Defaulters not to flaunt money: Rajan

From Business Insider

Reserve Bank of India governor Raghuram Rajan lashed out at promoters of defaulting companies for continuing to live lavish lifestyles despite owing thousands of crores to banks.

“If you flaunt your birthday bashes even while owing the system a lot of money, it does seem to suggest to the public that you don’t care. I think that is the wrong message to send.”

“If you are in trouble, you should be cutting down your expenses,” said Rajan in what appeared to be a veiled reference to Vijay Mallya, promoter of Kingfisher Airlines. Mallya had recently celebrated his 60th birthday in style in Goa despite his Kingfisher Airlines owing banks over Rs 7,500 crore.

Rajan said that this was not about being against big businesses or successful businessmen and neither was it a Robin Hood issue. “This is an issue about the wrongdoers among the community who raised the cost of borrowing for everybody.”

A fortnight back, he had asked central bank staff not to hesitate in going after the rich and powerful.

Earlier, Rajan identified corporates who were showing signs of financial weakness but were not yet classified as defaulters.

Banks were asked to classify them as defaulters and make provisions toward the same. Classifying the loans as bad debts prevents lenders from throwing good money after bad and compels them to initiate recovery proceedings by recalling the loan amount and selling assets.

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