Christine Lagarde praises Rajan for treating bad loans well

International Monetary Fund Managing Director Christine Lagarde recently praised Reserve Bank of India Governor Raghuram Rajan for his unmatched efforts on cleaning up banks' balance sheets.

Addressing the discussion at the IMF's Advancing Asia Conference, Christine Lagarde said, "The move to address the issue of bad loans head on was absolutely right."

She also said that the fact that the central bank governor is addressing the issue of bank balance sheets head on is absolutely right...equally relevant are various mechanisms that are being worked out with bad loans and distressed assets that are sitting on banks' balance sheets and are clearly clogging them.

Minister of State for Finance Jayant Sinha backed Rajan to assess the impact of unconventional monetary policies of some industrialized nations that can have spillover effects.

He said that one has to be very watchful of spillover effects as countries are pursuing somewhat more narrower domestic policies.

Rajan's suggestion came on Saturday, days after the European Central Bank cut all of its key interest rates, expanded asset purchases and launched a loan programme to pay banks to lend to firms and households whereas the Bank of Japan took interest rates into negative territory.

Talking about India's new GDP series, Lagarde said, "We have conducted the work and analysis and the answer is very clear. Yes, we do think that it is in line with international standards."

She welcomed the BRICS Bank and the Asian Infrastructure Investment Bank, saying this is much needed for the region and its investment requirements.

"The IMF is a different animal. We are in the business of helping countries in disarray when there is a significant balance of payments issues, when a country is unable to finance or refinance itself, then we are called upon helping," added Lagarde.