What happens when a borrower stops repaying a loan?
📚 CAIIB Study Resources 📚
👉 Check Here
👉 Check Here
👉 Check Here
👉 Get Tests Here
👉 Check Here
👉 Click Here
👉 Click Here
In this video, we explore “Rehabilitation & Recovery”, a crucial chapter from Module C of ABM/CAIIB. We’ll break down:
- What leads to loan defaults and how banks classify stressed assets
- Strategies like restructuring, rectification, and recovery
- The role of Provision Coverage Ratio (PCR) & NPA classification
- Legal actions under DRT, SARFAESI, and IBC
- How banks handle wilful defaulters & non-cooperative borrowers
If you’re a banker preparing for JAIIB/CAIIB, a finance enthusiast, or a credit risk manager, this guide is a must-watch! Drop your thoughts in the comments section and let’s discuss banking strategies together. ✅
Before we dive in, watch this video for a complete breakdown:
Understanding Credit Defaults & Stressed Assets
📌 What is a Credit Default?
A credit default occurs when a borrower fails to repay a loan. This can happen in various forms:
- Direct Loan Default: Borrower doesn’t repay principal or interest.
- Guarantee or Letter of Credit Default: A third party fails to honor a bank guarantee.
- Treasury Default: Counterparties in financial agreements don’t fulfill obligations.
- Securities Trading Default: Issues in settlement of securities transactions.
- Cross-Border Default: Restrictions in international transactions.
📌 Causes of Credit Defaults
Understanding the root causes of credit defaults helps in minimizing risks. Some common reasons include:
- Economic Downturn: Recession or slowdown in the economy affects repayment ability.
- Poor Financial Management: Borrowers mismanage funds leading to defaults.
- High-Interest Rates: Increasing interest burden makes repayment difficult.
- Fraudulent Activities: Some borrowers deliberately divert funds for personal gain.
Classifying Non-Performing Assets (NPAs) & IRAC Norms
📌 What happens when a loan becomes an NPA?
Once a loan is not repaid as per the terms, banks classify it under IRAC (Income Recognition & Asset Classification) norms:
- Sub-Standard Assets: Loans remain unpaid for up to 12 months.
- Doubtful Assets: If unpaid for more than 12 months, further divided into:
- Doubtful 1: 12-24 months
- Doubtful 2: 24-36 months
- Doubtful 3: More than 36 months
- Loss Assets: If deemed non-recoverable, banks fully provision for losses.
[FREE EPDF] CAIIB ABM | Module C Chapter 23 Part 2 | Risk Management Credit
📥 Download Free PDF Notes
For more banking insights, join our WhatsApp community at +91 8360944207 📲
Also Like:
