RBI cautions on farm loan waivers, says a careful approach is required on the issue

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Published: June 7, 2017 4:01:22 PM

Reserve Bank Of India (RBI) has sounded a word of caution on the farm loan waiver issue in its second bi-monthly review of the Monetary Policy for the current fiscal year.

RBI Governor, Urjit Patel, said in the post-policy press conference that farm loan waiver is a path that needs to be tread carefully, while the policy statement said that farm loan waivers have raised the risk of fiscal slippages. (Image: PTI)

Reserve Bank Of India (RBI) has sounded a word of caution on the farm loan waiver issue in its second bi-monthly review of the Monetary Policy for the current fiscal year. RBI Governor, Urjit Patel, said in the post-policy press conference that farm loan waiver is a path that needs to be tread carefully, while the policy statement said that farm loan waivers have raised the risk of fiscal slippages.

“The risk of fiscal slippages, which, by and large, can entail inflationary spillovers, has risen with the announcements of large farm loan waivers,” RBI’s policy statement read.

Earlier, Arundhati Bhattacharya, Chairman, State Bank of India, had also expressed her reservations on the proposed farmland waivers saying that such sops may disrupt credit discipline among borrowers.

“We feel that in case of a (farm) loan waiver there is always a fall in credit discipline because the people who get the waiver have expectations of future waivers as well. As such future loans given often remain unpaid,” Bhattacharya had told PTI in March.

“Today the loans will come back as the government will pay for it but when we disburse loans again then the farmers will wait for the next election expecting another waiver,” she added.

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Bhattacharya said though it is important to support farmers, it has to be done in a way which does not disrupt credit discipline among them.

“When we are trying to ensure that the farmers do well it is important for us to make credit available to them so that they can leverage and do better and for that it is important to have credit discipline,” Bhattacharya said.

The bad loan of public sector banks jumped by over Rs 1 lakh crore during the April-December period of 2016-17. The gross NPAs of PSU banks’ in the first nine months of the current fiscal increased to Rs 6.06 lakh crore by December 31, 2016, from Rs 5.02 lakh crore during 2015-16. For private sector banks, gross NPAs rose to Rs 70,321 crore by December 31, 2016, from Rs 48,380 crore as on March 31, 2016.

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