Mumbai, Apr 7 (DHNS): RBI Governor Urjit Patel came down heavily on the Uttar Pradesh government’s decision to waive crop loans up to Rs 1 lakh, a move which is likely to cost the state over Rs 36,000 crore.
“I think it (farm loan waiver) undermines an honest credit culture, impacts credit discipline and plugs incentives for future borrowers to repay. In other words, waivers engender moral hazard. It also entails at the end of the day, transfer from tax payers to borrowers,” Patel said in the post-policy briefing.
Patel also sounded a word of caution with regard to the issue stating that waivers could lead to crowding out of private borrowers and have an impact on the country’s balance sheet.
I think we need to create a consensus such that loan waiver promises are eschewed, he said.