When a borrower has not paid interest for 90 days, the bank has to tag the loan as a non-performing asset (NPA). As the loan ages, there is less and less certainty that it can be repaid in full to the bank. Then, the bank has to start making provisions in in parts. Providing for a loan in a particular quarter impacts the profit for the quarter. It is as good as the bank telling itself that even in the off-chance that that part of the loan is returned sometime in the future, it is marking the amount as a loss. After some more time, as mandated by norms, it provides for another portion and so on till it has fully provided for the loan.
Even after this, if there is still little chance that the loan may be returned, the bank writes off the loan. This is different from ‘forgiveness’ of a loan.
How much has been written off from bank books over the last five years? Rs.10.1 lakh crore, as evident from the graph here:
Script and production: K. Bharat Kumar
Production: Shibu Narayan
Videography: Johan Sathyadas
