RBI Governor Urjit Patel says that the consensus must be created to make political parties avoid making farm loan waiver promises during election campaigns.
The Governor of Reserve Bank Urjit Patel disapproved the decision of Uttar Pradesh administration about waiving all the farmer loans.
He said that an agreement should be made by the Political parties during the election campaign so that they avoid making promises which cannot be accomplished like farm loan waivers.
When asked about the loan waivers at a press conference of the first bi-monthly monetary policy for FY18, Patel said, such promises made by the political parties are a moral hazard and the practice of farm waives undermines an honest credit culture, impacts credit discipline, plugs incentives for future borrowers to repay.
According to the reports, the statements made by Patel are Significant because many states have started granting the farm loan waivers recently during the Uttar Pradesh elections the Bharatiya Janata Party promised the framers and after coming into the ruling the state Chief Minister Yogi Adityanath approved the waiver of ₹36,359 crores in loans of over 21 million small and marginal farmers following the UP state move, the farmers in Bihar asking the similar waivers.
He added that such loans lead to crowding out of private borrowers.
“I think we need to create a consensus so that waiver loan promises are eschewed otherwise the sub-sovereign fiscal challenges could eventually affect the national balance sheet,” he said.
He also talked about the concerns of the stressed assets and non-performing bank loans and said that the central bank has been aggressively working for an orderly resolution of the stressed balance sheet of the banks.
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Arundhati Bhattacharya, who is the Chairman of State Bank of India says that a credit discipline breaks if there is an off of farm loans and the money will be paid by the government but it will result in problems in the future, farmers will wait for the next elections.
He also stated that support should be given to the farmers but not in the case of cost credit discipline.