Recently, the government informed the Lok Sabha that over the past five years, Scheduled Commercial Banks have written off approximately Rs 10.6 lakh crore, with almost half of it belonging to large industrial houses. Additionally, about 2,300 borrowers, each with loans amounting to Rs 5 crore or more, willfully defaulted around Rs 2 lakh crore.
Public sector banks have reportedly written off loans amounting to Rs 3.66 lakh crore in the past three financial years, as per data from the RBI. Despite this, their recovery during the same period was only Rs 1.9 lakh crore, according to information provided in an RTI.
The Ministry of Finance revealed to the Lok Sabha that scheduled commercial banks (SCBs) wrote off nearly Rs 10.6 lakh crore in the last five years, with almost half of these loans allocated to large industries and the services sector. Minister of State for Finance Bhagwat Karad noted that in 2020-23, banks wrote off Rs 2.09 lakh crore, of which 52.3 percent was associated with large industries and services. Despite RBI directives to expedite the process, public sector banks have been sluggish in recovering bad loans. In 2022-23, the State Bank of India (SBI) wrote off loans totaling Rs 24,061 crore, with recoveries amounting to only Rs 13,024 crore. Similarly, Bank of Baroda wrote off Rs 17,998 crore, while its total recovery was a meager Rs 6,294 crore, as per the RTI data. Canara Bank, however, stood out with a total loan recovery of Rs 11,919 crore, surpassing the Rs 4,472 crore worth of loans written off in 2022-23.
Following Reserve Bank of India (RBI) guidelines and bank board-approved policies, NPAs are removed from the balance sheet through write-offs, as per the process, after four years of full provisioning. Minister of State in the Finance Ministry, Bhagwat Karad, emphasized that write-offs do not waive borrowers’ repayment liabilities.
The recovery process for dues from written-off accounts continues through various mechanisms, including filing civil suits or in Debt Recovery Tribunals, action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, filing cases in the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016, through negotiated settlement/compromise, and sale of non-performing assets.
Karad clarified that the government does not incur any expenses on corporate loan write-offs.
The Minister refrained from disclosing the identities of individual borrowers whose accounts underwent write-offs, citing the RBI Act. Quoting the RBI, he mentioned that all Scheduled Commercial Banks (SCBs) collectively amassed Rs. 5,309.80 crore in penal charges, encompassing penalties for delayed loan payments, during the financial year 2022-23.
Regarding willful defaulters, Karad stated that SCBs and All India Financial Institutions report credit information of borrowers with an aggregate exposure of Rs. 5 crore and above to the Central Repository of Information on Large Credits (CRILC). As of March 31, 2023, the CRILC database indicated 2,623 unique borrowers classified as willful defaulters, with an aggregate outstanding amount exceeding Rs. 1.96 lakh crore by SCBs.
Karad emphasized that banks initiate or continue actions against willful defaulters through various recovery mechanisms, such as filing civil suits. Additionally, banks can explore negotiations, settlements, compromises, or the sale of nonperforming assets. He clarified that as per the RBI’s Framework for Compromise Settlements and Technical Write-offs on June 8, 2023, compromise settlements for willful defaulters are pursued without prejudicing ongoing criminal proceedings against these debtors.
The Minister clarified that the primary regulatory objective behind allowing compromise settlements for willful defaulters is to provide lenders with multiple avenues for recovering defaulted funds promptly. Apart from time value loss, prolonged delays contribute to asset value deterioration, impeding ultimate recoveries.
Conclusion
The revelation of massive write-offs by Indian banks raises concerns about financial accountability, particularly with half of the written-off amount tied to large corporations. The sluggish recovery pace and the intricate web of recovery mechanisms underscore the challenges in reclaiming bad loans, urging a reevaluation of the existing financial system
