Banks Prioritise Write-Offs Over Recovery, Total Rs 9.9 Trillion in 5 Years: Shortcut to Tackle NPAs?

Indian banks have written off loans worth Rs 9.9 trillion over the past five financial years, according to official data presented in the Lok Sabha by Pankaj Chaudhary, Union Minister of State for Finance. This includes Rs 1.7 trillion written off in the financial year 2023-24 (FY24), the lowest in the last five years.

Loan Write-offs by Year

Over the past five financial years, loan write-offs by Indian banks have shown fluctuating trends. The highest amount of write-offs occurred in FY20, totalling Rs 2.34 trillion, followed by Rs 2.03 trillion in FY21 and Rs 1.75 trillion in FY22. In FY23, write-offs amounted to Rs 2.08 trillion. The lowest write-offs in this period were recorded in FY24, at Rs 1.7 trillion, marking a significant decline compared to the preceding years. While FY24 saw an 18.2% reduction compared to FY23, recovery remains a major concern for the banking industry in India.

Banks with the Highest Write-offs in FY24

Punjab National Bank (PNB) topped the list with loans worth Rs 18,317 crore written off. This was followed by Union Bank of India at Rs 18,264 crore and State Bank of India (SBI) at Rs 16,161 crore. Among private sector banks, HDFC Bank recorded the highest write-offs with Rs 11,030 crore, followed by Axis Bank (Rs 8,346 crore) and ICICI Bank (Rs 6,198 crore).

Reasons Behind Write-offs

Banks write off loans following RBI norms and their board-approved policies. A loan is classified as a non-performing asset (NPA) when principal or interest payments remain overdue for 90 days. Once deemed unrecoverable, it is moved out of the asset book and reported as a liability.

Minister Pankaj Chaudhary clarified in Parliament that write-offs do not waive the borrower's liabilities. Borrowers are still liable for repayment, and recovery actions remain active. 

Recovery Challenges Persist

However, banks have struggled with recovery despite these write-offs. A report highlighted that only 18.7% of written-off loans were recovered in the last five years, leaving 81.3% unresolved. Once a loan is written off, it is removed from the bank's asset book but remains recoverable under legal and recovery actions.

Gross Non-Performing Assets (NPAs), which contribute significantly to write-offs, stood at Rs 4.81 lakh crore as of 31 March 2024. SBI reported the highest gross NPAs at Rs 84,276 crore, followed by PNB at Rs 56,343 crore. This marks a reduction from Rs 5.72 lakh crore gross NPAs reported at the end of March 2023.

Thomas Franco, the former General Secretary of the All India Bank Officers’ Confederation(AIBOC) and a Steering Committee Member at the Global Labour University, expressed his concerns over the lack of emphasis on recovery measures. "The NPA write-off cycle has been a recurring issue in the banking industry for quite some time. Banks often resort to writing off bad debts to address the challenge of rising NPAs. However, recovery from these NPA accounts is frequently overlooked. The profit of public sector banks (12 PSBs) in FY24 was recorded at Rs 1.41 lakh crore. This figure could have been significantly higher if banks had prioritised recovery over write-offs", he told Kanal. 

While there has been a general decline in write-offs over the last five years, a spike was observed in FY23. Notably, six banks among the top ten with the highest write-offs — including PNB, Canara Bank, HDFC Bank, and Indian Bank — recorded an increase in write-offs in FY24.

Loan write-offs remain a significant issue for Indian banks, highlighting challenges in asset quality management and recovery efforts. Despite reductions in write-offs and gross NPAs in FY24, the banking sector continues to face hurdles in recovering the substantial amounts already written off.