Public Sector Banks Write Off Loans Worth Rs 41,000 Crore; SBI Writes Off Rs 10,000 Crore Loan
In the December quarter of Finacial Year 2019, 19 Public Sector Banks (PSBs) have written off loans worth Rs 41,000 crore. This is a whopping 34% rise in loan write off on a year-on-year (YoY) basis, reported Financial Express. This step was done to reduce the banks’ non-performing assets (NPAs). Earlier, these banks had written off Rs 33,259 crore in the September quarter of the financial year 2019. That was a 24% rise on a year-on-year(YoY) basis, hinting a trend to slacken their non-performing assets (NPAs). Among PSBs, Vijaya Bank witnessed the steepest increase in write-offs, which was 243 times YoY to Rs 487 crore in the third quarter i.e., December quarter of FY19. Vijaya Bank was followed by IDBI Bank, which experienced a 4,783% YoY rise in write-offs to Rs 562 crore for the same quarter.
According to the report, State Bank of India (SBI), which is the largest bank of the country, wrote off loans around Rs 10,000 crore in Quarter 3rd of the financial year 2019. This was a 7% rise from Rs 9,312 crore in the previous year. However, this is lower than the amount that the bank wrote off in Q2FY19, which was Rs 13,537 crore.
5 PSBs saw a drop in write-offs
In the case of the 19 PSB banks, only five lenders, UCO Bank, Andhra Bank, Allahabad Bank, Corporation Bank, and Punjab National Bank saw a YoY drop in write-offs for the December quarter. PNB’s write-offs were 50% lower, which stood at Rs 3,082 crore during Q3FY19. There was a 28% drop in write-offs in the same quarter by Corporation Bank. The bank wrote off Rs 2,843 crore. Andhra Bank wrote off 55 core, whereas Allahabad Bank wrote off loans worth Rs 712 crore. UCO Bank’s write-offs plunged 61% YoY to Rs 622 crore. In Fy18, 21 PSBs had written-off more than 1 lakh crore. It had risen by 57% on year to year basis.
What is writing-off of loans?
The RBI also clarified in an explanatory note, that 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.
The RBI further says that in “Technically Written Off” accounts, loans are written off from the books at the Head Office, without foregoing the right to recovery. Also, write-offs are generally carried out against accumulated provisions made for such loans. Once recovered, the provisions made for these loans flow back into the profit and loss accounts of banks.
This, however, does not waiver off the bank’s right to collect it. The lender still can chase the borrower for repayment of the debt. M Narendra former chairman and MD of Indian Overseas Bank, said “The write-offs is just a technical book entry. Banks are not losing anything. It doesn’t mean banks are giving up those assets. They will continue with various recovery methods.” A write-off is done when the loan becomes irrecoverable. The loan is excluded from the balance sheet and taxable income of banks gets reduced.
Is writing-off a good measure?
Some experts, however, have the perception that write-offs are not transparent and that public funds are misused through such activities, “You can’t clean up the balance sheet for the last 20 years. You can’t clean it up every year. Generally, write-offs should be small and must be used sparingly when there is some crisis. Technical write-offs creates non-transparency, destroys the credit risk management system and brings all types of wrongdoings in the system,” said an RBI official.
The official also said that write-offs should be done within the policy, with all efforts taken to recover the money. Any asset which is backed up by a tangible asset is never written off. “Secondly, you must be subject to scrutiny for these write-offs. There must be a policy. Use it very sparingly whenever it is absolutely essential. If there is an asset, why are you writing it off?”
Karthik Srinivasan, group head – financial sector ratings, ICRA said, “With limited resolution in stressed assets and consequent ageing of these stressed loans, the loan write-offs by public sector banks during Q2 of FY 18 were at the highest-ever levels. With record loan write-offs, the addition to gross NPAs of public sector banks was limited to Rs 837 crore only during the Q2 of fiscal 2018, the lowest level during the last four years.”