Debt waivers inimical to repayment ethic: RBI official

Tags: News
Coming out strongly against instances of the populist debt waiver announcements, a senior RBI official today said they are inimical to the repayment ethic and are deleterious to the present climate.

"On farm loan waiver issue, you know I have been on a hand-to-hand combat (mode) with the Andhra government. I said no! No! No," RBI Executive Director Deepali Pant Joshi told reporters on the sidelines of an industry conference here, when asked about the progress on debt waiver issue.

"Debt waivers do not work. Subventions do not work. They are inimical to the repayment ethic and are deleterious to the present climate," she said.

Chief ministers of Telangana and Andhra Pradesh had promised during their election campaigns that if elected to power, they would write off loans to farmers worth over Rs 1.3 trillion (Rs 1.3 lakh crore), after they claimed that crops were damaged by Cyclone Phailin last year.

Addressing state finance secretaries yesterday, RBI Governor Raghuram Rajan had asked states to desist seeking loan waivers saying that such deands are untenable and create "moral hazards".

He also pointed out the adverse impact of such demands on the financial health of banks, whose capital needs have gone up due to enhanced prudential requirements, deterioration in asset quality and the macroeconomy in general.

"We have been quite categorical about the dangers of talking about waivers, because it creates the possibility that anticipating such waivers, both the beneficiaries as well as others who think there is a chance of benefitting stop paying for fear that they will not benefit when the time comes," Rajan had said during the last policy day earlier this month.

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

EDITORIAL OF THE DAY

  • Banks might be bracing for intense rate war for retail loans

    While select small banks have been slashing their deposit rates by five to 10 basis points over the past few weeks for short term adjustments to avoid

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

Chander Mohan Sethi

CMD, Reckitt Benckiser India

COLUMNIST

Varun Dutt

<b>Riskfactor</b>: Intertemporal choices

Intertemporal choice is the study of the relative value people ...

Parvez Imam

Why we all have blood on our hands

What does the Jammu and Kashmir flood make us think? ...

Dharmendra Khandal

The peculiar possibilities of animal poop

You can tell a lot about an animal by its ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture