Write-offs by scheduled commercial banks in India have decreased significantly over the last five years, dropping to just over Rs 1.70 lakh crore at the end of FY 2023-24 from over Rs 2.34 lakh crore in FY 2019-20, marking a decline of more than 27%, according to data presented in the Lok Sabha.
In December, the government reported to Parliament that against an aggregate loan write-off of Rs 10.42 lakh crore, public sector banks (PSBs) recovered Rs 1.61 lakh crore from written-off loans from FY 2014-15 to FY 2022-23. Recovery figures for FY24 have not yet been disclosed.
The downward trend in write-offs, barring a slight increase in FY23, is attributed to better monitoring of doubtful accounts, enhanced recovery efforts, and a reduction in non-performing assets (NPAs).
Data also revealed a decline in write-offs by scheduled commercial banks for loans to ‘Large Industries and Services’ in all but one of the past five years. Write-offs in this category amounted to Rs 1.59 lakh crore in FY20, dropped to around Rs 70,000 crore in FY22, rose to over Rs 1 lakh crore in FY23, and then decreased to around Rs 71,000 crore in FY24.
How write-offs work
According to Reserve Bank of India (RBI) guidelines and bank board-approved policies, NPAs, including those fully provisioned after four years, are written off from the bank’s balance sheet. However, the government maintains that write-offs do not absolve borrowers of their repayment obligations.
Banks continue recovery efforts through various mechanisms, including civil suits, Debts Recovery Tribunals, actions under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, cases in the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016, negotiated settlements, and the sale of NPAs.
Write-offs also serve to free up capital for banks, enabling further loan disbursement. Banks set aside a percentage of the loan amount for provisioning, ranging from 5% to 20% depending on the business sector and borrower repayment capacity. Non-performing assets require 100% provisioning in line with Basel-III norms.
