RBI Deputy Governor SS Mundra declines to spell out stand on farm loan waivers

Under its past Governor Raghuram Rajan, the RBI had shown its reluctance on such populist schemes, saying it entails a "moral hazard".

By: PTI | Mumbai | Published: March 23, 2017 6:30:23 pm
Mundra, however, said that traditionally, RBI has been concerned over farm loan waiver because of impact on “credit discipline” that it can have.

RBI Deputy Governor S S Mundra on Thursday declined to spell out the central bank’s position on farm loan waivers amid growing clamour in some states in this regard. “Any general statement on either this side or that side (of farm loan waiver) will not be appropriate,” he told reporters on the sidelines of Bandhan Bank event at Mumbai.

The Reserve Bank has not received any communication on this subject from the government, Mundra said.

He, however, said that traditionally, the RBI has been concerned over farm loan waiver because of the impact on “credit discipline” that it can have.

“There is rarely a shade of white or black in the world. There is always a shade of grey,” Mundra said, when prodded further on whether the RBI sticks to its earlier stance.

“I think what is more important is to understand the component and where there is a need and if there is a need, what kind of design could be there which can meet the concern of all the requirements,” he said.

He was quick to add that even in case of credit to large borrowers, there are restructuring schemes which are implemented.

“The important point is whether it (farm loan waiver) is case specific or whether it is circumstances specific. That is what how it should be looked into,” Mundra said.

These comments come as the farm loan waiver is being discussed in a growing number of states. The ruling BJP has promised it before the election in Uttar Pradesh, while similar demands are also being made in Maharashtra, Tamil Nadu and Punjab.

Under its past Governor Raghuram Rajan, the Reserve Bank had shown its reluctance on such populist schemes, saying it entails a “moral hazard”.

“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 benefiting stop paying for fear that they will not benefit when the time comes,” Rajan had said in face of similar demands in 2014.

Endorsing Rajan’s views, SBI chairman Arundhati Bhattacharya had last week gone public with her reservations, which led to a furore in the Maharashtra Assembly with protests from the Opposition, including moving a breach of privilege notice.

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