{"id":246379,"date":"2023-06-05T20:24:11","date_gmt":"2023-06-05T14:54:11","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=246379"},"modified":"2023-06-05T20:24:11","modified_gmt":"2023-06-05T14:54:11","slug":"banks-up-to-tricks-with-bad-loans-again","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/banks-up-to-tricks-with-bad-loans-again\/","title":{"rendered":"Banks up to tricks with bad loans again?"},"content":{"rendered":"\n

Source<\/strong>: The post is based on the article\u00a0\u201cBanks up to tricks with bad loans again?\u201d <\/strong>published in Business Standard <\/strong>on\u00a05th<\/sup> June 2023<\/strong>.<\/p>\n

Syllabus: GS 3 \u2013 Indian Economy \u2013 Money & Banking<\/strong><\/p>\n

Relevance: <\/strong>About<\/strong> Evergreening of Loans<\/strong><\/p>\n

News<\/strong>: The RBI governor in a conference of the directors of public-sector banks (PSBs<\/strong>) has made comments regarding tricks adopted by banks to conceal the real status of stressed loans.<\/p>\n

What are some of the tricks adopted by PSBs?<\/strong><\/h2>\n

Click Here to Read<\/strong><\/a><\/p>\n

What is the effect of evergreening loans on private and public sector banks?<\/strong><\/h2>\n

In private banks<\/strong>, shareholders bear the brunt, promoters may be removed and even face legal consequences.<\/p>\n

In contrast, when PSBs mismanage their finances<\/strong>, no significant action is taken against bank chairman, board of directors, or officials.<\/p>\n

Hence, there is lack of accountability in PSBs due to the absence of core reforms, which has significant implications for the overall banking system.<\/p>\n

Must Read: <\/strong>RBI governor cautions against evergreening of loans: Are banks, corporates still window-dressing loans? <\/strong><\/a><\/p>\n

Why do PSBs suffer more loss than the Private sector banks?<\/strong><\/h2>\n

PSBs hold a significant portion of people’s savings and play a crucial role in providing loans to small businesses, farming, and acting as the primary channel for government schemes, subsidies, and pensions.<\/p>\n

However, despite having the potential to make profits, PSBs have often incurred losses or minimal profits.<\/p>\n

The main reason for the losses is the prevalence of corruption<\/strong> in lending to unreliable projects that ultimately fail. A large number of small and big businesses have also burdened PSBs with staggering bad loans.<\/p>\n

What is the current situation of bad loans in the PSBs?<\/strong><\/h2>\n

As per the Union Finance Minister Nirmala Sitharaman<\/strong>, scheduled commercial banks had written off bad loans of ~10 trillion in five years and only 13 percent of the write-off had been recovered.<\/p>\n

Further, the cumulative recovery of bad loans through the Insolvency and Bankruptcy Code (IBC<\/strong>) until September has been just 30.8 percent.<\/p>\n

Moreover, more than 90 percent of the bad loans originate in PSBs and many loans are designed to go bad<\/strong>. When a case is referred to the IBC, there are almost no assets left to recover.<\/p>\n

What can be the way ahead?<\/strong><\/h2>\n

Factors such as bank recapitalization, gradual resolution of bad loans, and overall economic growth have led to a significant increase in the shares of PSBs since 2020.<\/p>\n

However, given the current scenario of evergreening loans, this can again make banks suffer losses.<\/strong> Hence, the measures by the RBI to check such activities are appreciated.<\/p>\n","protected":false},"excerpt":{"rendered":"

Source: The post is based on the article\u00a0\u201cBanks up to tricks with bad loans again?\u201d published in Business Standard on\u00a05th June 2023. Syllabus: GS 3 \u2013 Indian Economy \u2013 Money & Banking Relevance: About Evergreening of Loans News: The RBI governor in a conference of the directors of public-sector banks (PSBs) has made comments regarding… Continue reading Banks up to tricks with bad loans again?<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[10503,216],"class_list":["post-246379","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-business-standard","tag-gs-paper-3","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1701037579},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/246379","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=246379"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/246379\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=246379"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=246379"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=246379"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}