An ex-Governor of the Reserve Bank of India (RBI) had pointed to the risks in the practice of political parties promising loan waivers during poll campaigns to the Election Commission, Parliament was informed on Friday.
In a written reply submitted to the Lok Sabha during Question Hour, Finance Minister Arun Jaitley said that as a consequence of such poll promises, loan beneficiaries stopped making payments due even if they were in a financial position to do so.
While addressing a conference organised by NABARD and SIDBI, the former Governor in question had also said that loan waivers and subsidies “distort the credit discipline,” he added.
The Minister made the statement, however, without revealing the name of the former Governor concerned.
He said the Governor had written to the Chief Election Commissioner noting “the risk of promising loan waivers by political parties at election time, as beneficiaries stop making payment even if they are financially in a position to make them and that this affects the banking sector as well as the state finances.”
Last year, the current RBI Governor Urjit Patel had spoken of the damaging effects of farm loan waivers on the budgets of state governments.