The malaise of big loan write-offs and poor recovery extends across public sector banks, as is evident from the Rs26,072 crore bad loans written off by Union Bank of India (UBI) in the past eight years. The Bank has, however, refused to share information on money recovered from defaulters.
As in the case of the State Bank of India (SBI), Bank of Baroda (BoB), and Bank of Maharashtra (BoM) that have been reported by Moneylife, this is yet another example massive ‘technical’ write-offs with minuscule recoveries, leading to frequent recapitalisation of banks with taxpayer’s money. Such write-offs also debunk the aggressive posturing by the government and policy-makers about their so-called recovery efforts. .
Information provided by the UBI under the Right to Information (RTI) Act to social activist Vivek Velankar shows that the lender wrote off bad debt worth Rs26,072.81 crore between FY11-12 and FY19-20 (this information pertains only to loans of over Rs100 crore).
However, the Bank has refused to share information about loan recovery under the RTI Act. UBI told Mr Velankar, "The information sought, the segregation and collation of which would cause disproportionate diversion of resources, hence, in terms of section 7(9) of RTI Act, we express our inability to provide the said information."
The Bank ought to have published on its website the names of big defaulters, whose loans of Rs100 crore and above have been written off. Yet, the Bank says, "The information sought is held in commercial confidence with the Bank. Since no larger public interest is involved, we are exempted under section (8)(1)(d) of RTI Act to provide information to you." Much of this information has also been published by the All India Bank Depositors Association (AIBEA), and, yet, Union Bank of India’s sympathies seem to lie with the defaulters.
The amounts written off by the UBI eat into its profits and cause a range of charges to be slapped on ordinary depositors. Yet, the Bank asserts that there is no larger public interest involved, even though it relates directly to money in the form of savings accounts and deposits made by common people.
Mr Velankar, president of the Pune-based Sajag Nagrik Manch, who has been assiduously exposing the details of the written-off loans, says, "If this information is in commercial confidence, then how did SBI share the names of its top 225 defaulters, whose loans were written off? Or does the definition of commercial confidence change with every bank? Moreover, why do the names of these big defaulters need to be kept a secret?"
"When a common borrower defaults, the same bank publishes his name and all the details through advertisements in newspapers. Why do they want to keep the names of bigger defaulters hidden? Why doesn’t the 'confidentiality' clause apply while publicising the names of the common borrowers?" he asks.
In its reply under the RTI Act, the central public information officer (CPIO) of UBI also refused to share information on loans written off in a year-wise manner. The CPIO instead directed Mr Velankar to check the annual report of the Bank for the past eight years to know bad debts written off in that particular year.
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.
A few months ago, there were a lot of heated arguments about written off loans of big defaulters. In April, the Reserve Bank of India (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 query filed by Saket Gokhale.
However, at that time, everyone from the government, including the Union finance ministry and supporters of the government had insisted that technical write-off does not mean waiving off loans and efforts are on for the recovery of these written off loans.
Meanwhile, State-run lenders continue to write off huge amounts of bad loans without any real effort on recovery. All this happens, as Mr Velaknar has rightly pointed out, due to lack of checks & balances in banks by the regulator and the concerned authorities. In the end, it is the common bank customer who pays for all this financial manipulation and bad book-keeping, either through increased charges for every service or by receiving lower interest rates from the lenders on deposits or savings account.