Raghuram Rajan cautions states against debt waiver schemes

Even as Andhra Pradesh and the newly-created Telangana continue with the demand of farm loan waivers, Reserve Bank Governor Raghuram Rajan on Monday asked the states to refrain from seeking such concessions.

"Governor Rajan cautioned against debt waiver schemes announced by some states, pointing out their adverse impact on the financial health of banks, whose capital needs have gone up due to enhanced prudential requirements and deterioration in asset quality and the macro-economy in general," a release from the RBI said here.

Rajan on Monday addressed the chief secretaries from 15 states and finance secretaries of 27 states and nine Union Territories at the 27th conference of the state finance secretaries in Mumbai.

Andhra Pradesh and Telangana are seeking debt waiver to the tune of Rs 1.3 trillion citing damage inflicted by cyclone Phailin last year.

Rajan also referred to "the decline in financial savings and consequential challenges to debt management when growth and private sector credit would pick up".

The Governor also spoke about strengthening of the state level coordination committees by ensuring participation at higher levels and conducting frequent meetings.

"State-level credit cooperative (SLCCs) should focus on financial inclusion for flow of public savings to the formal channels and protection of deposits of public mopped up by unauthorised and unscrupulous entities," Rajan said.