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Bad loans UPSC NOTE


  • Until the mid-2010s, banks used to lend massive loans to big industries.

  •  When these businesses failed, their loans turned sour. Such bad loans stayed hidden for sometime. 

  • In 2015, the Reserve Bank of India (RBI) carried out a review, following which skeletons tumbled out of the closet. 

  • The share of bad loans reached as high as 10% in 2017, which meant that nearly one in every 10 loans had turned bad. 

  • A variety of debt recovery channels including the Insolvency and Bankruptcy Code, 2016, were used to recover the money. 

  • Given the relatively high amount of loans lent to well-known companies, the failures to repay the loans were widely publicised.

  • Following this debacle, banks started offering fewer loans to industries

  • They also managed to recover more and more bad loans. 

  • As a result, banks reached the pink of health in 2024. 

  • The latest Financial Stability Report (FSR) of the RBI shows that Gross Non-Performing Assets (GNPA) was at a decadal-low in March this year 

NPA is the share of total loans that are overdue for more than 90 days.


  • However, reducing loans to industries meant that banks had to look elsewhere to lend and earn. The mid-2010s also saw an increase in loans given to the retail sector. 

  • These included personal loans, credit card receivables, housing loans, and similar products. 

  • The period also saw a proliferation of instant loan apps, which enticed unsuspecting consumers, especially those younger and more digitally savvy, to take more loans, leading to a debt trap.

  • The share of retail loans grew so much that the sector surpassed both industries and services to have the most outstanding loans. 

  • The alarming growth was noticed by the RBI, which had to bring in regulatory measures to curb the rise. 

  • While the situation does not seem to be alarming, the RBI is clearly worried. 

  • In the recent FSR report, it has cited two signs of incipient stress, which it believes should be closely watched. 

  • The first sign has to do with slippages, which are fresh additions of bad loans in a year. 

  • The share of slippages from retail loans in the overall new additions of NPAs is increasing at a rapid pace. 

  • In FY24, slippages from retail loans (excluding home loans) formed 40% of fresh additions of NPAs.

  • The second sign has to do with delinquency level. Even if dues are overdue for a day, an account can be termed delinquent. 

  • Persistent delinquency will eventually turn an account into a NPA. 

  • Delinquency levels among small borrowers with personal loans below ₹50,000 remain high



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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Bad loans UPSC NOTE
Bad loans UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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