Loan waiver promises need to be eschewed, says RBI

Two days after the Uttar Pradesh government cleared Rs 36,359-crore farm loan waiver proposal, the Reserve Bank of India (RBI) on Thursday frowned upon it and said that such promises should be eschewed as those are a moral hazard and entail transfer of taxpayers' money.

"There is a need to create consensus so that loan waiver promises are eschewed. It impacts credit culture and discipline. Farm loan waiver undermines the honest credit culture. It is a moral hazard," RBI Governor Urjit Patel said here at a press conference after the first monetary policy announcement of 2017-18.

"It entails transfer of taxpayers' money to private borrowers. It can lead to higher cost of borrowing for others," Patel added.

The decision to waive farm loans, which would apply to loan amounts of up to Rs 1 lakh, was taken at Uttar Pradesh Chief Minister Yogi Adityanath's first cabinet meeting on April 4, to fulfil the promise made by Prime Minister Narendra Modi and the Bharatiya Janata Party (BJP) President Amit Shah during campaigning for the state assembly polls.

Similar views on waivers affecting the credit discipline were put fourth by State Bank of India chief Arundhati Bhattacharya last month.

Bhattacharya had expressed her reservations over the demands for and assurances of farm loans waiver, coming up from different quarters in the recent months.

These include demands from the Maharashtra opposition parties and ruling ally Shiv Sena, besides the Karnataka government, and assurances to this effect during the recent election campaigns in Punjab and Uttar Pradesh.

Bhattacharya had said this would disturb the credit discipline among the borrowers, as they would keep expecting more of such waivers in future and even the (future) loans would remain unpaid.

--IANS

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