Indian Banks Write Off Over ₹2.09 Lakh Crore in Bad Loans In FY23

Banks in India have written off bad loans worth over ₹2.09 lakh crore in the fiscal year 2023. This brings the total loan write-offs by banks to ₹10.57 lakh crore in the past five years. Banks use loan write-offs to reduce the burden of non-performing assets.

However, the amount recovered from these written-off loans has been low, with only ₹30,104 crore recovered in FY21, ₹33,534 crore in FY22, and ₹45,548 crore in FY23. The recovery rate during this period was only 18.60%.

Banks have reduced their bad loans by writing them off, which has helped them lower their non-performing assets.

The total defaulted loans, including write-offs, amount to around ₹10.32 lakh crore. If the write-offs are included, the non-performing asset ratio would be higher at 7.47% of advances.

When a loan is written off, it means that the bank removes it from their records because the borrower has not been able to repay the loan and it is unlikely that the bank will be able to recover the money.

This is done when the borrower has not made any payments for 90 days or more. Even though the loan is written off, the bank still tries to recover the money and sets aside funds to cover the written-off amount.

Writing off the loan also reduces the bank’s tax liability because the written-off amount is subtracted from their profits.

The RBI (Reserve Bank of India) has given guidance to banks on how to handle bad loans and write-offs.

In a deregulated credit environment, banks are allowed to make decisions on waiving off bad loans based on their own assessment of the loans’ viability, following the policies approved by their board and the guidelines set by the RBI.

The policy also outlines the process for recovering dues, setting targets for reducing bad loans, and factors to consider before waiving off loans.

However, the recovery process can be lengthy, especially for loans belonging to wilful defaulters and shady promoters who often don’t repay the banks.

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Some experts argue that the lack of transparency in the write-off process can lead to wrongdoing and misuse of public funds. According to a report by the RBI, if the economic situation worsens, the ratio of non-performing assets may increase.