Banks keep lending huge amounts while inevitably hiding the Distress signals
India’s bankruptcy courts have sought to resolve the Rs 8 lakh crore worth of non-performing assets (NPA) problem that is choking the banking system. But it is evident that banks have played a crucial role in the crisis by lending ailing companies with fresh loans, even as they struggled to repay their previous loans.
This practice of ever-greening is called extend and pretend in India.
The banks have pushed the system to the brink of collapse by taking advantage of the RBI regulations.
Banking regulation has proven to be a conflict between bankers and regulators. The bankers give priority to good news while the latter give priority to bad news.
As a result, the banks have financed unviable projects and once the loans failed they were hesitant to acknowledge them as NPA.