After SBI's Bhattacharya, RBI Guv Patel speaks out against farm loan waivers

Days after Arundhati Bhattacharya, Chairperson, State Bank of India, opposed the loan waiver scheme for the farmers, Urjit Patel, Governor, Reserve Bank of India on Thursday called move undermining honest credit culture.

While addressing the media on Thursday, Patel after announcing the bi-monthly monetary policy, said, "Farm loan waiver undermines the honest credit culture. The loan waivers have general more hazard."

In its statement, RBI said that the loan waiver scheme is likely to pose more threat on macro-economic condition of the country. 

"The general government deficit, which is high by international comparison, poses yet another risk for the path of inflation, which is likely to be exacerbated by farm loan waivers," the statement read. 

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India Ratings on Thursday, said, "The debt waiver announced by the UP government for the small and marginal farmers is not the long-term answer to any agrarian crisis." 

On March 15, Arundhati Bhattacharya, Chairperson, SBI said that farm loan waivers may disrupt credit discipline among borrowers.

"We feel that in case of a (farm) loan waiver there is always a fall in credit discipline because the people who get the waiver have expectations of future waivers as well. As such future loans given often remain unpaid," she had said. 

Uttar Pradesh government earlier this week announced farm loan waivers of up to Rs 1 lakh for its over 2 crore farmers totaling to over Rs 36,000 crore.

Earlier this week, the Madras High Court directed Tamil Nadu government to waive off loans of all drought-hit farmers and restrained cooperative societies and banks from recovering their dues.

"While the solution to the agrarian crisis facing the country is not an easy one, providing a debt waiver to farmers will only provide short-term relief to distressed farmers, but will also lead to a bad credit culture, besides exerting pressure on state finances," India Ratings said.