Public sector banks have written off loans totalling Rs 2.51 lakh crore in the past eleven years since 2006, according to finance ministry data. Loans write-offs jumped sharply in recent years, with the state-owned banks writing off the highest-ever amount of Rs 59,547 crore in the year ended March 2016. In the past four years, the PSBs have written-off loans of Rs 1.73 lakh crore.
Banks write-off loans when they see limited chances of recovery. While some of the loans written-off are later recovered by the banks, their recovery rate (the amount recovered as a percentage of additional write-offs) has been low at around 10-15 per cent. Country’s largest lender State Bank of India, for instance, recovered Rs 2,859 crore from its written-off accounts in 2015-16 while it wrote off Rs 15,763 crore worth of loans in the same year. In 2014-15, SBI recovered an amount of Rs 2,359 crore as against write-offs of Rs 21,313 crore in the same year.
The government has recently strengthened the bad debt recovery laws and enacted a new bankruptcy code to give greater powers to banks to ensure speedy recovery of bad loans. In May, the finance ministry issued advisory to banks to take action against guarantors in event of default by borrower under the relevant recovery laws, since in the event of default; the liability of the guarantor is co-extensive with the borrower.
Loan write-offs by banks jumped as their non-performing assets shot up over the years. State-owned banks’ gross NPAs as March 31, 2016 were Rs 4.77 lakh crore or 9.32 per cent of the total advances. The Reserve Bank of India estimates that this ratio may rise to 10.10 per cent by March 2017.
Public sector banks recorded NPAs across the board, with corporate sector loans accounting for the highest gross NPA of 11.95 per cent of total advances, followed by micro and small enterprises accounting for gross NPA of 11.13 per cent as on March 31, 2016. Gross NPAs for loans to agriculture and allied activities were 6.39 per cent of the total advances.
PSBs recorded the lowest gross NPA level for retail loans at 2.06 per cent. Gross NPA for housing loans within the retail advances were even lower at 1.24 per cent as on March 31, 2016, the finance ministry data showed.
Burdened by high NPAs and hefty write-off of bad loans, state-owned banks reported record losses in the fourth quarter of 2015-16.
The banks’ losses in just one quarter were almost equivalent to the amount of capital infusion by the Centre in PSBs in the full year of 2015-16. Against a sum of Rs 25,000 crore of capital infusion by the government in the PSBs last year, 27 state-owned banks recorded combined net losses of Rs 23,704 crore in January-March quarter this year.
In a report on Indian and Chinese banks released earlier this week, S&P Global Ratings anticipated that the nonperforming loan ratios of Indian banks with high exposure to companies in troubled sectors will continue to rise.