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Rebooting Economy 60: India in a financial mess of its own making
Misdirected stimulus that relies heavily on liquidity infusion when demand is depressed and incentivising loan defaults by routinely writing off NPAs threaten financial stability and economic recovery
Prasanna Mohanty | January 21, 2021 | Updated 14:56 IST
The Insolvency and Bankruptcy Code (IBC) is unlikely to help much in cleaning up bad loans
The RBI s Financial Stability Report (FSR) released on January 11, 2021 warns of serious financial risks to the economy (described as unintended consequences ) caused by the monetary and fiscal measures pursued to revive the economy.
It says the financial vulnerabilities incipiently pre-pandemic have intensified and pose headwinds to a fuller recovery . Its macro stress tests show that the Gross NPA (GNPA) ratio of Scheduled Commercial Banks (SCBs) is likely to rise from 7.5% in September 2020 to 13.5% by September 2021, under the baseline scenario, and 14.8% un