Loan waiver is quite different from writing off a loan as it is the cancellation of recovery or refraining from claiming the dues. In simpler terms, banks will completely give up on such loans and no recovery will be made.
PSU banks wrote off a massive Rs 3,16,500 crore in loans in four years between April 2014 and April 2018. Meanwhile, these 21 PSU banks recovered just Rs 44,990 crore on a cumulative basis during the same four-year period, a recent RBI report showed. With the massive write-offs at seven times the amount of recovery stirred up a storm in a teacup, Finance Minister Arun Jaitley took to Facebook on Monday and post a note titled ‘Write off – no loan waiver’. In the note, Arun Jaitley defended the concept and said that writing off non-performing assets is a regular exercise conducted by banks to clear their balance sheet, according to the RBI guidelines, and it not in any way same as loan waiver.
What is writing-off a loan?
Writing off a loan or asset means considering that it does not have future value or no longer serves the purpose. A non-performing asset is written off after all avenues of recovery are exhausted and chances of recovery of due loan seem remote. To clear the balance sheet, all such kind of loans are written off once for all. It is a regular exercise that banks conduct in order to clean their balance sheet as well as to achieve tax efficiency. Although bad loans are written off, borrowers of such loans remain liable for repayment. There are several cases when such bad accounts were written off but loan recovery was done. Recovery of such accounts, however, happens on ongoing basis under the legal mechanism.
What is the loan waiver?
Loan waiver is quite different from writing off a loan as it is the cancellation of recovery or refraining from claiming the dues. In simpler terms, banks will completely give up on such loans and no recovery will be made. While in cases of writing off, recovery can be made. Waiving a loan is a relief that is normally provided to farmers, who are in severe distress due to abnormal conditions such as crop failures, poor monsoon, floods, earthquake, draught etc that are considered as natural calamities. These are the conditions, which are beyond control, and result in borrowers unable to pay back to banks. However, waiving farmers’ loan has now become a political move as a catching device for votes.