Banks have written off bad loans worth ₹ 10,09,511 crore during the last five financial years, Finance Minister Nirmala Sitharaman informed Parliament. The non-performing assets (NPAs), including those in respect of which full provisioning has been made on completion of four years, are removed from the balance sheet of the bank concerned by way of write-off.
Extent Of This Issue: What The FM Said:
- Banks write off NPAs as part of their regular exercise to clean up their balance sheet, avail tax benefit and optimise capital, in accordance with RBI guidelines and policy approved by their boards. As per inputs received from RBI, Scheduled Commercial Banks (SCBs) wrote off an amount of ₹ 10,09,511 crore during the last five financial years.
- As borrowers of written-off loans continue to be liable for repayment and the process of recovery of dues from the borrower in written-off loan accounts continues, write-off does not benefit the borrower, she said.
- Banks continue to pursue recovery actions initiated in written-off accounts through various recovery mechanisms available, such as filing of a suit in civil courts or in Debts Recovery Tribunals, filing of cases under the Insolvency and Bankruptcy Code, 2016 and through sale of non-performing assets.
- SCBs have recovered an aggregate amount of ₹ 6,59,596 crore, including recovery of ₹ 1,32,036 crore from written-off loan accounts during the last five financial years, she said.
- In cases where it is prima facie found that officials are responsible for the lapses of non-compliance with the laid down systems and procedures or misconduct or non-adherence to the due-diligence norms, action is initiated against the erring officials under the board-approved staff accountability policy, she said.
- As per inputs received from public sector banks, she said, staff accountability in respect of NPA cases has been fixed against 3,312 bank officials (of AGM and above rank) during the last five financial years, and suitable punitive actions have been taken commensurate to their lapses.
What The SBI’s Data Showing:
India’s largest lender the State Bank of India (SBI) wrote off Rs 1.65 lakh crore, followed by Punjab National Bank (PNB) at Rs 59,807 crore in this period. Data show SBI wrote off Rs 19,666 crore in loans in FY22, Rs 34,402 crore in FY21, Rs 52,362 crore in FY20 and Rs 58,905 crore in FY19. IDBI Bank wrote off total Rs 33,135 crore during the last four years, with writing off Rs 2,889 crore in FY 22. Among private sector banks, ICICI Bank wrote off Rs 42,164 crore and HDFC Bank wrote off Rs 31,516 crore loans.
What is a loan write-off:
Writing off a loan essentially means it will no longer be counted as an asset. By writing off loans, a bank can reduce the level of non-performing assets (NPAs) on its books. An additional benefit is that the amount so written off reduces the bank’s tax liability.
Why do banks Need to Write-offs:
The bank writes off a loan after the borrower has defaulted on the loan repayment and there is a very low chance of recovery. The lender then moves the defaulted loan, or NPA, out of the assets side and reports the amount as a loss.
After the write-off, banks are supposed to continue their efforts to recover the loan using various options. They have to make provisioning as well. The tax liability will also come down as the written-off amount is reduced from the profit. However, the chances of recovery from written-off loans are very low, which raises questions about the assets or collateral against which the banks lent funds to these defaulters.
How much did PSU banks write off:
Public sector banks reported the lion’s share of write-offs at Rs 734,738 crore accounting for 72.78 per cent of the exercise. Among individual public sector banks, reduction in NPAs due to write-offs in the case of State Bank of India Rs 204,486 crore in the last five years, Punjab National Bank Rs 67,214 crore and Bank of Baroda Rs 66,711 crore.
What is the Amount Written off by Private Banks:
Private banks wrote off loans worth Rs 2,74,772 crore in the last five years in their effort to bring down NPAs and whitewash their balance sheets. This works out to 27.28 per cent of the total write-off of Rs 10,09,510 crore of the banking sector.