A bad loan in India is the biggest problem that our economy is facing right now. It is one of the hottest topics of conversation. According to an analysis, if the banks will recover all the bad loans, then that amount will be enough to cover the expenses of the country on education, health, defense, and transportation. The amount of bad loans of Public Sector Banks is Rs. 4 lakh crore that is more than the valuation of all PSU banks. The problem of bad loans or non-performing assets is haunting the growth of our economy. Let me take you to the core of bad loans and make you understand what is happening:

What are bad loans?

Bad loans or bad debts are the loans which are unrecoverable for the lenders. These loans are non-collectable as the borrower is not able to repay the amount to the bank or doing defaults. These types of loans become the non-performing assets for the banks.

 

Bad Loans

 

Effects of Bad Loans on Banking Sector:

  1. The non-performing assets of public sector banks are increasing sharply as compared to private sector banks. At present, the banks have Rs. 4 lakh crore bad loans.
  2. Public sector banks are contributing more in bad loans as compared to private sector banks. According to RBI data, the private sector banks are at 6% of their outstanding loans while public sector banks are at 14%.
  3. Here is the list of Government banks stating their bad loans. SBI tops the list with around 34,000 crore rupees of NPAs. The other top banks are PNB, Bank of India, IOB, and Bank of Baroda.

 

   Banks in Bad Loans   

 

  1. The stocks of private sector banks are rising in a better way as compared to the public sector lenders. Due to bad loans, the share value of PSBs has been decreased.
  2. Bad debts have also affected the net profit of public sector banks.
  3. The market value of 24 listed banks is Rs. 2.6 lakh crore while the total amount of bad loans they are holding is Rs. 4 lakh crore.

According to RBI, if a loan is not generating any income to the lender, it should be declared as a non-performing asset. If a loan has not been paid for 90 days, then it is labeled as a bad loan. India and the RBI need to reform the rules to fight with the bad loans and the strict norms should be there for the loan defaulters. The bad loan can be really bad for the economy and the banking sector.

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