The Best Paragraph I've Read Today

Rural India needs a strategy that strengthens the credit structure, increases the number of bank branches and establishes sound relationship banking. Even as banks are encouraged to increase their rural commitments, an essential aspect of the incentive structure for the banking system should be an assured recovery process. A socio-political environment that nurtures expectations of a loan waiver is not conducive for building a healthy financial system, particularly in rural areas where borrowers have weak bargaining power and bank officials are known to be reluctant to lend at the smallest sign of a poor recovery.

From the EPW editorial board. The authors make a persuasive case that the last major loan waiver offered by the government in 1991 seriously impaired the functioning of rural credit markets several years. At least in the case of the present loan waiver, unlike the previous one, it is taking place just before an election. Therefore, smart potential borrowers will realize that they will have to wait for another general election to roll around before their balance sheets can be wiped clean again.