Definition
Evergreening of Loans
Evergreening is the practice of extending fresh loans to a stressed borrower to repay old dues, masking a default and delaying NPA recognition.
By rolling over or topping up loans so a borrower can service existing debt, a lender can keep an account classified as standard rather than recognising it as an NPA. This hides the true state of asset quality and defers provisioning.
The RBI treats evergreening as a serious supervisory concern and has penalised banks for such practices, including disguised restructuring through structured deals. It is a key reason regulators look beyond reported NPAs to stressed assets and conduct asset-quality reviews.
Related terms
- Non-Performing Asset (NPA)A Non-Performing Asset is a loan or advance on which the borrower has not paid interest or principal for 90 days or more, as defined by RBI norms.
- Restructured AssetsRestructured assets are loans whose terms, such as tenure, interest rate or repayment schedule, have been modified because the borrower is in financial difficulty.
- Stressed AssetsStressed assets are the total of a bank's non-performing assets plus restructured and written-off loans, capturing the full extent of troubled credit.
- Window Dressing (Banking)Window dressing is the temporary improvement of financial metrics around a reporting date to present a healthier picture than the underlying position.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.