After RBI, Nabard calls farm loan waivers a 'moral hazard'

After RBI governor Urjit Patel disagreed with the practiceof loan waivers during the first monetary policy of this fiscal last week, NationalBank for Agriculture and Rural Development (Nabard)  too has termed farm loan waivers as "moralhazard" and said such facilities should be targeted only to the needy.

"Debt waivers create a moral hazard from a credit repaymentperspective and we cannot have omnibus waivers," chairman Harsh Kumar Bhanwala said,a week after the UP government announced a Rs 36,000-crore farm loan waiverpackage.

Uttar Pradesh has close to 2.3 crore small and marginalfarmers who owe about Rs 62,000 crore to banks and cooperatives.

In its first bi-monthly monetary policy statement for2017-18 on April 6, RBI governor Urjit Patel said farm loan waiver undermineshonest credit culture, impacts credit discipline.

"A farm loan waiver undermines an honest credit cultureand impacts credit discipline. It plugs incentives for future borrowers torepay. In other words, it engenders moral hazard and also entails transfer fromtax payers to borrowers, " Patel said in a post monetary policyconference.

Expressing disagreement with the practice of the government,the governor said, "I think we need to create a consensus that farm loanwaiver promises are eschewed. Otherwise, sub-sovereign fiscal challenges inthis context could eventually affect the national balance sheet."