Politically, waivers of bank loans have become an effective means of vote catching, totally disregarding its long-term implications for the banking system. And this has become a repeated show of misplaced benevolence extended to certain sections of the population. In the traditional Indian society, repayment of debts was considered a respectable duty. Since dying without repaying the debt was considered a bad omen and a curse, the legal heirs were required to repay the dues in order to prevent the departed soul from carrying the stigma of a debtor. Strangely, nowadays, some of the heavily indebted persons, after living beyond their means, commit suicide.
Loan-waiver in practice turns out to be a scheme for rewarding the defaulters and indirectly punishing those who are regular in their repayment. A tendency is growing among the rural borrowers to wait for the government’s ill-advised munificence of loan-waivers. It is reported that the assurances given before the recent election in Andhra Pradesh has already created a situation where the farmers are found to be delaying repayments, awaiting the announcement of a waiver. It is expected that even the secured loans where borrowings are made against pledging of gold ornaments, would be made eligible under the loan-waiver mela. In such cases, it is not their helplessness in repaying but the unwillingness to repay that gets supported by the banking sector.
It is reported that the Reserve Bank of India has expressed its concern about the state’s proposal to raise funds for this purpose through bonds, enhancing its deficit substantially. Bankers have strongly felt about the repercussions of loan-waivers. Denigrating the repayment ethics is a dangerous step, which the bankers should desist from taking.