If many loans are written off how will this affect the working of the bank
Answers
Answer:
A loan write-off is a tool used by banks to clean up their balance-sheets. It is applied in the cases of bad loans or non-performing assets (NPA). If a loan turns bad on the account of the repayment defaults for at least three consecutive quarters, the exposure (loan) can be written off.
A loan write-off sets free the money parked by the banks for the provisioning of any loan. Provision for a loan refers to a certain percentage of loan amount set aside by the banks. The standard rate of provisioning for loans in Indian banks varies from 5-20 per cent depending on the business sector and the repayment capacity of the borrower. In the cases of NPA, 100 per cent provisioning is required in accordance with the Basel-III norms.
Earlier this year in a case of 12 large bankruptcy cases referred to the National Company Law Tribunal, the RBI asked banks to keep aside 50 per cent provision against secured exposure and 100 for unsecured exposure.
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Hello !
It affects very badly on the banks. They can not return the money of the depositors with interest . And they can not get there salary.
Hope It Helps u :)