RBI Says Banks Wrote Off Bad Loans Worth Rs2.09 Lakh Crore in FY22-23: Report
Moneylife Digital Team 24 July 2023
Reserve Bank of India (RBI), responding to a Right to Information (RTI) query, says during the financial year (FY) 2022-23, banks in the country wrote off bad loans worth Rs2.09 lakh crore, taking the total write-off by the banking sector to Rs10.57 lakh crore during the past five years, says a report.
In the report, The Indian Express, which had filed the RTI, says loan write-offs by banks rose to Rs209,144 crore during the fiscal ended March 2023 against Rs174,966 crore a year ago in March 2022 and Rs202,781 crore in March 2021.
"This huge loan write-off aided banks to bring down gross non-performing assets (GNPA) – or loans defaulted by borrowers — to a 10-year low of 3.9% of advances in March 2023. Gross NPAs of banks had fallen from Rs10.21 lakh crore in FY17-18 to Rs5.55 lakh crore by March 2023, mainly on the back of loan write-offs by banks. Banks have written off a whopping Rs15.31 lakh crore since FY12-13," the report says, quoting data provided by RBI.
The reply from RBI says banks recovered only Rs109,186 crore from Rs586,891 crore loans written off in the last three years, revealing that they could only recover 18.60% of the write-offs during the three-year period.
While many big and small defaulted loans were written off by banks over the years, the identity of these borrowers was never revealed by banks or RBI, the report says, adding, "Among individual banks, reduction in NPAs due to write-offs in the case of State Bank of India (SBI) was Rs24,061 crore in FY22-23, Punjab National Bank Rs16,578 crore, Union Bank Rs19,175 crore, Central Bank of India Rs10,258 crore and Bank of Baroda Rs17,998 crore."
Technically speaking, when debts are written off, they are removed as assets from the balance sheet because the bank does not expect to recover payment. This practice is frowned upon by experts but is routinely followed by banks as part of their tax management clean-up process. The beneficiaries are invariably some of our biggest industrialist defaulters.
In contrast, when bad debt is written down, some of the bad debt value remains as an asset because the bank expects to recover it.
Such write-offs also debunk the government's and policymakers' aggressive posturing about their so-called recovery efforts.
During the past five financial years, scheduled commercial banks (SCBs) wrote off bad debts worth Rs10.09 lakh crore. As per data provided by RBI, PSBs have recovered Rs4.80 lakh crore, including the recovery of Rs1.03 lakh crore from written-off loans during the same period, the Lok Sabha was informed in December last year.
In a written reply, Dr Bhagwat Karad, minister of state for finance, says, "In the last five financial years, the PSBs have made an aggregate recovery of Rs4,80,111 crore from NPA accounts and upgradation of NPAs of Rs1,45,356 crore. Further, slippages into NPAs have reduced from Rs3,38,710 crore for FY16-17 to Rs1,44,315 crore for FY21-22, all of which has resulted in a decline of NPAs." 
"The decline in NPAs can also be due to write-off, which is primarily an exercise undertaken for cleaning of balance-sheet, avail of tax benefit and optimise capital by PSBs, as per RBI guidelines and banks' board approved policies," he added. (Read: Here Is the List of Top-50 Wilful Bank Defaulters; Bad Debts of Rs10.09 Lakh Crore Written Off in Past 5 Years, Says Govt)
Last week, opposing RBI's statement on allowing compromise settlement of loans with fraudsters and wilful defaulters, People's Commission on Public Sector and Public Services (People's Commission) says fraud and wilful default are criminal offences (Read: RBI Should Not Give Golden Handshake to Fraudsters, Wilful Defaulters: People's Commission). 
In a statement, the People's Commission says, "Write-offs by public sector banks increased to Rs119,713 crore in 2022 from Rs7,187 crore in 2013. Among these public sector banks, SBI has, in the last 10 years, written off the highest total amount, at Rs297,196 crore. It is followed by PNB at Rs92,511 crore, the Bank of Baroda at Rs75,429 crore and the Bank of India at Rs53,961 crore. In the case of private banks, the total write-offs increased from Rs4,115.02 crore in 2013 to Rs53,087.03 crore in March 2022."
"The total write-offs by public sector banks and private sector banks in FY21-22 stands at Rs1,72,800 crore, which is much higher than the amount allocated to any of the three key social sectors, namely MGNREGA, health or education in FY23-24," the People's Commission added.
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