What is an AQR?

To put it simply, an Asset Quality Review (AQR) is an exercise conducted by the Reserve Bank of India (RBI) to assess the actual level of bad loans in the industry. A loan becomes bad or an NPA (Non-performing asset) if interest or principal is not paid in 90 days. Banks often engage in smart technical adjustments to show stressed loans as standard assets, through last-minute small payments. This eventually creates a bad loan bubble, resulting in a crisis. The RBI doesn’t want such an eventuality. Hence, it initiated an AQR in 2015 unearthing huge backlog of NPAs and forcing banks to account for every single NPA. With the recent economic survey arguing in favour, a second AQR may be well on the way!