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Banks Wrote Off Rs10.09 Lakh Crore Bad Loan from FY18 to FY22 while Govt Infused Rs2.76 Lakh Crore in PSBs
Moneylife Digital Team 06 February 2023
Economy & Nation
All scheduled commercial banks (SCBs) wrote off Rs10.09 lakh crore during the past five financial years, from FY17-18 to FY21-22, while during the same period, the Union government has infused Rs2.76 lakh crore to recapitalise public sector banks (PSBs), the Lok Sabha was informed. 
 
In a written reply, Dr Bhagwat Karad, minister of state for finance, says, "As banks write-off only those non-performing assets (NPAs) which have been fully provided for, and continue their efforts to recover the dues, write-off exercise does not amount to misappropriation of funds."
 
According to the minister, capital is infused by the Union government in PSBs from time to time to supplement their efforts to meet capital requirements. "Capital amounting to Rs2,76,043 crore infused in PSBs since FY17-18 has been funded through recapitalisation bonds issued by the government and subscribed by the recapitalised banks for the full amount of capital infused."
 
As per Reserve Bank of India (RBI) guidelines and policy approved by banks' boards, NPAs, including those in respect of which full provisioning has been made on completion of four years, are removed from the balance sheet of the bank concerned by way of the write-off. 
 
Dr Karad says, "Banks evaluate or consider the impact of write-offs as part of their regular exercise to clean up their balance sheet, avail of tax benefit and optimise capital, in accordance with RBI guidelines and policy approved by their boards. As per inputs received from RBI, SCBs wrote off an amount of Rs10,09,511 crore during the last five financial years, from FY17-18 to FY21-22."
 
However, he clarified that borrowers of written-off loans continue to be liable for repayment, and the process of recovery of dues from the borrower in written-off loan accounts continues. Banks continue to pursue recovery actions initiated in written-off accounts through various recovery mechanisms available and through the sale of NPAs, he added.
 
Member of Parliament (MP) Dinesh Chandra Yadav had asked whether the government provides funds to the banks with the money earned through tax-payers. He also asked whether the government conducts or has conducted any investigation concerning the increase in debt and the process of writing off loans by the banks.
 
According to the minister, all PSBs have a well-established vigilance mechanism headed by a chief vigilance officer (CVO) directly appointed by the government, who keeps a close watch on various aspects of the bank's functioning. 
 
He says, "As per instructions on the internal control and inspection and audit system in banks, RBI has advised banks regarding fixing of staff accountability aspect of irregularities, and malpractices at all levels."
 
In a separate reply, Dr Karad also informed the Lok Sabha that the total exposure to the top 10 borrowers from SCBs is Rs12,71,604 crore as reported in the Central Repository of Information on Large Credits (CRILC) database. A large part of this exposure is from PSBs amounting to Rs8,10,941 crore; for private sector banks, it is Rs3,70,973 crore.
 
 
In December last year, Dr Karad had informed the lower house that, during the past five financial years, PSBs had made an aggregate recovery of Rs4,80,111 crore from NPA accounts and the 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 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 had said. (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)
Comments
deepak.narain
3 years ago
The whole process of recommendation, consideration and sanction of loans is grossly faulty. Use of jargon to explain/justify such loans is just to befool. Such bad loans continue to be approved despite the earlier bitter experience. How many private lenders suffer from such losses? It is all corruption and no responsibility is fixed.
Reply
tandsbill
3 years ago
It would have been better if the author had also analysed the period during which the loans were sanctioned. It is quite likely that it would throw up something very sinister designs and machinations of some previous governments.
This article appears to hide this very important facet of the bad loans.
Reply
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