Letter to BS: Forbearance schemes in whatever form are a moral hazard

This refers to “Be forewarned” (February 26). Forbearance schemes in the form of either restructuring or delayed recognition of loans is a moral hazard. It encourages reckless, politically induced lending but reduces transparency about the loan classification and actual status of non-performing assets (NPAs) in banks. It builds up NPAs in the system which come to light later and bank officers are held to account for not following the norms of due diligence. One must recognise the reasons for the problems of the micro, small and medium enterprises (MSMEs) and the realty sectors. A lot of damage was caused to these sectors as a result of demonetisation. Credit is only one aspect responsible for their growth. Aspects like government approvals for the availability of land, power, raw materials, faster recoveries of dues, simple tax laws and return filing systems etc also impact MSME growth. For realty, besides laws and regulations, it is the overall pick-up in the economy and the availability of disposable income with buyers that will lead to an increase in demand. To see only bank lending as the panacea for these sectors is not the answer. The government also needs to do more to create suitable conditions for higher economic growth, better laws, faster approvals, create better infrastructure to induce growth in these sectors.

Arun Pasricha  New Delhi

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