The Committee on Financial Sector Assessment had recommended that no unlicenced cooperative bank is to be allowed to function in the country after March 31, 2012. In the intervening three year period, RBI and NABARD worked closely with the cooperative banks and licenced 270 of them, in some cases by relaxing the licencing norms.
From a debt overhang perspective, non-financial corporations with loans in arrears might have less incentive to invest in new projects in order to avoid using the upside potential to service current debt. In addition, higher lending rates seen in countries with prolonged NPL problems weigh negatively on credit demand.