Scheduled commercial banks have cumulatively written-off an amount of Rs 5.85 lakh crore in the five years since 2014-15, according to government data for 76 public sector, private and foreign banks operating in the country.
Add to that the Rs 80,893 crore that public sector and private banks wrote-off during the first six months of current financial year 2019-20 (April 1-September 30), the cumulative write off amount crosses Rs 6.66 lakh crore.
To put the write-offs in perspective, this number is well over twice the Rs 3.13 lakh crore infused by the government in PSBs since April 2014 to recapitalise them.
The amount written off by banks during the five-and-a-half-year period — the 21 PSBs that account for around 70 per cent of the total banking assets contributed over 80 per cent of the total write-offs — is nearly four times the Rs 1.71 lakh crore allocated in Budget 2020-21 for the healthcare, education and skill development sectors on a cumulative basis.
The only silver lining: the progress by the government on resolution and recovery, primarily on account of the enactment of the Insolvency and Bankruptcy Code (IBC) and other recovery related reform measures. As a result, public sector banks (PSBs) are reported to have recovered Rs. 3.83 lakh crore over the period from April 2014 to June 2019, including record recovery of Rs. 1.27 lakh crore claimed in the last financial year, according to government estimates.
Recoveries take place on the total cumulative write-off and not only on write-off for a specific period. In ‘Technically Written Off’ accounts, loans are written off from the bank books, without foregoing the right to recovery. Further, write-offs are generally carried out against accumulated provisions made for such loans. Once recovered, the provisions made for those loans flow back into the profit and loss account of the bank.
According to a senior government official, the decision to write off loans, either fully or partially, is a business decision taken by banks to clean up their balance sheets, based on various viability factors such as scope of upgradation of an non-performing asset (NPA) into standard category, chances of recovery from such assets, market conditions, availability of security, and its valuation. At times, such decisions are taken keeping in view the available taxation benefits and also to manage the level of NPA ratios of banks. In case of technically written-off accounts, the recovery efforts “continue as usual”, an official said.
While the government has been trying to shore up PSB books through equity capital infusion and other measures, stressed assets have registered a steady rise since 2011. However, when it comes to NPAs, the growth was muted until 2014, followed by a dramatic rise since, particularly after 2015-16 because of the Reserve Bank of India (RBI) undertaking an Asset Quality Review of banks in 2014. This led to the recognition of many bank loans as NPAs, considered by banks as standard assets till then.
As a result, the gross NPAs of PSBs, according to RBI data on global operations, rose from Rs 2.79 lakh crore as on March 31, 2015, to Rs 6.85 lakh crore up to March 31, 2017 and Rs 8.96 lakh crore by March 31, 2018.
Since then, the NPA numbers are reported to have declined to Rs 7.27 lakh crore till September 30, 2019, primarily on account of recoveries made under IBC.
Alongside action through the IBC, PSBs have also been directed to created Stressed Asset Management Verticals to focus on recovery, segregated monitoring from sanctioning roles in high-value loans, and entrusted monitoring of loan accounts of above Rs 250 crore to specialised monitoring agencies for “effective monitoring”. They have also been asked to also create online end-to-end One-Time Settlement platforms for timely and better realisation, an official said.