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The Reserve Bank of India has recommended case-specific waivers as the demand for farm loan waiver extends to other states after Uttar Pradesh's new CM offered to fulfill his electoral promise.
Citing concerns around credit discipline in loan waivers, RBI Deputy Governor SS Mundra said, "Our organisational view had always been that this (loan waiver) can have some concern around credit discipline. 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."
Mundra who was speaking on the sidelines of a banking event.
Bhartiya Janata Party (BJP) which won a massive mandate in UP elections earlier this month, had committed to a farm loan waiver as its election promise.
A recent State Bank of India (SBI) report said the UP government will need Rs 27,419.70 crore to waive off loans to farmers. Such a farm loan waiver took place in 2009 after the national elections when United Progressive Alliance (UPA) government announced a Rs 60,000 crore debt waiver package for small and marginal farmers.
SBI Chairman Arundhati Bhattacharya also recently flagged the negative effects of a loan waiver on the credit repayment culture among farmers. It also has an adverse impact on the government’s fiscal budget.
Speaking about microfinance borrowers’ repayments, Mundra said there could be short-term disruptions but the RBI has no particular reason at this point to look at state-specific relaxation.
Microfinance Institutions Network (MFIN), a self-regulatory body for microlenders, wrote to the RBI last month expressing fears of huge non-repayments owing to demonetisation impacting states such as Uttar Pradesh, Maharashtra, Madhya Pradesh, Karnataka and Uttarakhand.
On the ailing condition of banks due to bad loans, Mundra said that the asset quality review (AQR) deadline of March 31 holds as of now and that the RBI, government and stakeholders including banks are actively discussing on recovery and resolution.
“There is nothing like a one-umbrella solution for everything. There are these instruments that are available. I think we need to provide more strength to the processes and that is where there are discussions going on whether the institution of oversight committee can be further enlarged or strengthened,” the RBI deputy said.
He added that the decisions should be adopted by all very quickly and resultant valuation should be transparent. If the valuation leads to a haircut, then that would entail capital requirement and other variety of instruments are being discussed.
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