Bank of Maharashtra (BoM) has written off bad loans of over Rs7,402 crore in the past years, while recovering a paltry 4% in over eight years from recovery efforts. Like in the case of State Bank of India (SBI) and Bank of Baroda (BoB), where Moneylife had exposed similarly large write-offs and pathetic recoveries, this again underlines how the massive ‘technical’ write-offs by banks are never recovered and made good by the exchequer through frequent recapitalisation of banks. It also debunks the aggressive posturing by government and policy-makers about recovery efforts after such write-offs.
According to information that has been provided by BoM to social activist Vivek Velankar, the lender wrote off bad debt worth Rs7,402 crore during four out of past eight years, while recovering just Rs253.55 crore. This information pertains only to loan accounts of Rs100 crore and above.
"Over the past eight years, between FY2011-12 to FY2019-20, Bank of Maharashtra has written off bad loans worth Rs14,641 crore. Out of this Rs7,402 crore loans were from big defaulters with loan amount of Rs100 crore and more. However, the bank just managed to recover Rs253.55 crore as on 31 March 2020," Mr Velankar says.
Mr Velankar, president of Pune-based Sajag Nagrik Manch, has been assiduously exposing the details of written off loans, especially by public sector banks (PSBs). Since he could not procure this information under the Right to Information (RTI), he used his rights as shareholder and asked for it as question for the annual general meeting (AGM) of SBI, BoB and BoM.
"I had asked information about total loans written off from BoM, but I was told to check its annual reports from the website. After studying reports for the past four years, I found in FY19-20, the Bank had written off Rs5,697 crore, Rs5,127 crore in FY18-19, Rs2,460 crore in FY17-18 and Rs1,357 crore in FY16-17. These amounts are total loans written off by the Bank. This means during these four years, Bank of Maharashtra had shown lower non-performing assets (NPA) as these were shown as written of debt," Mr Velankar says.
"Basically, there is no control on banks either by the Reserve Bank of India (RBI) or the finance ministry," the RTI activist says, adding, "In fact, since these are written off debts and are no longer part of the balance sheet of the banks, nobody really keeps an eye on this and banks are taking undue advantage of this. It also shows how these PSBs who talk big about transparency are more keen on hiding things from public view."
Mr Velankar says, "From my own experience of three PSBs, I can say all big claims about strict adherence to recovery of written off loans are hollow. The information provided to me as a shareholder by SBI, BoB and BoM proves that something is not right the way bad loans are written off and almost no efforts are being made to recover these loans."
The information provided by Bank of Maharashtra to Mr Velankar, shows that for four financial years, during FY11-12, FY12-13, FY14-15 and FY15-16, the lender has not written off any bad loan of Rs100 crore and above and there is also no recovery.
For FY13-14, BoM wrote off Rs275.12 and recovered Rs1.74 crore. For FY16-17, it wrote off Rs466.58 crore and recovered Rs121.67 crore. Next year the amount of written off debt jumped more than twice to Rs1,024.69 crore with a paltry recovery of Rs1.88 crore in FY17-18. During FY18-19, BoM wrote off bad debts worth Rs2,096.52 crore while recovering just Rs124.94 crore. In FY19-20, while the amount of written off debts jumped to Rs3,539.67 crore, Bank of Maharashtra could manage to recover just Rs3.32 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 done by banks as part of their tax management clean-up process. The beneficiaries are invariably some of our biggest industrialist defaulters.
In contrast, when a bad debt is written down, some of the bad debt value remains as an asset because the bank expects to recover it. However, as SBI, BoB and now BoM have shown, most of the times, there is no recovery or negligible recovery for the amounts written off.
At present, there are 19 PSBs and Mr Velankar had obtained information from only three of them where he is a shareholder. If just three PSBs can write off bad loans worth thousands of crores with paltry recovery, imagine what would be total loans written off by all State-run lenders?
And this is public money that is kept in banks by common savers, including senior citizens, among others. If PSBs are writing off huge amounts of loans with miniscule recovery, how can we assure the common customers that their hard-earned money is safe?
A few months ago, there were lot of heated arguments about written off loans of big defaulters. In April, RBI had said that Indian banks have technically written off a staggering amount of Rs68,607 crore due from 50 top wilful defaulters, including absconding diamantaire Mehul Choksi. RBI had revealed this information in reply to an RTI filed by Saket Gokhale.
However, at that time, everyone from the government, including the Union finance ministry and supporters of the government had told that technical write off does not mean waiving off loans and efforts are on for recovery of these written off loans.
In July this year, the All India Bank Employees Association (AIBEA) revealed names of top 2,426 wilful defaulters, who together owe over Rs1.47 lakh crore to banks. This the bank employees union did as part of its nationwide campaign to celebrate bank nationalisation day. As per the list, Mehul Choksi-owned Gitanjali Gems Ltd with its default of Rs4,644 crore to Punjab National Bank (PNB) tops the list.
It is followed by ABG Shipyard Ltd (Rs1,875 crore, State Bank of India-SBI), REI Agro Ltd (Rs1,745 crore, UCO Bank), Ruchi Soya Industries Ltd (Rs1,618 crore, SBI), Gili India Ltd (Rs1,447 core, PNB), Winsome Diamonds & Jewellery Ltd (Rs1,390 crore, Central Bank of India-CBI), Kudos Chemie Ltd (Rs1,301 crore, PNB), Nakshatra Brands Ltd (Rs1,109 crore, PNB), Coastal Projects Ltd (Rs984 crore, SBI) and Winsome Diamonds & Jewellery Ltd (Rs892 crore, PNB). These top-10 defaulters together owe Rs17,005 crore to State-run lenders.
According to the list shared by AIBEA, among the 17 public sector lenders, SBI has highest number of wilful defaulters at 685 who, together, had defaulted on a loan of Rs43,887 crore. It is followed by PNB, which has 325 wilful defaulters with an outstanding of Rs22,370 crore. The data shared by the bank employees union, however has no information about wilful defaulters in Union Bank of India and IDBI Bank Ltd.
The information obtained by Mr Velankar is just tip of the iceberg. And what is happening in three PSBs like SBI, BoB and BoM, proves that recovery of written off debt is just a whitewash undertaken by these lender to show a clean balance sheet and less NPAs.
State-run lenders continue to write off huge amounts of bad loans without any effort of recovery. All this happens because, as Mr Velaknar rightly pointed out, due to lack of checks and balances in banks by the regulator and concerned authorities.