Bengaluru: The Reserve Bank of India (RBI) has warned that if Nationalised and Cooperative Banks waive of farmers’ loans, the day is not far off when Banks will go bankrupt.

RBI Governor Urjit Patel has written letters to the Chief Ministers of all States in this regard, expressing his displeasure and said that banks continuing to encourage the bad culture of waiving of loans to the farmers should stop.

He cautioned about the moral consequences of loan waivers and said such “waivers engender moral hazard.” The Governments take such populist measures and announce the waiver of farm loans. Because of this, the farmers who are in distress might be benefited. However, if the Governments do not repay the loans within the stipulated time then it would eventually affect national balance sheet, he has said.

Normally, the farmers borrow more from Cooperative Societies than from Nationalised Banks. The moment the loan waiver is announced, if the Government repays them to the banks then the banks suffering losses could be avoided. However, many a times, even after one year the money is not returned. This could lead to banks unable to offer loans to farmers again, Patel has highlighted in his letter.

In Karnataka, farmers have borrowed Rs. 10,000 crore from Co-operative Banks and Rs. 35,000 crore from Nationalised Banks. If the State Government waives off the loans and reimburses it to the Banks, then we will have no objection, he said.

However, there is not a single incidence of a State Government in the country returning the loan within six months. Hence, the District Co-operative Banks are not being able to advance loans to farmers. Every State Government should view this seriously, he has appealed to the Governments.

This has already been brought to the notice of Prime Minister Narendra Modi and Finance Minister Arun Jaitley. Due to farm loan waivers, the country’s economic and GDP growth will suffer. Such waivers undermine an honest credit culture, which every Government should put an end to, he has cautioned, said sources.