Banks write off Rs 2.02 lakh crore in FY21; Rs 10.7 lakh crore crore in the last 7 years

Along with this, banks have written off a whopping 1,168,095 crore rupees of bad debt or non-performing assets (NPAs), over the past ten years with most of the write-offs having taken place in the past seven years, the RBI said. in a response from RTI to The Indian Express. This represents nearly 10.54 percent of total non-food bank advances of Rs 110.79 lakh crore and very close to the gross government borrowing in the market of Rs 12.05 lakh crore forecast for fiscal year 2021. -22 in the Union budget.

Of the total write-offs in 10 years, up to Rs 10.72 lakh crore have been written off since the 2014-15 fiscal year, when the Narendra Modi government took power. This write-off helped banks launder their bad debt portfolios.

Normally, banks cancel an NPA when all collection measures are exhausted and the chances of loan recovery are low. However, banks are expected to continue with the collection steps even after a write-off. While a loan can be written off if it is in default for more than three consecutive quarters, banks have not disclosed the names of borrowers whose loans have been written off so far.

Banks wrote off Rs 2,34,170 crore in fiscal year 2019-2020, Rs 2,36,265 crore in fiscal year 2018-19, Rs 1,61,328 crore in 2017-18 and 1,083,773 Rs crore in 2016-2017, said the RBI.

Five banks, led by the State Bank of India (SBI), wrote off 89,686 crore rupees in the fiscal year ended March 2021, with the SBI accounting for 34,402 crore rupees, the RBI said. Union Bank wrote off Rs 16,983 crore, PNB Rs 15,877 crore and Bank of Baroda Rs 14,782 crore in FY21.

Almost 75 percent of write-offs are done by public sector banks (PSBs), helping them make their loan portfolios and balance sheets decent. “Once a loan is written off, it is removed from the NPA ledger. This helps the bank to reduce NPAs and gain tax benefit. In fact, the overdue loan still exists because it is an accounting entry, ”said an official of a nationalized bank.

According to the main RBI circular on the recognition of prudential income, banks are the custodians of public deposits and are therefore expected to make every effort to protect the value of their assets. Banks are required to extinguish all available means of collection before writing off an account in whole or in part, the RBI said.

“We observe that some banks resort to technical write-offs, which reduces the incentives to recover,” he said. Banks that use partial and technical write-offs should not present the remaining part of the loan as a standard asset. In order to bring more transparency, banks should now disclose all details of write-offs, including separate details of technical write-offs, in their annual financial statements, he said.

Banks will first set aside provisions on these assets and then write off when the loan becomes uncollectible. The loan is then excluded from the balance sheet and the taxable income of the banks is reduced.

However, experts say there is no transparency in the process and loans from large defaulters are normally written off while small borrowers receive no mercy from banks. The recovery of canceled loans does not exceed 15 to 20 percent, a banking source said. “As a general rule, radiation should be low and should be used sparingly in a crisis. Technical delisting creates a lack of transparency, destroys the credit risk management system and introduces all types of wrongdoing into the system, ”said a former RBI official.

“I have nothing against a write-off, but it has to be done barely and within the framework of a policy, with all efforts made to recover the money. Any asset backed by a tangible fixed asset is never written off. Second, you must be carefully screened for these write-offs. There must be a policy. You ask any banker. They canceled Vijay Mallya’s loan. So how are they going to get this money back? Use it sparingly and do it where it matters most. If there is an asset, why are you canceling it? Added the manager.

A substantial part of this radiation is, however, of a technical nature. Its main objective is to clean up the balance sheet and achieve tax efficiency.

“In ‘technically written off’ accounts, loans are written off from the head office books, without waiving the right of recovery. In addition, write-offs are generally made on the accumulated provisions made for these loans. Once recovered, the provisions made for these loans go back to the banks’ income statement, ”the central bank said in an explanatory note.