EPIC UPDATE: BANKS-FUDGING BOOKS

[epicresearch]

When an economy or industry is in trouble, it makes sense for lenders to show a bit of forbearance. In practice this means debt restructuring, which has a clear benefit for banks: they can present a picture of themselves more healthy than reality. The regulator will implicitly endorse this de facto deception, so long as its rules are followed. But this cannot go on forever. The global financial crisis of 2008 had prompted the Reserve Bank of India to ease both norms for restructuring and the way the institutions present their own accounts. But the Indian economy isn’t looking up, and growth is slowing further. Equally worrying is the realisation that the health of the country’s financial institutions may be far worse than it appears. The institutions’ own data, when studied carefully, reveal the problems. Currently the value of restructured assets exceeds the value of gross non-performing assets of the banking sector. Gross NPAs would more than double if the reclassification benefits or restructuring (being able to call a non-performing loan a standard asset) were denied.