MUMBAI: The Reserve Bank of India (RBI) Thursday asked banks to double down efforts to maximise recovery from written-off accounts. This was after data released to Parliament showed that banks have written off bad loans worth Rs 14.56 lakh crore in the last nine financial years, starting 2014-15.
“We would like the bank managements to have a board-approved policy for write-off and also a follow-up to maximise recovery from these accounts for which we are engaging with bank managements,” deputy governor Swaminathan J said.
Data tabled in the Lok Sabha had also shown that banks wrote off bad loans worth over Rs 2.09 lakh crore during the year ended March 2023. In fact, banks had recovered an aggregate of Rs 2.04 lakh crore in written-off loans, including corporate loans, since April 2014 and up to March 2023.
The deputy governor said that it was important to get the context right when assessing written-off loans. “We have to be guarded before passing judgments over that,” he said. “Once an account becomes NPA, prudential norms require the creation of provisions and basis the ageing of the NPA as well as the realisable value of the security these provisions get augmented and come to a stage when provisions equal the outstanding in the account. Once these accounts become fully provided for you are carrying an asset on one side and equal provision on the other side.”
Swaminathan explained that as part of prudent balance sheet management and tax efficiency banks resort to technical write-offs.
“It’s truly an accounting entry where a non-balance sheet item moves into an off-balance sheet item. There are specialised teams chasing recovery thereafter,” he said.
Trying to allay misinformation surrounding technically written-off accounts, he added that such actions do not diminish banks’ rights to recover and a specialised team is chasing recovery from such bad accounts.
“The borrower’s liability to repay and the bank’s right to recover is not diminished in any manner,” he said.
“The fact that this was covered in the governor’s recent interaction with banks, we would like them to redouble their efforts and see more recovery as they go in aiding the P&L of banks and contribute to their well-being. These are NPAs which are 4-8 years old and the realisable value of securities would have diminished over a period of time so the percentage of recovery has to be seen in that context of age of NPA and availability of security.”
