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Write-offs continue to weigh on banks as recoveries lag

Loans that are written off require full provisioning by banks, thereby impacting their profitability.

Despite repeated directives by the finance ministry, banks seem to have been writing off more loans than they recover.

According to official data, Rs 33,907 crore worth of prudential write-offs were added between April and December 2014 in the books of public sector banks. In turn, the public sector banks recovered loans to the tune of just Rs 8,886 crore till December end 2014.

Loans that are written off require full provisioning by banks, thereby impacting their profitability. However, they also help banks to record lower gross non-performing assets.  The data is significant, given that gross non-performing assets (NPAs) of public sector banks touched Rs 2.62 lakh crore or 5.64 per cent of gross advances by December 2014 from 5.29 per cent in the previous quarter.

With repeated prodding by the finance ministry, public sector banks have been stepping up recovery efforts over the last few years. In 2013-14, public sector banks reduced a total of Rs 1.01 lakh crore of NPAs. This included Rs 33,698 crore of actual recoveries and Rs 34,409 crore of write offs. Another Rs 32,936 crore worth of bad loans were upgraded.

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However, in previous fiscals, state run lenders chose to write-off more bad loans compared to actual recoveries. For instance, in 2012-13, public sector banks wrote off Rs 27,231 crore of bad loans as against actual recoveries of Rs 19,832 crore.

Private sector banks, too, seem to prefer writing off loans with Rs 6,461 crore worth of bad loans written off by them in 2013-14 as against actual recoveries of Rs 5,224 crore in the year. Another Rs 3,952 crore worth of bad loans were upgraded and total NPA reduction by private sector banks was Rs 15,637 crore.

The finance ministry has stressed that banks must recover more bad loans than they write-off in any financial year pointing out that cash recovery helps to keep a bank financially sound.

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While the Reserve Bank of India have come out with norms for banks to address wilful defaulters as well as review slippages in asset classification, the finance ministry has now also decided to use the basis of performance and efficiency by state run lenders to decide on capital infusion.

First published on: 20-03-2015 at 01:52 IST
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