17 December, 2019
Syllabus subtopic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Prelims and Mains focus: about the bad loan crisis in the Indian banking system and the reasons for it; its implications and measures taken by the govt.
News: Bank stocks have been among the top performers so far this year compared with the broad market trend. This exuberance comes from the fact that bad loans have fallen in absolute terms.
Since dud assets have reduced, the propensity to earn interest increases for lenders. Logically, as earnings increase, the estimates of earnings per share for banks would also be raised.
What is the reality about reduction in bad loans
But why have banks given up? Or have they?
WHY? The reasons are varied:
In an economic downturn, it is difficult to press for repayments from companies given that their earnings are hurt.
Also, the infrastructure, such as courts or recovery mechanisms, were not robust enough to help banks recover written-off loans.
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