Bad loans down, though willful default accounts shoot up

RBI has reported a sharp decline in gross non-performing assets (NPAs), or bad loans, in the banking system in the last two years, but willful defaults have shot up with more legacy loan accounts now getting added to the willful default category.

There has been a rise of 38.50 per cent, or Rs 94,000 crore, in willful defaults in the last two years, reflecting the gaps in loan appraisals and risk management in the banking sector. There were 15,778 willful default accounts involving an amount of Rs 340,570 crore as of December 2022 as against 14,206 accounts involving Rs 285,583 crore a year ago in December 2021 and 12,911 accounts for Rs 245,888 crore in December 2020, according to Transunion Cibil, a credit information company registered with the RBI.

As per the Reserve Bank of India’s (RBI) classification, a ‘willful default’ would be deemed to have occurred if the borrower has defaulted in meeting their repayment obligations to the lender even when they have the capacity to honour the said obligations. “This (higher willful default number) has nothing to do with the present. This is all a catch up of the past. So, it is not for the defaults but it is the default of the past and where recovery and insolvency actions are still going on,” said an official of a bank.