Does debt relief in India depend on what you can pay, or on who you are?
Imagine three people who cannot repay their loans. One is a farmer whose crops have failed. Another is a factory owner whose machines are running half empty. The third is an office worker who has lost his job but still pays EMIs on a home, a car, and two credit cards. All three are in trouble, but they will not be treated the same way, and that is a problem for three connected reasons. The first reason is fairness. Picture two borrowers who owe the same amount and are in the same kind of trouble. If one gets his loan cleared by a government and the other is chased by his bank for the EMIs, the difference has nothing to do with what they owe. It comes from who they are. The second reason is the economy. A family that hands most of its income to lenders every month has little left to spend or to put aside for a bad day, and when many families live this way, spending across the economy falls, and growth can slow. The third reason is silence. Farmers have their waivers, companies have a law and bank deals, and both get talked about, but the rules for ordinary salaried borrowers have hardly been discussed, so their problem goes mostly unseen.
All of this leads to one question: does debt relief in India depend on what a borrower can pay, or on who the borrower is?
The Farmer and the Waiver
Let’s start with our farmer, whose crop has failed. Half of India’s farm families are in debt. The average household owes ₹74,121, the National Statistical Office found. So this farmer’s problem is a common one. His usual hope is a loan waiver, but he cannot demand one. A government has to decide to give it, and the timing can draw criticism. Down To Earth reported that critics called the best-known waiver, the central scheme of 2008, a way to win votes in an election year.
That scheme was big, since the Press Information Bureau says it helped 3.73 crore farmers and cost ₹52,259.86 crore, but it was a narrow door. A loan counted only if it was a direct farm loan from a bank or cooperative lender, given between 1 April 1997 and 31 March 2007, overdue at the end of 2007 and still unpaid in February 2008, and even then the reward depended on the kind of farmer he was, because small and marginal farmers had their eligible loans waived in full while others got a 25% discount, and only if they paid the rest. Look closely at these rules and something is missing, since none of them asks whether the farmer could repay, only when he borrowed and from whom.
Later, the government’s own auditor checked how the scheme worked and found mistakes in both directions. India Together reports that it looked at 90,576 accounts. Of the 80,299 accounts that got relief, 8.5% did not qualify. Of the 9,334 accounts that got nothing, 1,257 (13.46%) belonged to farmers who did qualify, but their banks had left them off the list. The auditors checked only a sample, so the real numbers could be different.
These were not just a few slips by banks. The scheme never tried to find the farmers who were struggling most. It only asked when the loan was taken, what kind of loan it was, and whether the bank had put his name on the list. So even if every bank had done its job perfectly, some farmers in real trouble would still have been left out because their papers did not fit. And a farmer who was wrongly left out had nowhere to go, because a waiver is a favour from the government, not something he can demand. In the end, his relief depended on whether a bank put his name on a list. This is the first sign of a pattern: the system never asked the one question that matters, which is whether he could pay.
The Factory Owner and the Bank
The factory owner does not wait for the government. He goes to his banker, and there the talk is about amounts, not dates: how much can the bank get back? Every route open to him is built around that one question. Whether he can pay is never the test.
The first route is the write-off. It sounds like forgiveness, but the bank only takes the loan off its books, and the borrower still owes the money. The amounts are huge. Angel One’s tally of government data shows that banks wrote off ₹2.36 lakh crore in 2018-19, and Outlook Business puts the figure at about ₹1.72 lakh crore in 2024-25, each in a single year. Even then, banks recovered only 34.8% of the latest year’s write-offs. The second route is the deal. He offers to pay less than he owes, and if the bank agrees, it closes the file. He cannot demand this, but the RBI’s rules go further than most people expect. Banks may settle even with wilful defaulters and people accused of fraud, while any criminal cases continue separately.
Sterling Biotech shows how far this can go. Sterling Biotech’s promoters, Nitin and Chetan Sandesara, were accused of cheating banks of more than ₹5,383 crore. They fled India in 2017. In November 2025, Business Today reported that the Supreme Court said it would close every criminal case against them if they paid ₹5,100 crore to the banks. The court added that this was not meant as an example for other cases. But the RBI’s rules apply to wilful defaulters in general, and MoneyLife says they owed ₹3.83 lakh crore in March 2025. Nobody publishes how many have settled. So if enough money can end a criminal case, does a second chance depend on how much you can pay?
