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Banks Wrote Off Bad Loans Worth Over Rs 2 Tn In FY23: RBI

Rising bad loans cleared off, but recoveries show little improvement, sparking calls for accountability

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Banks in India wrote off bad loans amounting to over Rs 2.09 lakh crore (approximately USD 25.50 billion) during the fiscal year ending in March 2023, as revealed in a Right to Information (RTI) reply by the Reserve Bank of India (RBI) to a media house. This brings the total loan write-offs by the banking sector to a significant Rs 10.57 lakh crore (around USD 129 billion) over the past five years. The write-offs have been instrumental in reducing gross non-performing assets (GNPA) or loans defaulted by borrowers to a 10-year low of 3.9 per cent of advances as of March 2023.

The banking sector witnessed a decline in gross NPAs from Rs 10.21 lakh crore in FY2018 to Rs 5.55 lakh crore by March 2023, primarily due to loan write-offs by banks. According to RBI data, since FY2012-13, banks have written off Rs 15,31,453 crore (USD 187 billion) in total.

However, it is essential to note that the loans written off by banks will remain in their books as unrecovered loans. The RBI's RTI reply indicated that banks managed to recover only Rs 109,186 crore from Rs 586,891 crore of loans written off in the last three years, translating to only 18.60 per cent of the write-offs during the three-year period.

Considering both write-offs and loans recovered from write-offs in the last three years, the total defaulted loans amount to Rs 10.32 lakh crore. This figure, citing a back-of-the-envelope calculation, suggests that the total NPA ratio, including write-offs, would have been 7.47 per cent of advances, much higher than the 3.9 per cent reported by the banks.

During the fiscal year ending March 2023, loan write-offs by banks amounted to Rs 209,144 crore, compared to Rs 174,966 crore in March 2022, and Rs 202,781 crore in March 2021.

Despite banks writing off loans to reduce NPAs in their books, they reported abysmal recoveries from these written-off loans. According to the newspaper report, they could only recover Rs 30,104 crore in FY21, Rs 33,534 crore in FY22, and Rs 45,548 crore in FY23.

Banks are supposed to continue their efforts to recover the loan using various options even after writing off the loans. Additionally, they have to make provisioning and the tax liability is reduced as the written-off amount is deducted from the profit.

A loan is classified as a non-performing asset (NPA) when the repayment of the principal amount or the interest remains outstanding for a period of 90 days. However, the identity of these defaulting borrowers remains undisclosed by banks or the RBI.

Among individual banks, some significant reductions in NPAs due to write-offs were seen in the case of State Bank of India, Punjab National Bank, Union Bank, Central Bank of India, and Bank of Baroda.

The RBI clarified that a substantial portion of these write-offs is technical in nature, primarily intended at cleansing the balance sheet and achieving taxation efficiency. The loans are written off from the books at the Head Office without foregoing the right to recovery. Once recovered, the provisions made for those loans flow back into the profit and loss account of banks.

The loan recovery process can take years, especially as most of the loans involved in write-offs belong to wilfull defaulters and promoters who generally do not pay back to the banks. Some experts have raised concerns about the non-transparent nature of these write-offs, calling for greater accountability and transparency in the process.


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