Why Indians Are Averse To Repaying Loans?


indian banks in npa clutches

Most people have a psychological aversion to repaying bank loans. In several cases, they have sufficient assets and capital to redeem their debt but they use every possible means to avoid it.  Things have turned so bad that whether it is an individual or institution, getting back any money at all is a reason for celebration. We have seen several business leaders splurging on birthday bashes but avoiding repaying their loans. They have neither lost their homes nor have had to curb their lifestyles despite offering personal guarantees for loans to banks? In this respect small customers are far more honest than big ones. Some of them have such exemplary loan records that it makes even bankers blush.

The reason why we have been trying to protect the borrower against the creditor for all these years is that the cruel moneylender looms large in our collective psyche. The scene now is totally different.  Large borrowers are not like helpless illiterate farmers and the lender today is   not the sahukar but the public bank. When these large businessmen default ,they rob each one of us taxpayers. In several cases precious and scarce banks funds are being used to finance luxurious marriages and lifestyle of these people. We show such promptness in condemning waivers for poor farmers but we lack courage to tame the large fishes because they have enormous clout.

It is an irony that people living n affluence refused to pay back loans and for a long time the banks and government have been turning their eyes the other way, thousands of poor have been hounded by dirty debt collectors of loan sharks who have been charging them through the roof. These people deserve affordable credit but they have been treated as untouchables by government banks which practice apartheid in credit distribution. They have lived in terror of the scare tactics of fierce moneylenders, the sahukar, who have menaced and disrobed the dignity of their women.

It is strange that repayment ethics, so deeply ingrained in Indian culture, have been made foul words by politicians. The sanctity of repayment, no matter how deceitfully the debt was contrived and how cruel the costs, has been driven into the Indian consciousness since the time of Manusmruti. Manu listed eighteen main categories of law for the king to decide on. Of those, wrote Manu, “The first is non-payment of debts.” He held: “By whatever means a creditor may be able to obtain possession of his property, even by those means may he force the debtor and make him pay.”  

What about disputes and debt recovery? Manu specified the punishments to be given in case of the eighteen types of disputes arising from loan repayment. When a creditor sued the debtor for recovery of money, it was the duty of the king to ensure that the creditor got his money back. Manu permitted the king to employ all means, fair or foul, to recover the dues, which included killing the debtor’s wife, children and cattle or obstructing his movements. Manu held the view that a defaulter could not absolve himself of his debt burden even by death.

The great statesman Chanakya believed that sons should pay with interest the debt of a deceased person or co-debtors or sureties. Was a spouse responsible for the debts incurred by a person to whom they were married? Yes and no. A wife was exempted from the debt burden of her husband if she had not given her assent to his borrowings. However, for the debt incurred by a wife, her husband was liable for repayment.

India’s near $147 billion pile of soured loans is replete with examples of powerful and politically connected businesses who are accused of undermining rules to secure credit and then defaulting on loans. When borrowers become insolvent, their loans are added to an existing mountain of debt. Each time that happens, banks have to make heavy write-downs, sloughing the dud loans like rotten potatoes and wiping out profits and undermining their balance sheets. Most big defaulters have the money to employ legal eagles and it is here the law flounders.

There has been a meme that you don’t really have a moral obligation to pay your loan because you can always say you have incurred losses or the crops have failed or the college where you studied has shortchanged you. They say that shady lenders had tricked them into awful loans—though there’s not enough proof that the strategic defaulters got these shady loans, rather than perfectly normal loans. These aren’t convincing arguments, but they’re arguments which are repeatedly parroted by virtue of which they have become sound logic.

But what’s the moral argument for stiffing your student loan issuer? If you think your education was overpriced, or value-less, be mad at your school, not the lender. Student loans are pretty affordably priced, and since the loans go through college authorities, the lenders aren’t particularly abusive.(Leaving aside the murkier sort of for-profit university, but again, it’s mostly a problem with your school, not the bank )

We cannot have outlandish justifications for stratospheric interest rates. However, the loans offered by banks in India are quite affordable. Added to this is the government subsidy. If it is not a capital subsidy, it will certainly be an interest subsidy. There is no reason to consider them a burden.

Most people who don’t want to repay think there is no moral obligation to keep their promises. Try it in the context of your personal life:  It’s okay for my boss to stiff me out of salary raise they promised because I can always quit. It’s okay for my wife to cheat on me because I can always get a divorce. It’s okay for my roommate to neglect to pay his half of the rent on the first of the month, as long as he’s willing to move out. It’s perfectly fine for my son to default because he didn’t get a job which he expected after a college degree for which he took the loan. The farmer is absolutely right in seeking a waiver because rains have let him down and he has not been able to recoup even the input cost of the seeds and fertilizers.

The answer seems to be “I don’t want to pay, and as long as I’m willing to take the hit on my reputation, no one should judge me.” Yet if this were the actual standard by which most people lived, would there be any market for others?

Moin Qazi has been associated with the development sector for almost four decades .He is author of Village Diary of a Heretic Banker


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