The third route is the courtroom. Under insolvency law, a professional takes over the company, and bidders are invited to buy it or revive it. This route rests on a law, not on a bank’s mood. Even so, the Insolvency and Bankruptcy Board of India says lenders got back only about 30% of what they were owed in the cases that ended in a rescue plan.
All three routes ask what the lender can get back. None asks the harder question: can this company really not pay, or does it just not want to? A few numbers show why that matters. More than 30,000 cases were withdrawn before the tribunal even took them up, and they involved about ₹14 lakh crore. The regulator takes this as proof that the law works. But if the money could be found once the threat became real, why was it not paid earlier?
Put the three routes side by side and a pattern shows up: the factory owner’s relief depended not on whether he could pay, but on what his lender stood to lose. A bank can ignore a small borrower, but not one who owes thousands of crores. In the Sandesara case, promoters accused of cheating banks of over ₹5,383 crore were offered a way out for ₹5,100 crore. The court called it an exception, and we cannot say how common such deals are. But if a bigger debt can buy a better bargain, relief is following who the borrower is, not what he can pay.
The Office Worker and the EMI
The office worker’s loans are small next to the factory owner’s, but he is part of a very big story. Outlook Money reports that Indian households now owe 45.5% of everything the country earns in a year. FinBox adds that more than half of this was borrowed for things other than homes, such as personal needs, cars, credit cards, and gold. Banks are not worried, since FinBox says bad loans on this kind of lending are still low. But that only shows the banks’ risk. It does not show how hard life is for the family.
When his salary stops but his EMIs do not, falling behind is not easily forgotten. Business Today explains that a default stays on his credit report for seven years, even if he repays later. This can make it hard to get a new loan, a credit card, or even a rented home. So the penalty comes by itself and lasts for years, while any relief has to be asked for.
Is there a legal way out? Only on paper. The Insolvency and Bankruptcy Code has a section for individuals, including a “Fresh Start” for people with very small debts. But Cyril Amarchand Mangaldas notes that, ten years after the Code was passed, it works only for people who guaranteed a company’s loan. Everyone else is left with two old laws from 1909 and 1920, the Insolvency and Bankruptcy Board of India says, and even a settlement is not something he can demand. The factory owner can use a law. The office worker has to ask a bank for a favour.
Is the System Fair?
Who holds their second chance? The farmer would point to the government. The factory owner would point to his lenders, who count what they can recover. The office worker would point to his bank and hope it is in a helping mood. What none of these answers include is the question that should come first: can this person pay, and how much? Instead, the test is the date on a loan, or what a lender can recover, or a bank’s mood. So two people in the same trouble get very different help; the salaried borrower has the least to fall back on, and a bigger debt may even buy a better bargain.
Recommendations
Four changes would make the system ask that missing question first. First, the individual insolvency law, including the Fresh Start process, should be brought in for ordinary borrowers, because today it applies only to guarantors. Second, farm relief should go by need, with better lists of beneficiaries, since the audit found mistakes in both directions. Third, settlements should be public. Banks already tell their own boards about these deals, and they should also publish how many big borrowers settled, what they owed, what they paid, and how much the bank gave up. Fourth, after a job loss or illness, households should get a short pause on EMIs, with clear limits, for people who can repay once they are back at work.
Conclusion
Three borrowers, the same kind of trouble, three different rulebooks. The farmer waited for a politician, the factory owner bargained with his bank, and the office worker paid or fell behind. So does debt relief in India depend on what a borrower can pay, or on who the borrower is? The evidence leans towards who he is. What decided each outcome was the dates on a loan, a lender’s chance of getting its money back, or a bank’s goodwill, and none of these tests whether the borrower could actually pay. We cannot say which group is favoured most, because no one measures who could really have repaid, but that gap is itself the finding. A system that never asks who can pay cannot know whether it is helping the right people, and until it learns to ask, a second chance will depend more on which door you stand at than on what you can afford. The four changes above are a way to start asking.
References
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