Letters: Avoid 'cowboy banking'

Avoid ‘cowboy banking’

With reference to the editorial, “Loan politics” (June 13), addressing an election rally in the parched Jhajjar district of Haryana in 2004, former Prime Minister Atal Bihari Vajpayee had promised to usher in a second Green Revolution in the country.

Referring to the late Devi Lal’s loan waiver scheme, he said he “did not believe in such populist measures” as they were virtual invitations to default. The solution to farmers’ woes, he argued, lay in making their profession lucrative. Therefore, he promised to bring down interest rate on farming loans gradually to five per cent and ensure ample supply of water to every farmer by fully implementing his government’s scheme for linking all major rivers in the country. He expressed his desire to make farmers financially sound to be able to repay their loans to which the audience responded positively by raising their hands.

Such deviation from political expediency was echoed by Reserve Bank of India Governor Urjit Patel, who termed farm loan waivers a “moral hazard” and sought consensus among all political parties to desist from announcing them.

Expressing concern about the repayment culture among farmers, State Bank of India Chairman Arundhati Bhattacharya said support to farmers should not be at the cost of credit discipline. It is, therefore, surprising that the Modi government is encouraging recidivist tendencies among state governments instead of encouraging state investment in back-end infrastructure for agriculture. 

It is time the government prepared a robust framework to mitigate agricultural distress and rural indebtedness and prevented chief ministers from indulging in “cowboy banking”.

Shreyans Jain, New Delhi

RBI’s fitting reply

With reference to the editorial, “Central bank dithers” (June 8), whether the Reserve Bank of India (RBI) is getting overcautious or not makes for an interesting topic of debate. But if the policy stance of the RBI now is any indication, it clearly wants the inflation level to stay benign before it takes the plunge again for a rate cut.

The Indian economy may appear to be in a fair state but there are several areas that can cause plenty of worry; these need to be dealt with quickly to put the situation back on track. 

Playing safe by maintaining status quo is a prudent move now when the level of uncertainties is high. While North Block was pushing the RBI for a rate cut to spur growth, the latter decided to wait for a clearer and credible picture 

to emerge. 

The much awaited roll-out of the goods and services tax, for instance, is expected from July 1 and its possible impact will have to be ascertained. Given the authority, there is also expected to be complete clarity in approach and actions. This is to say the RBI has demonstrated well the assertiveness that was expected of it as a prudent market watchdog. It is commendable and augur wells for the RBI as a credible central banking institution.

For those who believed the RBI was working as an extension of the finance ministry, it was a befitting reply from the banking regulator. Lowering the Statutory Liquidity Ratio requirements by 50 basis points to 20 per cent is an intelligent move to maintain a comfortable liquidity position for banks to 

operate in. 

Importantly, the RBI also persisted with its tough stand and has not shied away from sounding a warning to the government on the spate of farm loan waivers by state governments that might have serious implications on their already strained finances and credit culture in the market.

Srinivasan Umashankar, Nagpur

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