Random Reflections
The government and banks, which write off crores of depositors’ money to benefit the wealthiest, make a hue and cry when farmers or disaster-affected people demand loan waivers.
Disasters occur frequently across the country, and they are only expected to increase due to climate change and environmental degradation. In the recent landslide in the Mundakkai-Chooramalai area of Wayanad district, Kerala, 403 people lost their lives, and 47 remain missing. People have lost their homes, businesses, land, vehicles, and the local economy has suffered immensely. Apart from those directly affected, many more are impacted indirectly. Around 300 drivers, who purchased jeeps through private financing (mainly from SRM Finance), rely on tourism for income. Hundreds of small traders, including spice sellers and cultivators with small holdings, have lost their livelihoods. Plantation workers and agricultural laborers face unemployment as activities remain halted.
In times like these, it is the Union Government’s role to come to their rescue. We have a National Disaster Management Agency, chaired by the Prime Minister, as well as funds like the National Disaster Relief Fund, the Prime Minister’s Relief Fund, and the PM CARES fund. Additionally, the Union Government collects GST, with only a portion shared with the states, making resource mobilization even more challenging for state governments.
The Union Government has control over Public Sector Banks, which could waive these loans if given the green light. Funds must be released immediately for relief and rehabilitation, but this seldom happens nowadays. Relief is provided quickly if Gujarat, a ruling-party state, is affected, but opposition-ruled states like Tamil Nadu, West Bengal, and now Kerala, do not receive adequate assistance. This undermines federalism and may lead to separatist demands from states seeking more autonomy.
In Wayanad, those affected directly and indirectly are demanding loan waivers along with rehabilitation, a demand that is entirely legitimate. The Union Government may worry that similar demands will arise with each disaster, but this is precisely why a government exists—to support its people in times of need.
Section 13 of the Disaster Management Act allows for such loans to be waived. Why can’t the Prime Minister announce this? Remember that banks have written off more than Rs.10 lakh crores, primarily benefiting the rich, over the past five years and Rs.25 lakh crores over the last decade. In comparison, a waiver in the Wayanad area amounts to only Rs.32.5 crores as per the State Level Bankers Committee (SLBC) estimate. Including private finance and loans of indirectly affected people, the total may reach Rs.50 crores—a manageable cost for the banks, Union Government, and State Government.
For the banks, this amount is negligible. They use small depositors’ money to provide loans and make massive profits, with every bank showing profits in thousands of crores in recent Q2 results. In the past, banks have written off loans for disasters like Cyclone Okhi and the Tsunami. Loan waivers also offer the advantage of removing defaulters’ names from CIBIL, allowing them to secure fresh loans if needed.
It is heartening to see that Kerala’s Chief Minister attended the State Level Bankers Committee meeting, where he declared that Kerala Bank would waive loans. Unlike write-offs, a waiver eliminates the need for recovery proceedings and enables fresh loans. In National Company Law Tribunal (NCLT) cases, where “haircuts” are taken, recovery is also waived. The Chief Minister appealed to all banks to waive outstanding loans, but they await approval from the Union Finance Minister. Each public sector bank board has a Finance Ministry nominee, who could propose and approve a waiver.
Kerala Bank, Muthoot Finance, Bajaj Finance, and several cooperative banks have waived loans, and SRM Finance donated Rs.1 crore to the Chief Minister’s Relief Fund. However, they could have waived loans instead. Canara Bank, the lead bank in the state, should lead by example and declare a waiver. Instead, it waits for the Union Finance Minister, tarnishing its image.
Concrete Suggestions:
- All banks must waive the loans of people directly or indirectly affected.
- The Union Government should invoke the Disaster Management Act and instruct banks to write off or waive loans.
- If the Union Government refuses, the State Government should withdraw its deposits from these banks.
- Private financiers should contribute to this effort as part of their Corporate Social Responsibility (CSR).
- If this does not happen, people of Kerala, including NRIs, should consider withdrawing deposits from these banks and instead deposit in Kerala Bank and cooperative banks. This may eventually lead to each state creating its own state-level bank, fostering competition.
The BJP demands that the State Government bear the cost of the waiver, which is an unjust stance. This may cost the BJP candidate their security deposit in the Wayanad by-elections. Some propose a moratorium as a solution, but this would only worsen the burden by increasing interest.
India is a welfare state, and it must come forward to support its people. Setting aside politics, states should receive assistance during disasters. The state government is preparing a revival plan based on committee reports, which will take time. In the interim, a loan waiver would provide immense relief to the affected population.
Let Kerala lead the way, as it has in so many other areas.
Thomas Franco is the former General Secretary of the All India Bank Officers’ Confederation and a Steering Committee Member at the Global Labour University.
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