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Loan waiver schemes undermine honest credit culture: Urjit Patel


Reserve Bank of India Governor Urjit Patel today said that farm loan waivers undermine and impact honest credit culture and discipline leading to crowding out of private borrowers. Elaborating, he said loan waivers endanger moral hazard and entails transfer from tax payers. Therefore, there is a need to create concensus so that loan waiver promises are eschewed.

Speaking to the media post bi-monthly Monetary Policy in Mumbai today, RBI Governor said they are aware of the risks of inflation and at this juncture the policy stance from accommodative to neutral is appropriate. Talking about liquidity, he said while there is surplus liquidity in the system, it is getting drained out. Stating that post demonetisation, there was a liquidity surge in the markets, he informed that by end of March, liquidity absorption was Rs. 3.1 lakh crore.

Endeavour would be to drain out liquidity overhang and that liquidity from Forex flows will be managed via Market Stabilization Scheme (MSS). He added that the policy statement has provided clarity on how they see liquidity conditions evolve. Adding to this Deputy Governor Viral Acharya said they will deal with overnight liquidity needs with appropriate instruments.

Deputy Governor S S Mundra said that capital adequacy of public sector banks was meeting the regulatory requirements in Q3. There will be more demands for capital by banks that is needed to support growth. He informed that the bank expects to put a revised corrective action framework by mid-April.

Commenting on service sector, Dr. Patel said that the Monetary Policy Committee (MPC) says that the activity in the sector seems to be improving as the constraining effects of demonetisation is wearing off.

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