The Abeyaar Series #1: Evergreening

A conversation on Slack today on our Premium channel led to this explanation of the concept of “evergreening” loans by banks.

So let’s say you are 60 days past due. In 30 days you will become NPA. The scene is like this:

You: I cant pay

Bank: Abeyaar interest at least give no?

You: I can’t pay don’t have money forget it

Bank: Okay I can suggest a way out

You: What?

Bank: I will give you another loan for something else. You have to use it to pay me back interest portion on the current loan at least, using the extra money

You: How does it help

Bank: Then I won’t call you defaulter and tell everyone else you are defaulter and try to do recovery and all that

You: Okay, so now what

Bank: You owe 10,000 no now? I will give you 1000. You pay me back 1000 as interest on earlier loan. You will owe total 11,000 because of second loan but we will eventually forgive the extra 1000 just take some time to find the 10000

You: Done

Bank, after two more months: Abeyaar give me interest on 11,000 now.

(repeat from: “You: I can’t pay”)

Then for the markets, the bank situation is like this:

Banker: I have low NPA

Analyst: Wow

Banker: And my loan book has grown from 10,000 to 11,000

Analyst: Well done sir

Banker: Also we are finding more borrowers because they have heard of our excellent “top up” loan policy

Analyst: And we can see your fee income is also going up

Banker: Because we charge fees on top up loans also.

Another Analyst: But this fellow has already defaulted to other banks so do you think he’ll do this to you also

Banker: Abeyaar, we don’t comment on individual loans okay we have to close conference call now any more question no thank you goodbye.

Of course it gets more nuanced than this. Bankers don’t say Abeyaar.

But that’s what it is.