7 Lakh Crore Bad Loans Written Off In Decade, 80% Of It In Last 5 Yrs: RBI Data
Often our Indian banks make news after a loan defaulter escapes from the country, at a time when the nation has witnessed many cases. An Indian Express report has revealed that the banks stepped up write-offs of loans taken by rogue borrowers.
In the past few years, the government has often bailed out banks by recapitalising them with taxpayer money. In return, the banks wrote off a whopping Rs 1,56,702 crore of non-performing loans during the nine-month ended December 2018 taking the total loan write-off to over Rs 7,00,000 crore in the last 10 years.
According to the report, the bulk of the write-offs have accumulated in the last five years since April 2014. The Reserve Bank of India (RBI) has revealed that the total loan written off in the last five years amounts to Rs 5,55,603 crore.
What has happened?
In simple words, in a bid to show lower bad loans, the banks wrote off Rs 1,08,374 crore in 2016-17 and Rs 161,328 crore in 2017-18. Rs 82,799 crore was written off in the first six months of 2018-19.
The quantum of write off zoomed to Rs 64,000 crore in the October-December 2018 quarter.
Notably, banking sources claim that very little is known about the identity of the borrowers and the amount written off in the case of individual borrowers. Although, the banks claim that recovery measures continue even after loans are written off, not more than 15-20 per cent is recovered, said the Indian Express report.
RBI had earlier issued circular to banks
According to the report, the RBI in its circular issued to banks had said, “Banks are required to extinguish all available means of recovery before writing off any account fully or partly. It is observed that some banks are resorting to a technical write-off of accounts, which reduces incentives to recover. Banks resorting to partial and technical write-offs should not show the remaining part of the loan as a standard asset.”
The central bank had stated that writing off NPAs is a regular exercise carried and a substantial part of this write-off is technical in nature. This means that it is primarily intended at cleansing the balance sheet and for taxation efficiency.
The RBI in its explanatory note had said that in ‘technically written off’ accounts, loans are written off from the books at the Head Office, without foregoing the right to recovery. The banking sector and the RBI does not disclose the identity of borrowers whose loans are written off by banks.
In 2018, the government had announced a recapitalization programme of Rs 2.11 lakh crore to bail out banks, however, it is now stuck with over Rs 10 lakh crore NPAs.
Bank unions have long been demanding the government to make public names of defaulters. It is believed that these bad loans are attributable to big businesses and the affluent.
RBI’s next step
On April 16, the central bank told the National Company Law Appellate Tribunal (NCLAT) that banks must flag bad loans as NPAs after 90-day default so that the lenders could not be relieved of the same.
According to a Business Standard report, by reflecting such bad loans as NPA on the books of banks, it will act as an early warning signal.