In anticipation of recovering bad loans and looking to clean up their balance sheets, banks have written off more than Rs 1 lakh crore worth of loans in 2017-18. Write-offs made by 21 public-sector banks (PSBs) rose 57% year-on-year (y-o-y) in FY18 and crossed the Rs 1-lakh-crore mark, minister of state for finance Shiv Pratap Shukla said in response to a Rajya Sabha question. The reduction in non-performing assets (NPAs) due to write-offs stood at Rs 1.28 lakh crore as on March 31, 2018, against Rs 81,684 crore as on March 31, 2017.
The value of write-offs adds up to over 14% of the aggregate gross NPAs of the 21 PSBs at the end of March 2018. According to 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 sheets of banks by way of write-offs. Write-offs are part of a regular exercise by banks to clean up their balance sheets and avail tax benefits. Borrowers of written-off loans continue to be liable for repayment and banks keep up efforts to recover them. If recoveries are made from written-off accounts, they get reflected in banks’ non-interest income.
IDBI Bank saw the steepest climb in write-offs, which jumped 336% from the end of FY17 to Rs 12,515 crore at the end of FY18. It was followed by Indian Bank, which saw a 267.5% rise in write-offs to Rs 1,606 crore at the end of March 2018. State Bank of India (SBI), the country’s largest bank, had written off loans worth Rs 39,151 crore at the end of March 2018, up 42% from Rs 27,574 crore a year ago. The FY17 figure includes write-offs made by SBI’s associates, which were merged with the parent at the beginning of FY18.
Punjab National Bank (PNB) was one of the three banks where write-offs declined between March 2017 and March 2018, the other two being Dena Bank and Punjab & Sind Bank. PNB’s write-offs stood at Rs 7,407 crore at the end of March 2018, down 19.5% y-o-y. Dena Bank’s write-offs declined 21% y-o-y to Rs 661 crore, while those at Punjab & Sind Bank fell 6% to Rs 460 crore.
In June, FE had reported that 10 banks accounted for write-offs worth Rs 1 lakh crore in FY18. While it is possible banks may recover some of this money, the write-offs are expected to be sizeable in the current year too. The hits will come following the insolvency proceedings initiated for a dozen large companies to which lenders have a total exposure of Rs 2.4 lakh crore, and some large power assets. While banks have made provisions for these assets, in keeping with RBI rules, they may need to write off some of the loan amounts.