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Banks have written off a staggering ₹12.3 lakh crore in loans over the past decade, as per data shared by the government in Parliament. A significant portion of this—53% or ₹6.5 lakh crore—was written off by public sector banks (PSBs) between FY20 and FY24. This alarming revelation highlights the growing problem of non-performing assets (NPAs) in the banking sector, with the State Bank of India emerging as the largest contributor to write-offs.
Key Takeaways from the Write-Off Data
Total Write-Offs (FY15-FY24): Indian banks wrote off loans worth ₹12.3 lakh crore.
PSBs’ Contribution: Public sector banks accounted for ₹6.5 lakh crore, or 53% of the total write-offs in the last five years.
Private Banks’ NPAs: As of September 2024, gross NPAs of private sector banks stood at ₹1.34 lakh crore while PSBs had gross NPAs of ₹3.16 lakh crore.
Gross NPA Ratios: Gross NPAs for PSBs stood at 3.01% of total outstanding loans, while for private banks, they were 1.86%.
SBI Tops the Write-Off Chart
The State Bank of India (SBI), which holds nearly 20% market share in India’s banking sector, wrote off ₹2 lakh crore during this period. Punjab National Bank (PNB) was another major nationalized bank that followed with a write-off of ₹94,702 crore. Public sector banks have already written off ₹42,000 crore worth of loans as of September 2024 in the ongoing financial year.
2019: The Peak Year for Write-Offs
The highest write-offs in a single year were seen in FY19 when banks wrote off ₹2.4 lakh crore. This is after the Asset Quality Review (AQR) was initiated in 2015, which exposed the true extent of bad loans in the banking system. Compared to this, FY24 has seen a more modest write-off of ₹1.7 lakh crore, which accounts for just 1% of the total banking credit at approximately ₹165 lakh crore.
Write-Offs Do Not Equal Loan Waivers
The government has clarified that loan write-offs do not mean the liability of the borrower is waived. Loans are written off as per RBI guidelines and the internal policy of banks, which is generally after four years of being classified as NPAs.
Recovery Efforts: Banks continue to pursue recovery through legal and institutional measures, including:
- Filing cases in civil courts or Debt Recovery Tribunals (DRTs).
- Invoking the SARFAESI Act, 2002.
- Leveraging the Insolvency and Bankruptcy Code (IBC), 2016.
- Selling bad loans to asset reconstruction companies (ARCs) or entering into settlements.
- The government emphasized that the write-off process is primarily an accounting exercise to clean up balance sheets, enabling banks to maintain regulatory compliance.
PSBs Achieve Record Profits Despite NPAs
Interestingly, despite massive write-offs, public sector banks have reported their highest-ever net profit of ₹1.41 lakh crore in FY24. This profitability indicates the improvement in the health of the banking sector, as reflected in declining NPAs and improved operational efficiency.
Gross NPA Ratio Declines: As of September 2024, the gross NPA ratio for PSBs has declined to 3.12%.
H1 FY25 Performance: In the first half of FY25, PSBs have posted a net profit of ₹85,520 crore.
This dual scenario of profits rising with huge write-offs reveals that the transformation within the banking sector of India is a continuous process.
Government Reaction and Future
The issues of NPAs on the rise and huge write-offs are criticized, and it questions the accountability of the borrower as well as the efficiency of the recovery mechanism. Still, the government says that enough measures are in place to curtail the menace of bad loans.
- Strengthening Recovery Mechanisms: The initiatives of the Insolvency and Bankruptcy Code (IBC) have streamlined the resolution process for distressed assets, and banks have been able to recover substantial amounts in recent years.
- Better Monitoring: Enhanced oversight and due diligence processes are aimed at preventing new NPAs from emerging.
- Capital Infusion: The government has infused huge capital into PSBs over the years, allowing them to absorb losses and continue lending.
Challenges Ahead for the Banking Sector
Although the overall bottom line and decreasing NPA ratios are good, areas of concern are:
- Prolonged Write-off Volumes: Write-off is a problem area wherein it reflects unsolved problems in the credit structure.
- Recovery Rate: By legal means alone, the recovery level of bad loans is considered to be inadequate.
- Ensuring Credit Discipline: Borrower’s repayment obligations need constant monitoring to decrease NPAs even further.
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The ₹12.3 lakh crore write-off over the last decade underscores the scale of India’s bad loan problem. While banks, particularly PSBs, have made strides in reducing gross NPAs and achieving record profits, the need for robust recovery mechanisms and better credit discipline remains crucial.
As the banking sector in India deals with all these problems, the aim will be to minimize NPAs to emerge in the future, strengthen recoveries, and also retain the momentum of profitability. The coming years may promise the emergence of this sector as stronger than ever.
