What are Bad-debts? - YouTube

hello everybody welcome to yet another  episode of learning perspectives  

today we are going to deconstruct  a scene from the movie 1,2,3

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now the scene that you just  saw shows you how uh layla has  

taken a loan of rupees 25 lakh from a bank ICUC  

and she's been unable to pay this amount of on the  various installments for just almost 10 months now  

she is being confronted by two bank employees who  have come there to ask for their money back she's  

being served a notice basically and you know  being asked for her money for the money back  

room and she put some cars in there but uh you  know the bank is unable to recover that money  

from her so the bank says that we will sell  all your car cars to recover that money in this  

episode we will understand what exactly are bad  debts and also uh touch upon what exactly are npas  

so bad debts basically are those debts that  have gone bad the the point that i'm trying to  

make here is that kind of debt that generally is  somebody who is not able to pay their installments  

back although bank when giving a loan always goes  through a checklist and making sure that this is a  

customer who would be able to pay their money back  but there are times that it may happen that the  

customer is unable to pay the money back and the  bank would be at a loss generally and in a lot  

of times banks take collateral uh for collateral  you can uh look at the blog that have linked below  

so uh but there can be times when customers are  unable to pay and banks have to recover this  

by uh selling the asset that they have acquired so  in this case they are saying that we will sell off  

all your cars now what happens in a bank's balance  sheet in this case or a bank's income statement  

for that matter now banks often know that you  know there will be people who would default so  

banks create a provision and majority of  the companies create a project provision  

uh which is provision for doubtful debts as the  name itself is suggesting these are the people  

who might be doubtful who might not give the money  back now this amount is generally shown uh in the  

income statement and this is the provision and  the expenses are also recorded as credit so bad  

dates are recorded as expenses for the company  obviously because they stand at losing that money  

now when uh any customer does not pay for a  very long time and i would quantify this long  

time this quant this i would not but rbi has  quantified this long long time uh as 90 days  

so if a customer is not able to pay for more than  90 days that asset becomes a non-performing asset  

which means that uh for example uh obviously  samira reddy or leila played in the movie has not  

paid for more than 90 days correct because  he says 10 months so it's almost 300 days  

somewhere around that so her as her she is now  qualified as a non-performing asset that means  

um so for example so let's let's look at this  um when a bank gives a loan to you or me that  

loan is an asset for the bank right even  though they are paying the money out right now  

they would get this money uh back  over a period of time correct  

so hence bank qualifies all the loans that they  have given out as an asset for the business now  

when this asset is non-performing when this  asset is not giving any money back to the bank  

then it becomes a non-performing asset so after 90  days uh it is qualified as a non-performing asset  

now we all know this india is going and in fact  the world is going through a very challenging time  

right now and um it's it's the time of ovid and we  have a situation where everybody is locked inside  

and the economy itself is trying to  breathe life somehow hence in our country  

the npa situation has gone from bad to worse even  though the npas were around 7.5 percent in uh  

2020 uh rbi has forecasted that it may go as high  as 13.5 percent uh in 2021. um this situation is  

very bad because people are defaulting on their  loans because they have themselves have lost their  

jobs and they don't have that kind of money to pay  back to the bank hence npa is at a very big rise  

now this is a challenging situation not just  for the banks but for the economy as a whole  

because uh there seems to be a problem in  getting the money back into circulation  

so uh banks also divide um assets into various  classes such as doubtful asset or a loss  

asset standard asset substandard asset i  would encourage you to click on the link  

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