Loan waivers bad for credit behaviour of borrowers: RBI Governor

Indo Asian News Service

New Delhi, Jan 7 (IANS) Emphasising that loan write-off decisions must take into consideration the fiscal health of the state government concerned, Reserve Bank Governor Shaktikanta Das on Monday said generalised loan waivers adversely affect the country's credit culture and the credit behaviour of the borrowers.

Speaking to reporters here, Das noted that although state governments have constitutional mandate to decide on the state's financial matters, they "should examine whether they have the fiscal space to meet the requirements and release the money then and there".

"Any generalised sort of write-off...obviously has an adverse effect on the credit culture and future credit behaviour of the borrowers," he said.

He further said: "Every state government, I must mention, before taking a decision on any kind of farm loan waiver, they have to very carefully examine their fiscal space."

The statement gains significance as promises and demands for farm loan waivers are in the limelight and of late newly-elected state governments of Madhya Pradesh, Rajasthan and Chhattisgarh have announced waiving of farm loans.

Farmer organisations and opposition parties have for long demanded a consolidated loan waiver for farmers across the country. In the last couple of years, many state governments have yielded to protests and announced such decisions.

A number of experts and economists have expressed their reservation over the fiscal impact of loan waivers.

Talking of the liquidity situation in the country, Das said the RBI has taken adequate measures to improve the situation and would infuse liquidity further if needed.

He, however, said the apex bank should be cautious in infusing liquidity and ensure that liquidity does become a kind of "loose money".

"While dealing with the issue of liquidity, I would also like to say that it is something which the RBI is constantly monitoring and will take steps whenever there is a need to deal with the liquidity deficit, if it is noticed.

"... At the same time I must also add the RBI would not like a situation where liquidity becomes a kind of a loose money. Any infusion of liquidity will have to be very carefully considered and has to be need-based. So, the caution and care has to be exercised by the RBI, that excess liquidity which sometimes has adverse consequences that is not created," he said.

--IANS

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