) had originated in 2006-08 when India`s economic growth was strong while some banks proved inadequate in making proper due diligence. 

"A larger number of bad loans originated in 2006-08 when economic growth was strong, and previous infrastructure projects such as power plants had been completed on time and within budget. It is at such times that banks make mistakes. They extrapolate past growth and performance to the future. So, they are willing to accept higher leverage in projects, and less promoter equity," he said. 

Gross NPAs accumulated in the Indian banking system has touched a staggering level of Rs 10 lakh crore.