Write-off peaked in 2018-19 (FY19) at Rs2,36,265 crore
CL Jose & Rejimon Kutttappan
MUMBAI: The past close to one decade – from 2014-15 (FY15) to 2022-23 (FY23)- saw non-performing assets (NPAs) in the banking system valued at Rs14,56,128 crore (Rs14.56 trillion) being written off by the country’s scheduled commercial banks (SCBs).
RBI in a written response to queries sent by businessbenchmark.news also confirmed that the write-off peaked in 2018-2019 (FY19) at Rs2,36,265 crore (Rs2.36 trilion) before subsiding to Rs2.34 lakh crore next year and falling further in the following year too.
More seriously, endorsing the general perception that the NPAs once written off are a permanent loss for the lenders, 85 per cent of these bad loans written off by the bank have failed to come back to the banking system thus denting their bottom line severely.
Loans are classified as non-performing assets (NPAs) or bad loans once the borrowers fail to make payment of interest/principal or both for a period of three months in a row or more.
Write-offs
Though the banks commence recovery process for NPAs as soon as they cross the 90-day threshold, they initiate the write-off process once these NPAs are deemed unrecoverable, or classified as ‘loan loss’.
In some cases, banks may write off loans as a business decision, especially if the loan is small or if pursuing recovery efforts would be impractical or uneconomical.
However, writing off a loan does not absolve the borrower of their obligation to repay the debt. Banks may continue to pursue recovery efforts through legal means or by selling the defaulted loan to asset reconstruction companies (ARCs) for further resolution.
Recovery
While the volume of NPA write-offs kept growing from Rs59,785 crore to Rs2,36,263 crore during the said period, 2014-15 (FY15) to 2018-19 (FY19), the same period also marked slow recovery of around 10 per cent of the write-off loans, with the recovery during FY18 having further plunged to as low as 7.98 per cent.
But with the pressure for recovery from RBI mounting on banks, and with the bad loan malaise increasingly grabbing the attention of the political regime, the NPA recovery process started gathering pace.
According to RBI response to businessbenchmark.news , the financial year 2019-20 (FY20) saw a pick-up in recovery to 14.85 per cent.
The rate of recovery steadily improved since then before attaining a level of 21.90 per cent during 2022-23 (FY23). While the loans written off during FY23 amounted to Rs2,08,037 crore, loans worth Rs45,551 crore were recovered, accounting for 21.90 per cent the loans written off by the banks.
