Loan write-offs

A Union Minister’s written reply in Parliament that banks have written off loans worth about Rs 10 lakh crore in the last five financial years should in normal course elicit shock and derision over why and how big defaulters manage a safe passage when small-time borrowers cannot expect any mercy. Instead, a notion of inevitability has been infused that the rich and mighty are beyond reproach. Where there ought to be a hue and cry over the apparent lack of transparency in the write-off process and the credit risk management system, there is quiet resignation. The list of wilful defaulters, in the meantime, keeps growing, along with mind-boggling figures of write-offs.

A tool used by banks to clean up their balance-sheets, a loan write-off is applied in the cases of bad loans or non-performing assets (NPA). That, however, does not take away the bank’s right of recovery from the borrower through legal means. That should be the key focus area, for public sector banks in particular, despite a mere 15-20 per cent average recovery from written-off loans. On paper, a write-off has to be small and used sparingly. In reality, it’s the other way round. The number of wilful defaulters in the last four years stood at 10,306, the highest number of 2,840 being reported during 2020-21. The write-off amount was Rs 1.57 lakh crore in 2021-22, though down from Rs 2.02 lakh crore in 2020-21 and Rs 2.34 lakh crore the year before. Absconding diamantaire Mehul Choksi’s company Gitanjali Gems alone owes banks a whopping Rs 7,110 crore.

The Reserve Bank of India has noted that the decline in gross NPAs in the banking system is largely aided by loan write-offs, a trend it has cautioned against. A write-off should be well within the policy parameters, with a detailed account of all the efforts being made to recover the money, and must also be subject to scrutiny. A free run for the big defaulters is an affront.

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