RBI GUIDELINES ON WILLFUL DEFAULTERS

 Factors Responsible for High number of Defaults:

The mentioned article highlights the aspects of RBI Guidelines on Willful Defaulters. It also focuses on components for a greater number of defaults. The talented writer has written this current affairs news on the Economy Topic after profound research. Moreover, our esteemed faculty Prateek Tripathi has approved the content for further posting.

The current situation of defaults and, consequently high levels of Non-Performing Assets, which are eroding the stability of the banking sector, can be attributed to a set of structural weaknesses:

• Poor Banking Practices: Inadequate banking practices have played a significant role in this scenario.
• Discretionary Authority of Banking Officials: The discretionary powers vested in banking officials have also contributed to the problem.
• Influence from Powerful Industrial Groups: The influence wielded by influential industrial conglomerates has exerted additional pressure, often stemming from political circles, on banks.
• Intense Competition Among Banks: The intense competition among banks has led to the issuance of unsecured loans, which has become a cause for concern.

These factors collectively result in banks extending substantial loans without conducting thorough due diligence or obtaining adequate collateral.

 Non-Performing Assets (NPAs)

• Definition of NPAs: NPAs encompass loans or advances where borrowers have fallen behind on their scheduled principal or interest payments, exceeding a specified timeframe, typically 90 days.
• Asset Status for Banks: Loans serve as assets for banks, generating substantial interest income. When borrowers, be they individuals or businesses, fail to meet interest payments, these assets lose their income-generating status and become “non-performing” from the bank’s perspective.
• RBI’s Criteria: The Reserve Bank of India (RBI) characterizes NPAs as assets that no longer contribute to a bank’s income.
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