Reserve Bank of India (RBI) Governor Urjit Patel said that there is a need for national consensus on loan waiver schemes that these promises are not made during elections.
He said that a consensus is required at national level so that loan waiver promises are eschewed. Otherwise, sub-sovereign fiscal challenges could eventually affect the national balance sheet.
He claimed that with such schemes the overall government borrowing goes up, the yields on government bonds are also impacted, and an increase in cost of borrowing is expected.
The RBI Governor’s observations were in regards to recent loan waiver of Rs. 36,359 crore by newly elected UP CM Yogi Adityanath.
Uttar Pradesh is the third largest state in India in terms of agricultural credit exposure. It has a 9.3% market share in agricultural credit of which around 45% is in the rural areas. Bank of Baroda is the leading bank at the State level.