Debt waivers inimical to repayment ethic: RBI official
Aug 26 2014 , Mumbai
"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.