According to data from the Reserve Bank of India (RBI), banks have reduced the amount written off in loans by 18.15% during the financial year ending March 2024. This decline comes after banks had written off over Rs 9.90 lakh crore in loans over the past five years. The write-offs for FY24 amounted to Rs 170,270 crore, compared to Rs 208,037 crore in the previous year.
Impact on Non-Performing Assets (NPAs)
The substantial write-off exercise over the last five years has helped banks decrease their non-performing assets (NPAs) by Rs 990,224 crore ($117.88 billion). Despite these efforts, banks recovered Rs 46,036 crore from previously written-off loans in 2023-24, slightly up from Rs 45,551 crore the previous year. Overall, the recovery from write-offs in the last five years was only 18.70%, indicating that 81.30% of the written-off loans remain unrecovered.
Effect on Gross Non-Performing Assets (GNPA) Ratio
The write-offs have contributed to a reduction in the gross non-performing assets (GNPA) ratio of scheduled commercial banks, which fell to a 12-year low of 2.8% of advances in March 2024. This ratio is expected to further improve to 2.5% by March 2025, according to RBI projections.
Write-Off Process and Accounting
When a bank writes off a loan, it is removed from the asset book and reported as a loss. This occurs after the borrower defaults and recovery is deemed highly unlikely. Banks are required to continue recovery efforts and make provisions even after a loan is written off. The write-off reduces the bank’s profit and tax liability, as the amount is removed from the profit.
Public Sector Banks and Write-Offs
Public sector banks have reported the majority of write-offs, totaling Rs 349,108 crore, which constitutes nearly 63% of the total write-offs. The RBI explains that a significant portion of these write-offs is due to technical, prudential, or advances under collection. Despite the write-offs, banks retain the right to recover funds from borrowers.
Nature and Purpose of Write-Offs
Write-offs by banks are governed by prudential norms, which require provisions based on the aging of NPAs and the realizable value of security. Once provisions equal the outstanding amount, the bank may perform a technical write-off as part of balance sheet management and for tax efficiency. These write-offs are recorded as off-balance sheet items under ‘Advances Under Collection,’ and specialized teams follow up for recovery.
Recovery Process and Transparency
The recovery process for written-off loans can span many years and depends on the age of the NPA and the availability of security. The RBI notes that while banks have policies for write-offs and recovery, the percentage of recovery should be evaluated in this context. Although many loans have been written off, the identity of the borrowers has not been disclosed. The RBI has stated that it does not collect or disclose information on individual borrowers involved in loan write-offs.
