Rising bad loans is turning out to be a big problem for India's banking sector. What is worrying is that in this, the number of willful defaulters is rising. A defaulter becomes willful when he is able to repay debt but is not doing so. This is because the funds that he has at his disposal are being utilized somewhere else. For banks, recovering such loans has become a challenge for various reasons. One is that the law with respect to defaults is not too strict. There is no stigma associated with defaults, no proper bankruptcy law exists and legal recourse takes a long time because of clogged courts. As reported in Business Standard, bad loans larger than Rs 2.5 m at state banks amounted to

Rs 1.2 trillion at the end of June. These were the ones that were classified as willful by the RBI. This was up 18 times from June 2008. The fact that high profile companies such as Kingfisher Airlines have defaulted on loans has all the more impacted banks. There is no doubt that these problems need to be addressed by the RBI and Indian banks on an urgent basis. It does not make sense to use taxpayer's money and restructure loans for companies which are not serious about the successful running of their businesses.