Banks have written off double the amount recovered in last 5 yrs: RBI data

Public sector banks write off Rs 7 trillion in 5 years, which is double the govt's capital infusion since 2014

Commercial banks in India have written off a whopping Rs 9.54 trillion worth of bad loans in the last five years, of which more than Rs 7 trillion was by public sector banks. The amount banks have written off is more than double the sum recovered during the period.

According to the Reserve Bank of India (RBI) data, the amount recovered in the last five years through various channels such as lok adalats, debt recovery tribunals, the SARFAESI Act, and the Insolvency and Bankruptcy Code (IBC) was Rs 4.14 trillion.

Bankers often argue that write-offs do not mean that they don’t have the option to recover those loans, as these are technical write-offs. However, as the data shows, recoveries by banks, which are not only from written-off accounts, are half of what has been written-off.

Write-offs are one of the main reasons for banks to report lower bad loans. After peaking in March 2018, when gross non-performing assets had touched 11.8 per cent, bad loans fell to 7.3 per cent in March 2021. The RBI said the provisional supervisory data suggested a further moderation in the ratio to 6.9 per cent by the end of September 2021 – the lowest in five years.

The amount written off by banks in the last five years was less than 5 per cent of their assets as on March 31, 2021, which was around Rs 195 trillion.

In 2020-21, scheduled commercial banks wrote off Rs 2.08 trillion worth of loans, of which Rs 1.34 trillion was by state-run lenders. The amount recovered by banks in 2020-21 was merely Rs 64,228 crore, which was 14.1 per cent of the amount referred to various channels of recovery. The recovery percentage (of the amount involved) in FY21 is the lowest in the last four years.

The recovery under the IBC was Rs 27,311 crore in FY21, which was 20.2 per cent of the amount referred under the scheme. This was the lowest yearly recovery under the bankruptcy code since its inception. In the first three full financial years, the percentage of recovery under the IBC was over 45 per cent.

The main reason for the tepid recovery is that the government had suspended certain IBC provisions for one year, from March 25, 2020, to March 24, 2021, due to the Covid-19 pandemic. The country went into a nationwide lockdown from March 25, 2020. During the suspension period, fresh proceedings under the IBC were not allowed.

“Even though initiation of fresh insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) of India was suspended for a year till March 2021 and Covid-19-related debt was excluded from the definition of default, it constituted one of the major modes of recoveries in terms of amount recovered,” the RBI’s Trends and Progress report released last week said.

“Allowing pre-pack resolution window for MSMEs is expected to assuage the mounting pressure of pending cases before NCLTs, reduce haircuts and improve declining recovery rates,” the report added.

In the last five years, public sector banks wrote off loans worth Rs 7.07 trillion. This is double the amount the government has infused as capital into these banks in the last seven years. Since 2014, the government has infused Rs 3.43 trillion into state-run banks. 

Highlights

• In last five years, banks wrote-off Rs 9.54 trillion as compared to recovery of Rs 4.14 trillion

• Write-offs is one main reasons for banks to report lower bad loans

• In FY21, SCBs wrote-off Rs 2.08 trillion; Rs 1.34 trillion was PSBs

• In FT21, banks recovered Rs 64,228 crore; 14.1% of the amount referred

• Recovery percentage in FY21 is the lowest in last four years

• Recovery under IBC in FY21 was 20.1%, lowest since its inception