Banks in India have reduced the pace of loan write-offs, with the amount written off declining by 18.15% during the financial year ending March 2024, according to data from the Reserve Bank of India (RBI), The Indian Express reported. After writing off loans worth over Rs 9.90 lakh crore in the last five years, banks wrote off Rs 1,70,270 crore in FY24, down from Rs 2,08,037 crore in the previous year.
The substantial write-offs have helped banks lower their non-performing assets (NPAs) by Rs 9,90,224 crore ($117.88 billion) over the past five years. However, recovery from these written-off loans remains low. Banks managed to recover only Rs 46,036 crore in FY24, slightly up from Rs 45,551 crore in FY23. Over the last five years, total recoveries from write-offs stood at just 18.70%, amounting to Rs 1,85,241 crore, indicating that 81.30% of the written-off loans remain unrecovered, the Indian Express report added.
The write-offs have significantly impacted the banks' financial health, contributing to a reduction in the gross non-performing assets (GNPA) ratio of scheduled commercial banks to a 12-year low of 2.8% of advances in March 2024. The RBI projects that this ratio could improve further to 2.5% by March 2025.
When a loan is written off, it is removed from the bank's asset books, reflecting 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 diminish significantly after a write-off. This process also provides tax benefits to banks, as the written-off amount is deducted from profits, thereby reducing tax liabilities.
Public sector banks accounted for the majority of the write-offs, with Rs 3,49,108 crore, representing nearly 63% of the total write-off exercise. The RBI clarified that a significant portion of these write-offs is due to technical or prudential reasons, with banks retaining the right to pursue recovery from borrowers.
The practice of loan write-offs is governed by prudential norms, which require banks to create 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, as per the RBI's response to an RTI query filed by *The Indian Express*.
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