The Economic Survey 2021 is highly critical of the audits done by the Reserve Bank of India (RBI), saying events at Yes Bank and Lakshmi Vilas Bank (LVB) showed that the central bank did not spot "ever-greening" carried out in ways other than formal restructuring.
"The recent events at Yes Bank and Lakshmi Vilas Bank corroborate that the AQR (asset quality review ) did not capture ever-greening carried out in ways other than formal restructuring," the survey said.
Ever-greening refers to the practice where a bank gives new loans to pay off an old one to help the borrower escape the non-performing assets (NPA) tag. The practice, widely prevalent, is not in line with the spirit of good corporate governance.
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, the survey said.