Bad Loans

Bad loans are the debts or loans where a debtor defaults in returning the borrowed money to banks wilfully or due to reasons. Bad loans lowers the profitability of the Banks and credit rating that has a direct impact on the people approaching for loans and credit portfolio.

Banks need to follow the solvency law which states that during any situation, Banks should always have the sufficient amount to return the full deposited money to small creditors or Bank should never be in insolvent situation or debts should never be greater than deposits.Assets should always be more than liabilities or otherwise, Bank will get dissolved.

There is a need to maintain scrutiny,follow rules and law while granting loan to borrowers.Also, there is a need to maintain proper documentation and follow up even after the sanctioning of loans to borrowers so as to prevent any wilful default from the borrower side.

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