Banks in India have slowed down the pace of loan waivers, with the amount written off during the financial year ending March 2024 falling, according to Reserve Bank of India (RBI) data, The Indian Express reports. There has been a decline of 18.15%. After waiving off loans worth over Rs 9.90 lakh crore in the last five years, banks waived off Rs 1,70,270 crore in FY24, down from Rs 2,08,037 crore last year.
Large-scale write-offs have helped banks reduce their non-performing assets (NPAs) by Rs 9,90,224 crore ($117.88 billion) in the last five years. However, recovery from these written off loans remains low. Banks were able to recover only Rs 46,036 crore in FY2014, slightly more than Rs 45,551 crore in FY2013.The Indian Express report said that in the last five years, the total recovery from write-offs has been only 18.70%, amounting to Rs 1,85,241 crore, indicating that 81.30% of the written-off loans are outstanding.
The write-offs have significantly impacted the financial health of banks, leading to a decline in the gross non-performing assets (GNPA) ratio of scheduled commercial banks to a 12-year low of 2.8% in March 2024. RBI projects this ratio may further improve to 2.5% by March 2025.
When a loan is written off, it is removed from the bank’s asset books, indicating the lender’s acknowledgment that the borrower is unlikely to repay. Despite this, banks are expected to continue recovery efforts through various means, although the chances of success are significantly reduced after the write-off. This process also provides tax benefits to banks, as the amount written off is deducted from profits, thereby reducing tax liabilities.
Public sector banks have the highest share in write-offs, involving Rs 3,49,108 crore, which is about 63% of the total write-off process. RBI clarified that while a significant portion of these write-offs are for technical or prudential reasons, banks retain the right to recover from borrowers.
The practice of loan waiver is governed by prudential norms, which require banks to make provisions for NPAs based on the aging of the account and the realizable value of the security. Once these provisions equal the outstanding amount, banks often resort to technical write-offs as part of balance sheet management and for tax efficiency, according to an RTI query filed by *The Indian Express* But as per the response of RBI.
