Public Sector Banks Loan Write Off Leap Leaves Recovery Way Behind

On December 11, the Minister of State (Finance) Dr. Bhagwat Karad in Lok Sabha acknowledged that public sector banks wrote off loans totalling Rs. 10.42 lakh crores in the nine fiscal years since 2014-15, while actual  recoveries amounted to a mere Rs. 1.61 lakh crores.

Picture: MoS Finance Reply on Write and Recovery in Parliament

The recovery by Public Sector Banks (PSBs) which amounts to Rs. 1.61 lakh crores is approximately 15.45% of the write-off amount of Rs. 10.42 lakh crores. And as per bank experts, the majority of them are considered to be corporate loans.

Thomas Franco, former general secretary of All India Bank Officers Confederation (AIBOC), noted that most of these write-offs pertain to corporate loans, settled through the National Company Law Tribunal (NCLT), leaving recovery efforts futile. Franco emphasised the ongoing loss to public sector banks, labelling it a cyclical issue with no concerted efforts from the government to break the pattern.

According to RBI guidelines and the policy approved by bank boards, NPAs, including those in respect of which full provisioning has been made on completion of four years, are removed from the balance-sheet of the bank concerned by way of a write-off. Last week, in a written response to a similar question, Dr Karad had said: “Such write-offs do not result in waiver of liabilities of borrowers to repay.” Further, the process of recovery of dues from the borrower in written-off loan accounts continues; write-off does not benefit the borrower, Karad added.

Recovery Mechanisms
The recovery from written-off accounts is a multifaceted process, employing various mechanisms to ensure a comprehensive approach. These mechanisms include filing civil suits or utilising the Debts Recovery Tribunals, taking action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, initiating cases in the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016, and exploring negotiated settlements or compromises. Additionally, banks may opt for the strategic sale of non-performing assets.

However the abysmal recoveries underscore a worrisome trend…

A closer look at the data reveals a stark reality. In March 2022, loan write-offs by banks amounted to 1.74 lakh crore, a figure that surged to Rs. 2.09 lakh crore by March 2023. This notable increase in write-offs emphasises the urgency of evaluating and fortifying the recovery mechanisms to ensure the financial stability of banking institutions.

Massive Write Offs under Modi Regime
A recent report  highlighted that in the context of handling the Non-Performing Assets (NPA), the present government stressed on reduction of NPA via write offs and not recovery. 

A detailed letter dated June 15 from Dr. Bhagwat Karad, Minister of State for Finance mentioned that the losses suffered by all categories of banks (Public Sector Banks, Private Banks, and Foreign Banks) in the last eight years and nine months of the Modi government sums up to Rs 12,09,606 crore.  

As per an RTI filed by economist Prasenjit Bose in 2022, massive write-offs of NPAs have caused serious financial losses for the PSBs. Between 2015–16 and 2019–20, the PSBs as a group made net losses every year, aggregating Rs 2 trillion in five years.