Evergreening Of Loans : RBI
The Governor of the Reserve Bank of India (RBI), recently addressed bank boards and expressed concerns about banks adopting over-aggressive growth strategies and engaging in the evergreening of loans.
- The governor emphasized the need for robust corporate governance and highlighted instances of concealing the true status of stressed loans.
- Evergreening loans, a form of zombie lending, is a practice of extending new or additional loans to a borrower who is unable to repay the existing loans, thereby concealing the true status of the non-performing assets (NPAs) or bad loans.
- Approaches Utilised for Evergreening Loans:
- Selling and buying back loans or debt instruments between two lenders to avoid classifying them as NPAs.
- Persuading good borrowers to enter into structured deals with stressed borrowers to hide their default.
- Using internal or office accounts to adjust the repayment obligations of borrowers.
- Renewing or disbursing new loans to stressed borrowers or related entities closer to the repayment date of earlier loans.