The term Zombie Lending recently seen in the news is related to ........

Economic Affairs Types of Banks and Banking

The term Zombie Lending recently seen in the news is related to?

It refers to the practice of providing credit to entities that do not have the capability to repay.

It refers to the funding of an insolvent NBFC by a nationalized bank for their restructuring process.

It refers to the practice of lending to a shell company and diverting its funds.

It refers to a Foreign Portfolio Investments in the budding MSMEs.

RBI Governor Shaktikanta Das warned about the banks adopting innovative methods for evergreening of loans.

Zombie Lending

Zombie lending refers to the practice of providing credit to entities that do not have the capability to repay.
Evergreening - If an account turns into a non-performing asset (NPA), banks are required to make higher provisions which will impact their profitability.
A loan turns into a nonperforming asset, if the interest or instalment remains unpaid for more than 90 days.
So, to avoid classifying a loan as an NPA, banks adopt the evergreening of loans.
In the past, many banks had indulged in dressing up bad loans and given additional funds to companies who didn’t have the capacity to repay.
An increase in lending to unproductive firms, popularly referred to as zombies will inflates credit growth and the resultant loan defaults haunt financial institutions at a later stage.