Banks should have fully empowered boards to avoid zombie lending
The Economic Survey has put the blame of the current banking crisis on the zombie lending following the Global Financial Crisis in 2008. The Economic Survey 2020-21
image for illustrative purpose
New Delhi: The Economic Survey has put the blame of the current banking crisis on the zombie lending following the Global Financial Crisis in 2008. The Economic Survey 2020-21 was presented by the Union Finance Minister Nirmala Sitharaman in Parliament on Friday.
The survey said this engendered the recent banking crisis that brought down investment rates and thereby economic growth in the country. "The first lesson for policymakers is to treat emergency measures as such and not to extend them even after recovery: when an emergency medicine becomes a staple diet, it can be counterproductive," the survey said.
The current regulatory forbearance on bank loans has been necessitated by the Covid pandemic.
Among the measures, the survey has suggested that forbearance should be accompanied by restrictions on zombie lending to ensure a healthy borrowing culture. A clean-up of bank balance sheets is necessary when the forbearance is discontinued, the survey said.
The asset quality review must account for all the creative ways in which banks can ever-green their loans. In this context, it must be emphasized that advance warning signals that do not serve their purpose of flagging concerns may create a false sense of security, it added.
