The business of banking depends upon acceptance of deposits and lending the money received from the depositors for profitable business. Unless effective lending takes place, banks cannot earn profits. The net profit for the bank is the income received through interest on loans and other income less interest paid to the depositors and other administrative expenses. Despite the facts that banks are taking effective steps, many banks are found to be failing in their duties in recovery of loans and bad debts prompt the bankers to close down their businesses at the later stage.
- Proper credit investigation: It is the responsibility of the banker to pay utmost importance while selecting a borrower. Any laxity on the part of the banker during the course of selection of the borrower will land him in trouble in future days. There is large number of ways through which the selection of the borrowers can be done in an effective manner. The banker should necessarily follow the various credit investigation tips available to them and this information can be provided to them by senior bankers.
- Follow up: Once the loans are granted, it is the duty of the bankers to have regular check up in regard to prompt recovery of installments and interest. The cute bankers start communicating the borrowers at least seven days in advance so that the borrowers are promptly reminded of their dues and once the borrower understands that the banker is cautious in this respect he never fails to remit the installments promptly and rarely he fails payment of his dues.
- Overdues: Despite proper follow up by the bankers, some borrowers fail to remit their dues on account of many reasons namely; they might have lost their jobs thereby losing their salaries; on account of some unforeseen circumstances they may not be able to remit their dues; they are intentionally not willing to pay back their dues; they are least bothered about the outcome in case of their failure to remit the dues etc.