MUMBAI: The Economic Survey 2021 has called for a fresh review of asset quality of banks once the Covid-19- related regulatory forbearances are withdrawn.
“The regulatory forbearance must be removed as the economy improves and
must quickly be followed up by a clean-up exercise of bank books,” chief economic adviser Krishnamurthy Subramanian said in the Economic Survey for 2020-21, tabled in Parliament on Friday.
Forbearance represents emergency medicine that should be discontinued at
the first opportunity when the economy exhibits recovery, the survey stated.
In the past, banks exploited the forbearance window for window-dressing their books and misallocated credit, thereby damaging the quality of investment in the economy.
Citing the example of the global financial crisis of 2008, it said that the forbearance which was announced by the RBI helped borrowers tide over
temporary hardships. But continuance of this even after economic recovery
led to unintended…