Banks face unprecedented 74 per cent ‘haircut’ on claims of 10 companies after acquisition by Adani

Indian public sector banks are confronting an unprecedented financial setback, with recent data revealing they have had to settle for just Rs 16,000 crores on claims totalling approximately Rs 62,000 crore from 10 financially distressed companies.

This dramatic 74 per cent reduction, as revealed by the All-India Bank Employees Association, sets a new benchmark for financial losses, raising urgent questions about its impact on the banking sector and the broader economic stability.

As per data shared by Congress MP Jairam Ramesh in an X post, the companies under resolution were purchased by various Adani entities. The list of 10 stressed companies compiled by AIBEA includes HDIL (Project BKC), with an admitted claim value of Rs 7,795 crore, purchased by Adani Properties for Rs 285 crore, making it a 96 per cent haircut for the banks. Essar Power MP Ltd, with an admitted claim value of Rs 12,013 crore, was purchased by Adani Power for Rs 2,500 crore to ensure a 79 per cent haircut for the banks.

Last year, the Indian government informed Parliament that PSU banks had written off a staggering Rs 10.57 lakh crore over the past five financial years. Of this total, Rs 5.52 lakh crore pertained to loans extended to large industries.

The then minister of state for finance, Bhagwat Karad, revealed in a Rajya Sabha response that scheduled commercial banks (SCBs) had written off this substantial amount.

In a related update, Karad noted that SCBs had managed to recover Rs 7.15 lakh crore in non-performing assets (NPAs) during the same period. He said that comprehensive measures had been undertaken to recover these NPAs, leading to the notable recovery figure of Rs 7,15,507 crore (according to RBI provisional data for FY 2022-23).

In response to additional queries, Karad clarified that Rs 5.52 lakh crore of the write-offs were related to loans for large industries and services, including Rs 93,874 crore attributed to fraud. He reassured Parliament that these write-offs were part of a strategy to clean up bank balance sheets, optimize capital, and avail tax benefits.

“The write-off process does not absolve borrowers of their repayment obligations,” Karad stated. “Borrowers remain liable for repayment, and banks continue to pursue recovery through various available mechanisms.”

This disclosure highlights ongoing concerns about the financial health of public sector banks and the broader implications of asset write-offs in India’s banking sector.

Bankers clarify that a write-off does not relieve borrowers of their legal obligation to repay their loans. Instead, it serves as an accounting measure to reflect the financial institution's acknowledgment that full recovery of the debt is unlikely.

A write-off helps clean up a lender's balance sheet by removing non-performing assets, providing a clearer picture of the institution's financial health. Despite the write-off, banks continue to pursue recovery through various means, including legal actions, negotiated settlements, or the sale of NPAs.

In the past year, the total amount of written-off loans decreased to Rs 1.75 lakh crore, with 39.8 per cent related to large industries and the services sector. Data from the past five years shows that in FY 2020–21, large industries and services together accounted for a peak 62.3 per cent of written-off loans, amounting to Rs 2.03 lakh crore.

Since FY 2012–13, RBI data indicates that banks have written off a staggering Rs 15,31,453 crore. While these loans are removed from active portfolios, they continue to remain as unrecovered debts on the banks' books.