Rs 10.57 Lakh Crore Bad Loans Written off by Banks in Past 5 Years

New Delhi: Bad loans or non-performing assts (NPAs) worth Rs 10.57 lakh crore were written off by the banking sector in the past five years. According to the Reserve Bank of India’s reply to a Right to Information (RTI) filed by The Indian Express, banks wrote off bad loans worth Rs 209,144 crore in 2022-23 against Rs 174,966 crore in the previous fiscal and Rs 202,781 crore in March 2021.

The RBI or the banks that wrote off the bad loans have never revealed the identities of these borrowers.

The massive write-off reduced gross non-performing assets (GNPA) to a 10-year low of 3.9% of advances in March 2023. Gross NPAs had reduced from Rs 10.21 lakh crore in FY2018 to Rs 5.55 lakh crore by March 2023 mainly due to loan write-offs.

Banks recovered only Rs 109,186 crore out of the Rs 586,891 crore bad loans written off in the last three years. The total defaulted loans (including write-offs but excluding loans recovered from write-offs in three years) was Rs 10.32 lakh crore. If the write-offs were included, the total NPA ratio wouldn’t have been 3.9% but 7.47% of advances.

The RBI reply also showed that banks have written off a staggering Rs 15,31,453 crore since FY2012-13.

On one hand, banks have been writing off defaulted loans to reduce the NPAs. On the other hand, they could recover only Rs 30,104 crore in FY21, Rs 33,534 crore in FY22 and Rs 45,548 crore in FY23.

A loan is written off after the borrower defaults and the recovery chance is very low. “After write-offs, 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,” a banking analyst told the newspaper.

State Bank of India was at the top in reducing NPAs by writing off loans at Rs 24,061 crore followed by Punjab National Bank at Rs 16,578 crore, Union Bank at Rs 19,175 crore, Central Bank of India at Rs 10,258 crore and Bank of Baroda at Rs 17,998 crore.

Banks regularly write off loans to clean up the balance sheet. “A substantial portion of these write-offs is, however, technical in nature. It is primarily intended to clean the balance sheet and achieve taxation efficiency. In ‘Technically Written-Off’ accounts, loans are written off from the books at the head office 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 banks,” the RBI had earlier said in an explanatory note.

Not surprisingly, public sector banks had the lion’s share of write-offs at Rs 366,380 crore, accounting for nearly 62.45% of the exercise in the last three years.

Recovering loans takes years as most of them belong to wilful defaulters and shady promoters who generally don’t pay back.

“It’s non-transparent and it’s without any policy. There’s the possibility of wrongdoing. Generally, a write-off is supposed to be small and used sparingly when there’s some crisis,” said a former RBI official.

“Technical write-off creates non-transparency, destroys the credit risk management system and brings all types of wrong-doings into the system. You must declare how much you’re writing off. You’re writing off public money. It’s a scandal. You’re writing off public money you’re not acknowledging,” the official added.