Haircut in Loan Recovery

WHAT IS HAIRCUT IN LOAN RECOVERY ?

1. In banking, haircut means the difference between the actual dues form a borrower, and the amount he settles with the bank.

2. When there is no hope of loan recovery, bank will write-off it as one time settlement. It is better to recover something rather than losing what is lent.

3. Suppose, loan dues stand at Rs.25 crore, and the amount settled for recovery is Rs. 20 crore, the haircut amount is Rs.5 crore.

4. Haircuts are not ideal for recovery. But if it is a one time cash settlement, it will go straight in to profit and loss account.

Article by Shri Arvind Mannur - Former Chief economist at Central Bank of India

For details on Haircuts please click on the following link: Haircuts: A way to address NPAs in banking system

 

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