NPA Crisis

Banks face $3 bn write-off from PNB scam


Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: NPA, Special mention accounts

Mains level: Banking frauds and provisions to deal with them

Repercussions of PNB scam

  1. The ₹12,700 crore Letters of Undertaking (LoU) fraud at the Punjab National Bank (PNB) could punch a bigger hole in India’s banking system
  2. The closure of businesses of loan-taking firms by investigative agencies is likely to result in another ₹8,000 crore of loans extended to them by banks turning into non-performing assets (NPAs)

RBI guidelines

  1. According to Reserve Bank of India (RBI) guidelines, banks have to write off the entire loan amount once a fraud has been reported

Status of loans and provisions

  1. Bankers said the loans to these companies were already in the second category of special mention accounts (SMA-2)
  2. If a loan repayment is due for over 60 days but less than 90 days, the account is accorded SMA-2 status
  3. If the dues remain unpaid for 90 days, it is classified as non-performing

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