Forbearance is also a disservice to the bank’s owners (which may include the Government) who, instead of being faced with a small problem early and being given the opportunity to apply corrective action, are faced with large problems suddenly when they cannot be pushed into the future any more.
One example of the difficulties stemming from forbearance is the plight of state power distribution companies (DISCOMS). In 2012, a number of states signed up to a financial restructuring plan (FRP) with banks and the central government, based on which the RBI permitted restructured loans to DISCOMS to be treated as standard.