3.

Reasons behind loan default:

The main reason for non-recovery of loans or debts is reliance on self-disclosures at time of fund disbursal. Blind
reliance results in an inaccurate valuation of the debtor's wealth, liabilities, and antecedents. Below are some of the
key reasons/root causes for NPAs in Indian banks.
• Policies loopholes: Weak policies provide opportunities for scammers to generate loans and get away without
paying them back. It also reduces the confidence of honest borrowers and is extremely detrimental to the
banking system and the economy.
• Lack of digitalization to track the flow of funds from banks to intended accounts.
• Competition between financial institutions to achieve business targets creates situations at times where banks
lend money even without fulfilling all safety measures for loan repayment. Due to this, junk-rated institutes
or retail users also get loans that later turn into NPA.
• Bankers granting loans on a vested interest or approving dodgy loans without proper due diligence. Financial
scams in banks like PNB, YES Bank through insider participation.
• Unsecured debt provided to individuals and businesses.
• Poor financial management of banks and companies acquiring loans and misuse of funds by borrowers.
• Economic downturns, such as lower exports due to a global recession, downturn in commodity price cycles,
etc.
• Corruption: Steps taken to withhold the right information to make decisions for loan allocation, resulting in
a loss of funds to non-intended business use.
• Poor recovery mechanism for large corporations & individual loans result in bad debt & difficulty in recovery.
• Poor corporate governance in banks like ICICI and PNB leading to bad loans generation.
• Knowledge gap across employees employed at various positions in a bank. Employees are not adequately
trained or do not have the expertise to assess financial documents.
• Banks do not have the adequate power to get the loans repaid by promoters or defaulters.