Honest credit culture undermined by loan waivers: Urjit Patel

Pooja Agarwal
सोमवार, 10 एप्रिल 2017

Reserve Bank Governor Urjit Patel on Thursday cautioned that loan waiver schemes engender moral hazard, undermining honest credit culture and impairing incentives for borrowers to repay bank loans.

Reserve Bank Governor Urjit Patel on Thursday cautioned that loan waiver schemes engender moral hazard, undermining honest credit culture and impairing incentives for borrowers to repay bank loans.

“I think loan waivers undermine an honest credit culture. It impacts credit discipline. It (impacts) incentives for future borrowers to repay. In another words, waivers engender moral hazard,” he said. Debt waivers also entail transfers from taxpayers to borrowers, he said.

The comment comes against the backdrop of recent decision by the UP government to waive Rs 36,000 crore in farm loans and increasing demand from politicians for similar concessions in other parts of the country.

“If on account of this overall government borrowing goes up, yields on government bonds also get impacted. Thereafter, it can also lead to crowding of the private borrowers as higher government borrowing can lead to increasing cost of borrowing for others,” he said. Earlier this week, the newly formed government in Uttar Pradesh, decided to waive crop loans totallingupto Rs 36,359 crore.

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