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RBI Governor Raghuram Rajan says banks not at risk of crisis

"Bad loans are primarily in the public sector system, which means that the full faith and credit of the government is behind that," says Rajan.

twitter-logo Reuters   Mumbai     Last Updated: February 5, 2015  | 13:37 IST
Reserve Bank of India (RBI) Governor Raghuram Rajan speaks during a news conference, after the bi-monthly monetary policy review, in Mumbai, Febraury 3, 2015.
Reserve Bank of India (RBI) Governor Raghuram Rajan speaks during a news conference, after the bi-monthly monetary policy review, in Mumbai, Febraury 3, 2015. (Photo: Reuters)

Reserve Bank of India (RBI) Governor Raghuram Rajan has said India's banking sector is not at risk of a crisis despite the bad loans impacting the sector, adding that most problems were at state-run banks backed by the government.

"I don't think there's any risk of a crisis from the bad loans in the system, and there is a reason for it... which is bad loans are primarily in the public sector system, which means that the full faith and credit of the government is behind that," Rajan told Bloomberg TV in an interview on Wednesday.

"So, it is not going to take down the banks," he added. "Nobody should be worried about it; banks are safe."

The comments come a day after the RBI cut the statutory liquidity ratio - the minimum portion of net deposits that banks must hold in government bonds, cash or gold - in a bid to get more banks to lend.

The central bank also allowed lenders more flexibility to restructure large projects that stall when cash runs out, but stopped short of giving banks freer rein on other problematic loans.

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