Why in news? India’s G-20 Sherpa propagated the China to take a haircut on its loans to poor countries and assist their economic recovery.

Highlights:

• While the United States has been a vocal critic of Chinese debt in developing nations.
• This remarks assume significance ahead of Global Sovereign Debt Round-table, organised by the IMF, the World Bank and India.
• Beijing is yet to provide specific financing assurances to the IMF to help Sri Lanka unlock the $2.9 billion “bailout package”.

What is Haircut  on loans ?

• Haircut refers to reduction in loan amount banks willingly make . It also means accepting the less than what was due in a particular loan amount

Why would lenders opt for such a route?

• This is done because the lender gets at least some amount back instead of not getting any money at all.
• Besides, the lender’s provisioning liability comes down to the extent of the write-off, thus it ends up freeing capital in the process.