Reserve Bank of India Governor
Raghuram Rajan has warned finance secretaries of state governments against waiving debts as banks are already cash strapped. Rajan said this during a conference of the state finance secretaries held in Mumbai.
Rajan said the
debt waiver schemes announced by state governments adversely affect the financial condition of banks. He said the banking industry's capital requirements have increased due to enhanced prudential needs and increase in bad loans.
Addressing the conference, Rajan stressed on the challenges faced by the country last year in dealing with current account deficit, growth slowdown, fiscal consolidation and inflation management.
He also talked about the decline in savings and consequential challenges to debt management when growth and private sector credit would pick up.
