A clutch of banks have together written off loans worth Rs 25,539 crore in the December quarter, even as an interim judicial stay on the recognition of bad loans after August 31 kept slippages in check. Data for 18 banks compiled by FE showed that write-offs remain a key tool for banks to reduce the amount of non-performing assets (NPAs) on their books at a time when the process and timelines for settlement and recovery have become elongated.
Banks typically make two categories of write-offs. A technical write-off is made when the bank removes an account from the NPA category even as it continues to make efforts to recover the amount involved. The other kind is when the bank takes the loan off its books altogether while providing fully for it.
State Bank of India (SBI) wrote off loans worth Rs 9,986 crore during Q3FY21. Chairman Dinesh Khara said there were also other methods the bank has been using to reduce its stock of bad loans. “We are encouraging people to enter into compromises also. Options are available even outside IBC. We are exploiting all those options,” he said.
Wherever opportunity exists, the bank is trying to promote mergers and acquisition (M&A) activity as well. So we are trying out all possible ways to see that our stressed book should get resolved,” he added.
Union Bank of India made total write-offs worth Rs 5,850 crore for the quarter. Rajkiran Rai G, MD and CEO, Union Bank, told analysts the write-offs were largely technical in nature. The bank expects a recovery of about Rs 5,000 crore from written-off accounts in FY22. “We have not encashed much during this period because of Covid. So we could not go aggressive. Even in the resolutions or one-time settlements what we have done, we could not get the recoveries,” Rai said, adding, “So now maybe in the last quarter we will see some recoveries and maybe next year will be a good year on this, given the one-time settlements we have sanctioned.”
Axis Bank, which made write-offs to the tune of Rs 4,242 crore, said it has a rule-based policy for writing off loans, which was followed during Q3 as well. Chief financial officer Puneet Sharma said, “There is limited to no judgment involved in our write-off stance…the write-offs in the current quarter based on the rule engine is predominantly coming from the wholesale book.”
Banks provide for an account based on the amount of time an asset has stayed delinquent. There are categories defined by the Reserve Bank of India (RBI) for this — substandard (an account which stayed in the NPA category for up to 12 months), doubtful (if it has remained NPA for two years) and loss asset (one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly).
Banks typically write off a loan when it has been fully provided for, which must happen when the loan has remained in the doubtful category for more than three years (or NPA for four years). Generally, it is a doubtful asset that gets written off and in order to do that, the bank must have made 100% provisions. The loan goes off the book altogether and ceases to get reflected in the NPA pile. The banks continue to make recovery efforts and whatever recovery is made flows into the ‘other income’ segment. Most often, this takes the form of a provision writeback.