A massive loan write-off of Rs 9.9 lakh crore over the last five financial years has helped banks show a sharp decline in non-performing assets (NPAs). With the help of this write-off, banks reported a 12-year low NPA ratio of 2.8 per cent of advances till March 2024.
Total recovery from write-offs at Rs 1,85,241 crore in the last five years was only 18.70 per cent, according to Reserve Bank of India data. This means that banks could not recover 81.30 percent or more than Rs 8 lakh crore of loans in five years despite adopting various recovery measures. The founders and directors of some of the companies that defaulted on these loan accounts often deliberately fled the country. Gross NPAs reported by commercial banks were Rs 4.80 lakh crore till March 2024, total NPAs will exceed Rs 12.80 lakh crore including loans. The finance ministry said last week that the gross NPA ratio of scheduled commercial banks has come down significantly from 11.18 per cent in March 2018 to 2.67 per cent in June 2024. It was 11.5 percent and 9.3 percent (Rs 9.4 lakh crore) in March 2018. In March 2019.
Banks were able to recover Rs 46,036 crore in 2023-24 against Rs 45,551 crore in the previous year from defaulted loans. Total loan write-offs were Rs 1.70 lakh crore in FY24, Rs 2.08 lakh crore in FY23, Rs 1.74 lakh crore in FY22, Rs 2.02 lakh crore in FY21 and Rs 2.34 lakh crore in FY20, RBI data from RTI replies shows. “The government and the RBI have taken comprehensive steps to recover and reduce NPAs from defaulters, which enabled a total recovery of Rs 6,82,286 crore by SCBs in the last five financial years,” said Minister of State for Finance Pankaj Chaudhary. in the Lok Sabha.
“Such a write-off does not waive the borrower’s liability and therefore does not benefit the borrower. Borrowers remain liable for repayment and banks continue recovery operations initiated on these accounts through various recovery mechanisms available to them,” Choudhary said. Once a bank repays a loan, it goes off the bank’s asset book. Banks write off loans when borrowers default. And the chances of recovery are very low. The lender then moves the non-performing loan, or NPA, out of the asset side. “After the write-off, banks use various options Efforts should be continued for debt recovery. They should also make arrangements. After the write-off amount is reduced, the tax liability will also be reduced,’ said the banking source.
A loan becomes NPA when the principal or interest payment is overdue for 90 days. Public sector banks accounted for about 63 percent of the write-off exercise.
“A major part of this write-off is due to technical / prudential / advances under collection. Banks reserve the right to recover from borrowers in all such cases,” the RBI said in an RTI reply earlier this year.
The nature and purpose of write-offs by banks is governed by several considerations. As the account becomes NPA, prudential norms require creation of provisions and based on the aging of the NPA and the realizable value of the security, these provisions increase and reach a stage where the provisions in the account are equal.
“So, after these accounts are fully available, the bank carries assets on one side and similar provisions on the other. So, as a part of balance sheet management and for tax efficiency, banks may resort to their board approved policy called technical write-off,” the RBI said in an RTI reply.
“Writ-offs by banks are purely an accounting entry where one balance sheet items move to off-balance sheet items and they are usually parked in what is known as ‘advance in collection’ and there are special teams that follow-up. Then recovery,” it said. said The Reserve Bank has said that the liability to repay the loan or the right of recovery of the bank has not been reduced in any way.
According to RBI it is purely balance sheet management. “Banks and regulators focus on such accounts parked in special accounts to ensure higher recoveries as such recoveries help the P&L account and subsequently contribute to the financial well-being of the bank,” it said.
“The percentage of recovery should be seen in the context of the age of the NPA and its availability or lack of security. Bank management is expected to approve policies for write-off and follow-up with a view to maximizing recovery,” it said.
“The recovery process can take years. It is spread over several years,” said a nationalized bank official. Over the years, banks have written off many large and small defaulted loans, but the banks have never disclosed the identity of these borrowers.
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