Arvind Subramanian says RBI's regulatory failure created IL&FS mess, calls upon central bank to step up ability of supervision

Mumbai: Terming the IL&FS crisis as a regulatory failure, former chief economic advisor to finance minister Arvind Subramanian has said the Reserve Bank should be held responsible for the crisis at one of the largest entities it has been regulating. But I think they are wrong” he says and quotes the late British prime minister Margaret Thatcher who used to say, ‘One man and the Truth is a majority.’ Though he is critical on the central bank on the IL&FS crisis, he praises the monetary authority for some of its recent steps like the asset quality review and showing the doors to erring private-sector bank heads. “More recently, RBI has been enforcing some discipline on some of the most troubled public-sector banks via the prompt corrective action framework,” he notes and terms the decision on ICICI Bank, Axis Bank and Yes Bank as “impressive actions to account, and ensuring their exit.” “As a result of the RBI’s strong track record, it has become one of the nation’s key public institutions, like the Election Commission, Finance Commission and the Supreme Court, mainstays of the nation that research has repeatedly found to be critical for long-run economic development,” he says. The former CEA also calls for a radical solution to solve the twin balance sheet problem and offers privatising public sector banks by amending the Bank Nationalisation Act as an effective way to achieve that. As so far, public discussion of the bad loan problem has focused on bank capital, as if the main obstacle to resolving the TBS issue was finding the funds needed by public-sector banks.” Subramanian was the chief economic adviser from October 2014 to June 2018 citing pressing family commitments and has returned to the US.