As per data collected by the Ministry of Finance, public sector banks wrote off non-performing assets (NPAs) worth Rs 516 crore in the first half of the current fiscal year.
38 loan accounts of wilful defaulters were written off the books of banks during April-September period of 2017-18.
A wilful defaulter is somebody who has not utilised the funds collected for the purpose it was collected or has not repaid it when they could do so.
According to the RBI, writing off of non-performing assets or bad loans is a regular exercise carried out by the banks to clean up their balance sheets. A substantial portion of the write-off is technical in nature. It is primarily intended for cleansing the balance sheet and achieving taxation efficiency.
Is writing-off a good measure?
Some experts have the perception that write-offs are not transparent and that public funds are misused through such activities. Generally, write-offs should be small and must be used sparingly when there is some crisis.
But write-offs create non-transparency, destroys the credit risk management system and brings all types of wrongdoings in the system.
India’s banking sector in crisis
For over three years, the RBI has been struggling to resolve its bad loan problem. In May 2016, former RBI Governor Raghuram Rajan initiated the Asset Quality Review (AQR) through which the RBI had asked the banks to report stressed loans or even non-performing ones (more details here).
It was revealed last year that only 12 accounts are responsible for about 25% of these bad loans. The gross bad debt that plagues India’s banking system as of March 2017 was at Rs 7.11 lakh crore, according to Business Standard. This means that the 12 accounts would be responsible for about Rs 1.78 lakh crore.
In October last year, the Union government unveiled a plan to infuse Rs 2.11 lakh crore into the country’s NPA-swamped public-sector banks (PSBs) over two years to boost credit and spending. This recapitalisation plan includes Rs 80,000 crore worth of recapitalisation bonds for 2017-18 and Rs 8,139 crore as budgetary support.