The Psychology of NPA Borrowers_ Understanding Behavior Patterns and Risk Factors

The banking sector can be affected by non-performing assets (NPAs), which are loans that borrowers fail to repay on time. This poses risks to the lending institution and the economy as a whole. NPAs have been on the rise due to relaxed lending norms for big corporations and economic slowdowns. Accumulation of NPAs can lead to revenue loss, damage to the bank's brand image, and potential actions by regulatory bodies. NPAs also impact borrowers' credit scores and can result in the liquidation of their assets. The psychology of NPA borrowers, understanding behavior patterns and risk factors the banking sector is the backbone of any economy. It can be largely affected by the non-performing assets or NPA, hence its performance must be thoroughly reviewed. It defines certain assets like loans and advances that do not generate any income. It happens due to the failure of NPA borrowers to meet up to their repayment terms. In order words, NPA includes all the loans that have not been repaid on time. It poses a risk to the overall capabilities of the lending institution. This is why the banking sector has established some criteria and specific periods for loan repayment. In recent years, NPAs have been on a rising trend. This has become a matter of concern for not only the banks but the economy as a whole. The loan can be termed as NPA during its term or at the time of maturity. One of the top reasons behind the accumulation of NPAs is the relaxed lending norms for big corporations. Banks would not carry out thorough checks as the given companies have good names in the market. But credit analysis for all stages is important as without it the risk for NPAs might potentially increase. Economic slowdown including recession has also affected the overall industrial growth. It affects the cash flow of the company which causes them to default on their loans. Sometimes, the banks would not carry out proper credit appraisals while sanctioning a loan. This can also lead to potential loan defaults. Risk factors associated with NPAs would include the obvious revenue loss and it would also affect the bank's brand image. They might also have to face harsh actions by the RBI and its stock market price would also fall in this case. For the borrower, NPAs would impact their credit score and make it difficult for them to get funding in the future. After a prolonged period of defaulting, the banks will force the lender to liquidate their assets. These are the same ones which were considered as collaterals in the debt agreement. If no assets were pledged, the lender would write off the loan as a bad debt.