A debt recast should go along with

Context: The present pandemic necessitates the need for restructuring of debt and banking reform.

Need for the restructuring of debt: 

• Revenues will take a long time to recover: putting firms at threat of collapsing under the weight of their fixed costs. 
• Firms suffered a simultaneous blow due to pandemic, their mounting debt repayments could exceed their ability to service debts altogether.

Need for banking reform: 

• Market conditions are so weak that banks would not be unable to extract sufficient value from the assets they take over (Bankruptcy resolution mechanism).
• Indian banks were already overloaded with bad loans before the COVID crisis (bad loans could shoot up to 13-14% of all advances in 2020-21 from an estimated 8.5% last year.)

Suggestion: 

•  Clear selection criteria for debt restructuring: Businesses that deserve to fail should be allowed to.

• This would let resources be redeployed to more productive enterprises, (Joseph Schumpeter: “creative destruction"). 

• Viable debtors, meanwhile, could be offered relaxed terms on their liabilities, with the government bearing the cost.

• Addressing the perennial problem of bad loans: Through an Indirect model of State ownership of banks.

• Centre must hold Public Sector Banks through a stake-holding company, one that is accountable for their results.