Key Points
The recent handling of the banking system in India represents a textbook case of learning from past mistakes and using counter-cyclical policies in their true spirit...
A good starting point for understanding the contemporary banking landscape in India is the policy response to the global financial crisis (GFC)..
Such provisions ensure that banks are well capitalized to deal with any future shocks arising from defaults on restructured loans..
Banks started using forbearance to hide loan defaults: loans of low-quality borrowers were restructured to avoid recognition of losses...
Not surprisingly, when the forbearance policy was withdrawn in 2015, it was realized that the actual NPAs of banks were in double digits, and most banks did not have the required capital to absorb these losses..
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