Loan Write-Offs by Indian Banks

The banking sector in India has witnessed significant fluctuations in loan write-offs over the years. Between FY15 and FY24, commercial banks wrote off a staggering Rs 12.3 lakh crore. This article delves into the details of these write-offs, focusing on the role of public sector banks, the trends in non-performing assets (NPAs), and the recovery measures employed by banks.

The Scale of Loan Write-Offs

The data reveals that public sector banks accounted for a substantial portion of the loan write-offs. Between FY20 and FY24, these banks wrote off Rs 6.5 lakh crore, which is about 53% of the total write-offs during this period. The peak of loan write-offs occurred in FY19, with Rs 2.4 lakh crore being written off. This spike followed an asset quality review initiated in 2015, aimed at cleaning up bank balance sheets.

In contrast, the write-offs decreased significantly to Rs 1.7 lakh crore in FY24, representing only 1% of the total bank credit, which stood at approximately Rs 165 lakh crore. Public sector banks currently hold a 51% share of the banking sector’s incremental credit, a decline from 54% in FY23. This shift indicates a changing landscape in the banking sector, with private banks gradually increasing their market share.

Non-Performing Assets: A Closer Look

As of September 30, 2024, the gross NPAs of public sector banks reached Rs 3,16,331 crore, while private sector banks reported Rs 1,34,339 crore. The NPA ratio for public sector banks was 3.01%, compared to 1.86% for private sector banks. These figures highlight the ongoing challenges faced by public sector banks in managing their asset quality.

State Bank of India (SBI), which represents about 20% of the banking sector’s activities, wrote off Rs 2 lakh crore during this period. Punjab National Bank followed closely, with write-offs amounting to Rs 94,702 crore. In the current fiscal year, public sector banks have already written off Rs 42,000 crore, indicating a continued effort to address their NPA issues.

Recovery Strategies Employed by Banks

In response to the rising NPAs, banks have adopted various recovery strategies. According to Pankaj Chaudhary, the minister of state for finance, banks write off NPAs only after making full provisions for them over a period of four years, as per Reserve Bank of India (RBI) guidelines. Importantly, these write-offs do not absolve borrowers of their liabilities. Banks continue to pursue recovery actions even after writing off loans.

The recovery methods employed by banks include filing suits in civil courts and debt recovery tribunals. They also utilize the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and the Insolvency and Bankruptcy Code, 2016. Additionally, banks may engage in negotiated settlements or compromise agreements, and they can sell NPAs to recover some of the lost amounts.

Positive Trends in Public Sector Banks

Despite the challenges posed by NPAs and loan write-offs, public sector banks have shown signs of improvement. The government reported that these banks achieved their highest-ever aggregate net profit of Rs 1.41 lakh crore in FY24. This remarkable performance was bolstered by an enhancement in asset quality, with the gross NPAs ratio declining to 3.12% as of September 2024.

In the first half of the 2024-25 fiscal year, public sector banks reported a net profit of Rs 85,520 crore. This positive trend suggests that the measures taken to address NPAs and improve asset quality are beginning to yield results. As the banking sector continues to evolve, the focus will remain on maintaining financial stability while effectively managing loan write-offs and NPAs.

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