Large industries, services sector dominate bank loan write-offs in FY23

The Ministry of Finance revealed in Parliament on Monday, 4 December, that a significant majority of loans written off by Scheduled Commercial Banks during the financial year 2022–23 (FY23) were attributed to large industries and the services sector, accounting for over half of the total write-offs.

On Monday, the government apprised the Lok Sabha that over the past five years, scheduled commercial banks have officially recorded write-offs amounting to approximately Rs 10.6 lakh crore. Almost half of this sum is attributed to prominent industrial entities. Notably, around 2,300 borrowers, each holding loans of Rs 5 crore or more, intentionally defaulted on an aggregate amount of approximately Rs 2 lakh crore.

The write-off procedure, in line with the guidelines set by the Reserve Bank of India (RBI) and policies sanctioned by bank boards, involves the removal of non-performing assets (NPAs) from the respective bank's balance sheet after four years, provided full provisioning has been completed.

Minister of state in the finance ministry Bhagwat Karad clarified in a written response to a question in Parliament that such write-offs do not absolve borrowers of their repayment obligations.

He maintained that the recovery process for dues from written-off loan accounts is ongoing, and the act of write-off does not confer any benefits to the borrowers.

Moreover, banks persist in pursuing recovery efforts for written-off accounts through diverse mechanisms. These methods encompass legal actions such as filing civil suits or proceedings in debt recovery tribunals; undertaking actions as per the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; filing cases in the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016; exploring negotiated settlements or compromises; and the sale of NPAs.

Karad reiterated that the government does not allocate any funds for the write-off of corporate loans.

Bankers explained that a write-off does not absolve the borrower of their legal obligation to repay the loan.

Instead, it is an accounting measure that acknowledges the financial institution's acknowledgment that the debt is unlikely to be recovered fully.

The write-off allows the lender to clean up its balance sheet by removing the non-performing asset, making its financial statements more reflective of the actual financial health of the institution. Even after a write-off, the lender continues its efforts to recover the outstanding amount through various means, such as legal actions, negotiated settlements, or the sale of NPAs.

In the preceding year, the aggregate of written-off loans experienced a decline, amounting to Rs 1.75 lakh crore, with 39.8 per cent attributed to large industries and the services sector. Analysing the data spanning the last five years reveals that the combined share of large industries and services reached its peak at 62.3 per cent, constituting Rs 2.03 lakh crore of the total written-off loans in the fiscal year 2020–21.

According to RBI data, banks have written off an astonishing Rs 15,31,453 crore since FY2012–13.

It's crucial to note that while these written-off loans are removed from banks' active portfolios, they still linger as unrecovered debts on their books.

In response to an RTI query from the Indian Express, the central bank disclosed that, of the Rs 5.87 lakh crore loans written off in the last three years, banks managed to recover only Rs 1.09 lakh crore. This revelation underscores a recovery rate of just 18.60 per cent during this three-year span.

As a rough estimation, defaulted loans, including write-offs but excluding recoveries from write-offs in the last three years, sum up to a staggering Rs 10.32 lakh crore. If we include the write-offs, the total NPA ratio would surge to 7.47 per cent of advances, contrasting sharply with the 3.9 per cent reported by the banks, the Indian Express report held.