Further since there is no forbearance for assets classified as NPAs, the revised framework will encourage banks to reduce slippages to NPAs through early recognition of stress and timely action, possibly even before a borrower gets into financial difficulty.
In other words, the IBC along with RBI’s revised framework will help break the promoterbank nexus which has led to crony capitalism and attendant NPA/credit misallocation problem as ever-greening suited some borrowers and some lenders under the earlier framework. In turn, this will prevent the erosion of growth from the emergence of zombie firms and secto 1.