As stress piles on, Indian lenders are on their way to large write-offs

Indian banks have been facing a tough time getting back their monies from recalcitrant borrowers for long now. But their biggest hurdle in getting back dues is time. As time stretched, bad loans have only got worse and banks have had to keep increasing their provisions at the cost of profits.

Labelling an errant borrower as bad is only the first step by a bank. The real challenge begins when the borrower is either unable or unwilling to clear dues for a long period.

Cast your eyes on the adjoining chart that shows the various hues of bad loans. According to the Reserve Bank of India (RBI), a loan is non-performing if dues are unpaid for 90 days or more. A non-performing loan may bounce back to being standard if the borrower restarts regular payments, or it could slip further to being sub-standard and doubtful to finally a loss asset. Loss assets are invariably written off.