During the previous five fiscal years, banks wrote down bad loans or non-performing loans totaling Rs. 10,09,511 crore, said Nirmala Sitharaman, the finance minister. Only 13% of the total write-offs over the previous five years, according to data from the Finance Ministry, were recovered by scheduled commercial banks.
This assertion was made just months after rating agency Crisil forecasted that non-performing assets at Indian banks might drop to 4% by 2024. At the end of four years, the minister informed the Rajya Sabha that arrangements had been made for the problematic loans. This indicates that the banks have made use of their capital to mitigate the effects of the NPAs.
In a response to a question from the Rajya Sabha, Sitharaman stated that the non-performing assets (NPAs), even those for which full provisioning had been made after four years, had been written off from the balance sheet of the relevant bank.
Banks write off bad loans to maximize their capital as well as to receive tax advantages, but the finance minister noted that this practice won’t help borrowers.
In India, there have been incidents where loan recovery agencies have intimidated regular borrowers, including one where a woman was driven over by a tractor. Banks often write off poor loans that are unlikely to be repaid, however, to balance their accounts.
Only slightly more than Rs 1 lakh crore of the more than Rs 6 lakh crore recovered over the past five years came from accounts that were wiped off. Over 3000 banks have been targeted by staff responsibility for NPAs within the same period. It was disclosed earlier this year that banks had recovered bad loans of more than Rs 8 lakh crore during the previous eight fiscal years with help from the RBI and the government.
According to Nirmala Sitharaman, a written-off debt does not assist the borrower because they are still responsible for repayment and the process of collecting past due amounts from them is ongoing.
In the past five fiscal years, SCBs have recovered a total of Rs. 6,59,596 crores, including Rs. 1,32,036 crores from loan accounts that had been written off, she added.
She said that under the board-approved staff accountability policy, action is taken against the at-fault officials when it is determined, at least on the surface, that they are to blame for failing to follow the established systems and procedures, engaging in misconduct, or failing to adhere to the due-diligence standards.
Banks continue to pursue recovery procedures started in accounts that have been written off using all available recovery methods, including suing in civil court or before a debt recovery tribunal, initiating a case under the 2016 Insolvency and Bankruptcy Code, and selling non-performing assets.
According to data provided by public sector banks, she said that over the previous five fiscal years, 3,312 bank officials (of AGM and above rank) were given staff accountability regarding NPA cases, and appropriate punitive actions were taken in line with their shortcomings.
In response to another question, Sitharaman said that the Indian Banks Association (IBA) had informed her that only a tiny number of banks were now using blockchain technology.
She asserted that as a result, there is no issue with the platform’s compatibility among banks.
She also added that the domestic Letter of Credit (LC) issuance through the platform is being worked on as the platform’s first use case by Indian Banks’ Blockchain Infrastructure Company (IBBIC) Private Limited, which was established to provide a platform for exploring, developing, and implementing Distributed Ledger Technology (DLT) solutions for the Indian financial services sector.
The consortium is made up of 18 banks, including some of India’s top private and public sector banks.
The Reserve Bank of India (RBI), through its regulatory sandbox, a system for testing cutting-edge technology, goods, and services, has been offering advice for the creation of blockchain-based applications.
According to this list of creative technologies, blockchain technology allows innovators to apply to use this mechanism to test their products.
There is no plan to establish standards or mandate a standard common blockchain technology platform for the banks, she said.
Any loan made by a bank may become non-performing or bad loan if the principal or interest payment has not been made for more than three months.
When a bank or lender writes off a loan, the corresponding amount is removed from the asset book of the bank, and the lender records the NPAs as a loss. The only justification for a lender to take this action is if there is even the slightest possibility of the bank retrieving the money from the borrower.
In some ways, writing off the loans is advantageous to the bank because, in addition to lowering its NPAs, doing so would also result in lower taxes because the amount written off can be subtracted from profit before tax. For the maintenance of their balance sheets, lenders and banks routinely write off NPAs as part of routine banking operations.
Gross non-performing assets (NPAs) at Indian banks are estimated to decrease by 90 basis points to 5% in the fiscal year that ends in March and further to 4% by the end of March 2024, according to a report released on Wednesday by rating agency Crisil.
The agency stated in a statement that the key indicator of bank asset quality is projected to improve “riding on post-pandemic economic recovery and increased credit growth.”
According to Krishnan Sitaraman, senior direct and deputy chief rating officer at Crisil Ratings, “the gradual improvement in corporate asset quality is reflected in leading indicators like the credit quality of bank exposures.”
Following a considerable clean-up of bank books in recent years and stronger risk management and underwriting, the asset quality has improved in the corporate segment.
The retail sector held up well, and over the medium term, gross NPAs are estimated to remain rangebound around 1.8-2.0%, Crisil noted.
Nearly half of retail loans are for homes, where borrowers often have superior credit profiles. However, the impact of rising interest rates and inflationary pressure on specific borrowers’ cash flows will need to be watched, it said.
It continued, “Over the medium term, banks mustn’t weaken their credit underwriting criteria while focusing on quicker expansion to avoid a repetition of prior asset-quality difficulties.
edited and proofread by nikita sharma