The Reserve Bank of India has communicated that banks and financial institutions have the discretion to take loan related decisions in response to a letter from K V Thomas, Special Representative of Kerala seeking issuance of instructions on writing off loans availed by landslide victims in Wayanad. K V Thomas sent a letter to the RBI in August seeking instructions from the RBI to banks to write off loans availed by people of Wayanad, Kerala for farming and education purposes in the wake of the landslide.

RBI replied to this letter in October saying that banks and financial institutions have been accorded the discretion to take credit related decisions including compromise settlements and write-off based on their commerical assessment of the viability aspects. The letter also cites that a framework for credit related decisions has been included in regulatory instructions on compromise settlements and technical write-offs issued in June,2023.

RBI has also cited in the letter that it has put in place detailed framework for banks for extending relief measures to borrowers impacted by natural calamities. The framework permits banks to restructure eligible borrower accounts, impacted by natural calamities without any asset clarification downgrade. As part of the relief measures banks can inter-alia restructure the account including offering moratorium on repayments as well as sanction additional finance, based on their commercial wisdom. 

The letter also attached web links to access the instructions. The Centre has also communicated to K V Thomas that the state government has sufficient funds in state disaster response fund for relief measures. This was declared in a letter from Nityanand Rai, Minister of State for Home Affairs. 

The Kerala State Disaster Management authority (KSDMA) recently took strong exception to the delay from the Union Government in not considering requests from the state following the Wayanad landslide. In a statement filed in the High Court, the KSDMA said that the Centre has written off high-value loans of businesses, but the request to write off loans of landslide-affected families in Wayanad was still pending. The contention was made in response to the Centre which told the High Court that Kerala did not comply with mandatory norms while seeking relief assistance.

"In the exercise of Section 13 of the Disaster Management Act, 2005, the National Disaster Management Authority (NDMA) may consider writing off personal loans, motor vehicle loans, housing loans, and other loans of the affected families. It may be noted that many media reports show that the Government of India has benevolently written off high-value loans of businesses. The quantum of loan of the disaster-affected community at Meppadi will be a minuscule amount compared to the values that are often seen reported in media," read the KSDMA statement filed in the HC

 Kerala had raised three specific requests - notifying the Meppadi landslide as a disaster of a 'severe nature', writing off loans of affected families and providing immediate additional relief assistance. It is with regard to request on loans that the KSDMA has quoted media reports to take a swipe at the Central government. In 2022, Union Finance Minister Nirmala Sitharaman had told the Lok Sabha that loans amounting to Rs 10.09 lakh crore were written off by scheduled commercial banks in five financial years. The Opposition parties had slammed the Centre for writing off bad loans.