Impact of Loan Defaults on Banks

Impact of Loan Defaults on Banks

Author Name : Manan Pahwa, Tanmay Modi, Mohammed Miran Khan

ABSTRACT

Although there are plentiful advantages of loans to banks as flexibility, cost-effectiveness, retained profits and tax benefits the advisability achievement of commercial banks still stands at uncertainty. The incessant endeavour made by commercial banks to limit loan defaults they still face complications causing their operation to be limited. Generally, when a borrower stall repaying debt in an initial agreement then loan deficiency occurs. Thus, the debtor missed his instalment need to be paid regularly. At times lender generally grant a few gracesperiod ahead for the borrower before castigating. After the liquidation of the first instalment the layoff period between giving the instalment and securing the loan is known as delinquency.

The significance of current study is to perceive the functioning of bank and certain measure must take to cut down the cases of loan default. To study the influence of loan deficiency on the profitability of the bank and to determine straight ways to reduce the non-payment information organized for study is essentially based on trivial data such as journals, internet, newspaper, magazines & books.

The study recommends that commercial banks should put more emphasis on Credit Risk Management, training of staff and adopt credit scoring in vetting of SME customers loan requests.