Page 232 - ES 2020-21_Volume-1-2 [28-01-21]

Regulatory Forbearance: An Emergency Medicine, Not Staple Diet! 215

Dirty Dozen are the 12 large firms identified by the RBI that contributed to 25% of overall
NPAs in 2016-17, i.e. INR 3.45 lakh crores. These firms are Bhushan Steel, Bhushan Power,
Electrosteel Steels, JP Infra, Era Infra, Amtek Auto, ABG Shipyard, Jyoti Structures, Monnet
Ispat, Lanco Infratech, Alok Industries, and Essar Steel. These firms continued to receive
credit during the forbearance window even when their financial condition had worsened.
As observed in the figure below, new lending to Dirty Dozen firms showed an increasing
trend from 2007 to 2014, despite a fall in their average interest coverage from 3.66 in
FY2007 to 0.89 in FY2015.

Figure B1: New Loans Lent to Dirty Dozen Firms vs their Interest Coverage

Source: Ministry of Corporate Affairs

7.20 Thus, forbearance resulted in increased lending to firms with poor fundamentals and
higher lending to inefficient projects. Consequently, the industrial sector’s increased credit
growth from 2008-09 to 2014-15 failed to translate into a higher investment rate. India’s Gross
Fixed Capital Formation as a share of GDP reduced from 34.7% in 2008 to 28.7% in 2015.
Within non-financial firms, the ratio of gross fixed capital addition to additional debt decreased
from 56.7% in the 2005-2008 period to 44.8% in the 2012-2015 period, as shown in figure 15.
In other words, a lesser proportion of new loans were used for capital asset creation such as
buildings, plants, machinery, etc. A larger part of the credit seems to have been used to keep
dead loans alive by ever-greening.

Figure 15: Decrease in Firm Investments

Source: CMIE Prowess