<p>"Loan waiving" means "loan write-off": the debt is eliminated. Therefore it is subtracted from the assets of the lender, and if it was already a non-performing loan (asset for the lender), the total of non-performing assets is now reduced. </p>

<p>The value of the debt that has been wrtten-off appears as  a once-off "loss" in the Profit &amp; Loss statement of the lender.</p>

<p>Whether debt write-off is or is not "a good idea" has no single/simple answer, and it depends on a lot of factors that may change in time and country.</p>

<p>The main abstarct arguments against is that<br>
<strong>a)</strong> writing-off debt signals to other borrowers that they can too leave their debts unserviced on purpose, even though they are financially able to service them, in expectation of a future new write-off: in other words, it creates what is called "moral hazard", </p>

<p><strong>b)</strong> seeing debts being written off, lenders will be less willing to lend funds in the future, even to prospective borrowers in good financial standing.</p>

<p><strong>c)</strong> finally a pure economics agument, says that businesses that cannot repay their loans are inefficient businesses and so it is not in the economy's best interest to "provide a lease of life" through debt write-off to such inefficient entities.  </p>

<p>Again, the above are the abstarct arguments. The OP has a specific situation in mind, and a specific study should be carried out to evaluate and quantify the socio-economic pros and cons of debt write-off for the specific case.</p>

CC BY-SA 3.0
2017-07-27T12:54:46.707Z
2017-07-27T12:54:46.707Z
Alecos Papadopoulos
<blockquote>
  <p><strong><em>Context: Loan waving  to small and marginal farmers in India.</em></strong></p>
  
  <p>In wake of fulfilling poll promises and increasing farmer protests and
  suicides in India, many state (federal) governments have decided to
  waive loans to small and medium scale farmers.</p>
</blockquote>

<p>However, I found on going through various newspaper sources that loan waiving is not a good idea from the economic point of view. Why does then loan waiving lead to a decrease of the NPAs (Non performing assets)?</p>

<finance>
Why does loan waiving lead to a decrease of Non performing assets?
Soumee
# Why does loan waiving lead to a decrease of Non performing assets?

(Asked by: username_0 on 2017-07-27)

> ***Context: Loan waving to small and marginal farmers in India.***
>
> In wake of fulfilling poll promises and increasing farmer protests and
> suicides in India, many state (federal) governments have decided to
> waive loans to small and medium scale farmers.

However, I found on going through various newspaper sources that loan waiving is not a good idea from the economic point of view. Why does then loan waiving lead to a decrease of the NPAs (Non performing assets)?

**Tags:** finance

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## 1 answers

### Answer by username_1 on 2017-07-27. Score: 2 | Accepted answer

"Loan waiving" means "loan write-off": the debt is eliminated. Therefore it is subtracted from the assets of the lender, and if it was already a non-performing loan (asset for the lender), the total of non-performing assets is now reduced.

The value of the debt that has been wrtten-off appears as a once-off "loss" in the Profit & Loss statement of the lender.

Whether debt write-off is or is not "a good idea" has no single/simple answer, and it depends on a lot of factors that may change in time and country.

The main abstarct arguments against is that  
**a)** writing-off debt signals to other borrowers that they can too leave their debts unserviced on purpose, even though they are financially able to service them, in expectation of a future new write-off: in other words, it creates what is called "moral hazard",

**b)** seeing debts being written off, lenders will be less willing to lend funds in the future, even to prospective borrowers in good financial standing.

**c)** finally a pure economics agument, says that businesses that cannot repay their loans are inefficient businesses and so it is not in the economy's best interest to "provide a lease of life" through debt write-off to such inefficient entities.

Again, the above are the abstarct arguments. The OP has a specific situation in mind, and a specific study should be carried out to evaluate and quantify the socio-economic pros and cons of debt write-off for the specific case.


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