Causes of Non Performing Loans (NPL)

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What is bad debt or Causes of Non Performing Loans (NPL)?

If the bank is unable to repay the loan on time for a certain period of time, such loan is called NPL (Non Performing Loan). Any bank or financial institution provides a certain amount to the debtor to repay within the stipulated time. However, sometimes the debtor does not repay the loan on time.If the bank is unable to repay the loan even after 90 days from the date of repayment of the loan, the loan is placed under bad loan. As far as possible, such loans are raised by auctioning off collateral. Any bank with more than 5 percent bad loans is considered risky.

How does the loss reach the bank?

The bank makes profit by investing in deposits raised from the public. However, when the money invested does not rise, the bank’s profit declines. The general public does not trust the bank which is in trouble due to bad loans or Causes of Non Performing Loans (NPL). Bad credit can tarnish a bank’s image. This problem arises when banks invest in loans indiscriminately.Investments made in unproductive sectors are at greater risk of drowning. This problem arises even when the area of ​​investment is not studied. The bank is also in a position to incur losses as some people pass the loan on the basis of acquaintances. Confidence in the bank is declining for such activities. As a result, when the business in the bank decreases, there is a significant decline in business and the institution becomes problematic.

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