Loan write-offs have again aided banks to report lower non-performing assets (NPAs) during the year-ended March 31, 2021. However, total write-offs during the fiscal amounted to Rs 1,85,000 crore, which is lower than Rs 237,876 crore in the previous year ended March 31, 2020.
As per the financial disclosures made by the SCBs, loans written-off accounted for more than Rs 70,000 crore in the quarter ended March 2021. This has led to an improvement in the asset quality (GNPA reduction) of the banks, according to figures compiled by Care Ratings. Earlier this year, Minister of State for Finance Anurag Singh Thakur said in a written reply to the Lok Sabha that banks had written off bad loans to the tune of Rs 1.15 lakh crore during the first three-quarters of the fiscal ended March 2021.
As a result, the reported NPA ratio of the banks decreased to Rs.8.2 lakh crore in the quarter ended March 2021 as compared with the year-ago period (Rs.8.8 lakh crore in Q4FY20), due to recoveries and higher write-offs made by multiple banks, Care Ratings said in a report.
The RBI Annual Report says the reduction in NPAs during the year was largely driven by write-offs. NPAs older than four years require 100 per cent provisioning and, therefore, banks may prefer to write them off. In addition, banks voluntarily write-off NPAs in order to clean up their balance sheets, avail tax benefits and optimise the use of capital. At the same time, borrowers of written off loans remain liable for repayment, the RBI said.
The reported NPA ratio of the banks decreased to Rs.8.2 lakh crore in the quarter ended March 2021 as compared with the year-ago period (Rs.8.8 lakh crore in Q4FY20) due to recoveries and higher write-offs made by multiple banks. The RBI Annual Report says the reduction in NPAs during the year was largely driven by write-offs. NPAs older than four years require 100 per cent provisioning and, therefore, banks may prefer to write them off.
On March 23, 2021, the Supreme Court lifted the ban on NPA classification. With the asset classification standstill lifted in March 2021, the GNPA ratio of SCBs settled at 7.5 per cent in March 2021 as compared with 8.5 per cent in the quarter ended March 2020 which was largely driven by PSBs. All commercial banks reported CAR higher than the minimum regulatory requirement as on March 31, 2021.
Banks with higher write-offs include SBI (Rs 17,590 crore) in the fourth quarter followed by Union Bank of India, Yes Bank, Bank of Baroda, Axis Bank, Punjab National Bank, Bank of India and ICICI Bank. The asset quality improvement was further supported by recoveries made by banks. Of all the banks, data on recoveries from write-off account as disclosed by 19 banks add up to Rs 28,420 crore compared with Rs.18,775 crore in Q3FY21.
In fact, loan write-offs have been rising in the last five years. Banks wrote off Rs 236,725 crore in 2018-19 and Rs 190,572 crore in 2017-18, aiding banks to bring down NPAs.
On the other hand, the gross NPAs in the near term could also be lower than expected if higher write-offs and recoveries are made by SCBs, one-time restructuring scheme for MSMEs, some amount of stressed assets moved to NARCL, liquidity under ECLGS scheme could support the MSMEs and lower than anticipated impact of second wave of the covid-19 pandemic.
However, very little is known about the identity of the borrowers and the amount written off in the case of individual borrowers. While banks claim that the recovery measures continue even after loans are written off, sources said not more than 15-20 per cent is recovered and the write-off figures every year are rising, much faster than recoveries and recapitalisation.
With the second wave of the Covid-19 pandemic hitting the economy, bad loans are expected to go up in the coming quarters. As per the latest Financial Stability Report of the RBI, macro stress tests indicate that the gross non-performing asset (GNPA) ratio of banks may increase from 7.48 per cent in March 2021 to 9.80 per cent by March 2022 under the baseline scenario and to 11.22 per cent under a severe stress scenario. However, have sufficient capital, both at the aggregate and individual level, even under stress, it said.
Within the bank groups, NPAs of public sector banks are expected to rise to 9.54 per cent in March 2021 and edge up to 12.52 per cent by March 2022 under the baseline scenario. However, this is an improvement over earlier expectations and indicative of pandemic proofing by regulatory support, it said.