Kolkata : Warning corporates against ill-effects of over-borrowing, RBI Governor Raghuram Rajan said debt is like “dynamite” which can harm at times with its “explosive” nature. He also said that RBI is maintaining a database which is being shared among banks to avoid over-borrowing by large corporate houses.
“Debt is very much like a dynamite. It is an instrument which is very useful in right places and explosive in others,” Rajan said at the Presidency University here.
The governor also called for moderation in use of debt as “there is always a temptation to over-use it”. He also made it clear that despite the difficulties associated with debt, “burying it is not an option”. “Moderation is required and some debt is good and not too much. Avoid over-borrowing to avoid problems,” Rajan said.
He said RBI has a database of large borrowers whose status of borrowings is shared among banks. Acknowledging that Indian banks have the right kind of leveraging, he added that “those who said the banks have no capital requirements are not sensible”.
Citing the example of Indian economy, he said foreign share in government debt is 3-3.2%, which is “very reasonable”. He termed cutting interest rates to rock-bottom levels as “not a good idea”.
