Page 244 - ES 2020-21_Volume-1-2 [28-01-21]

Regulatory Forbearance: An Emergency Medicine, Not Staple Diet! 227

Figure 24: The AQR did not identify ever-greening: Weak Correlation of
Divergence with lending to Related Parties

Source: Ministry of Corporate Affairs and CMIE Prowess

7.36 The recent events at Yes Bank and Lakshmi Vilas Bank corroborate that the AQR did not
capture ever-greening carried out in ways other than formal restructuring. Table 6 reports the
Gross NPA ratio of Yes Bank Ltd. and Lakshmi Vilas Bank. Had the AQR exercise detected ever-
greening, the increase in their reported NPAs should have been in the initial years of the AQR.
Our analysis clearly shows that most of the non-performing loans were lent and restructured
during the forbearance phase. Hence, the RBI audit missed some severe cases of ever-greening
by these banks. The fact that both these banks had to be rescued by the regulator also goes
against RBI’s assumption that the private banks should have been able to raise the required
capital after the clean-up.

Table 6: Gross NPA of Yes Bank and Lakshmi Vilas Bank
Yes Bank Ltd. Lakshmi Vilas Bank Ltd.
FY2016 0.76 1.97
FY2017 1.52 2.67
FY2018 1.28 9.98
FY2019 3.22 15.30
FY2020 16.80 25.39
Q2FY2021 (Unaudited) 16.90 24.45

Source: Annual Reports

7.37 If the AQR had correctly identified all the hidden bad quality assets on banks’ books,
all the increase in NPAs and the necessary provisioning would have concluded by the stated