Indirect Evergreening Using Related Parties: Evidence From India.

71 Pages Posted: 16 Mar 2021 Last revised: 28 Apr 2022

See all articles by Nishant Kashyap

Nishant Kashyap

Indian School of Business

Sriniwas Mahapatro

Indian School of Business (ISB), Hyderabad

Prasanna L. Tantri

Indian School of Business

Date Written: September 04, 2021

Abstract

We identify a novel way of evergreening loans where a low-quality bank lends to a related party of an insolvent borrower, and the loan recipient transfers the funds to the insolvent borrower using internal capital markets. Internal capital market transactions, incremental investments, interest rates charged, and loan delinquency rates collectively indicate evergreening. These loans are unlikely to represent arm's length transactions or rescue of troubled related firms by stronger firms to prevent
group-wide spillover effects. Indirect evergreening is less likely to be detected by regulatory audits. It has significant real consequences at the firm and industry levels.

Keywords: Evergreening; Zombie lending; Regulatory Forbearance; Banking; Related Party Transactions.

JEL Classification: E58, G21, G23, G28

Suggested Citation

Kashyap, Nishant and Mahapatro, Sriniwas and Tantri, Prasanna L., Indirect Evergreening Using Related Parties: Evidence From India. (September 04, 2021). Available at SSRN: https://ssrn.com/abstract=3775286 or http://dx.doi.org/10.2139/ssrn.3775286

Nishant Kashyap

Indian School of Business ( email )

Hyderabad, Gachibowli 500 019
India

Sriniwas Mahapatro

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

Prasanna L. Tantri (Contact Author)

Indian School of Business ( email )

Hyderabad, Gachibowli 500 032
India
9160099959 (Phone)

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