After writing off loans worth over Rs 9.90 lakh crore in the last five years, the amount written off by banks declined by 18.15 per cent during the financial year ended March 2024, data from the Reserve Bank of India (RBI) showed. Banks reported a decline in loan write-off at Rs 170,270 crore in FY24 as against Rs 208,037 crore in the previous year, according to data furnished by the RBI in its reply to the Right to Information (RTI) application filed by The Indian Express. The mega write-off exercise has enabled banks to reduce their non-performing assets (NPAs), or defaulted loans, by Rs 990,224 crore ($117.88 billion) in the last five years, RBI data shows. On the other hand, banks were able to recover Rs 46,036 crore in 2023-24 from loan written off earlier as against Rs 45,551 crore last year. Total recoveries from write-offs were only 18.70 per cent at Rs 185,241 crore in the last five years, according to the RBI. This means banks were not able to recover 81.30 per cent of the loan written off in five years despite adopting various recovery measures. Aided by this huge write-off, which would have been enough to wipe out 59 per cent of India’s estimated gross fiscal deficit of Rs 16.54 lakh crore for 2023-24, the gross non-performing assets (GNPA) ratio of scheduled commercial banks, which moderated to a 12-year low of 2.8 per cent of advances in March 2024, may further improve to 2.5 per cent by March 2025, according to RBI. Once a loan is written off by a bank, it goes out from the asset book of the bank. 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 loss. “After write-off, banks are supposed to continue their efforts to recover the loan using various options. They have to make provisioning also. The tax liability will also come down as the written off amount is reduced from the profit,” said a banking source. A loan becomes an NPA when the principal or interest payment remains overdue for 90 days. Not surprisingly, according to the RBI, public sector banks reported the lion’s share of write-offs at Rs 349,108 crore accounting for nearly 63 per cent of the write-off exercise. “A major portion of this write-offs is due to technical/ prudential/ advances under collection. The banks retain the right to recover from the borrowers in all such cases,” the RBI said in the reply. The nature and purpose of write-offs by banks is governed by several considerations. “Once an account becomes NPA, prudential norms require the creation of provisions and on the basis of the aging of the NPA as well as the realisable value of security, these provisions get augmented and reach a stage where the provisions equal the outstanding in the account,” it said. “So, once these accounts become fully provided, the bank is carrying an asset on one side and an equal provision on the other side. So, as a part of balance sheet management and for tax efficiency, the banks as per their Board approved policy resort to what is called technical write-off,” the RBI said in the RTI reply. “Write-offs by banks is purely an accounting entry where an on-balance sheet item moves into off- balance sheet items and they are parked in typically what is known as ‘Advances Under Collection’ and there are specialised teams which follow-up for the recovery thereafter,” it said. The borrower’s liability to repay or the bank’s right to recover is not diminished in any manner, the RBI said. According to the RBI, this is purely a balance sheet management. “Banks and regulators focus on such accounts that are parked in a special account to ensure higher recoveries because such recoveries go into aiding the P&L account and then contribute to the financial wellbeing of the bank,” it said. “The percentage of recovery has to be seen in the context of the age of NPA and the availability or absence of security thereof. Bank management is expected to have approved policies for write-off and follow-up aimed at maximising recovery,” it said. “The recovery process can take years. It’s spread over many years,” said an official of a nationalised bank. While many big and small defaulted loans were written off by banks over the years, the identity of these borrowers was never revealed by banks. However, the RBI has not yet disclosed the names of top borrowers involved loan write-offs. “Information on borrower-wise loan write-off is not collected by us and hence, not available with us,” the RBI replied in an earlier RTI reply.
