Write-offs in scheduled commercial banks have decreased over the last five years to just over ₹1.70 lakh crore at the end of FY 2023-24 from over ₹2.34 lakh crore in FY 2019-20, reflecting a decline of more than 27 per cent, data presented in the Lok Sabha showed.

Data also explained that, barring FY23, all four years witnessed a decline. Though no official explanation has been given for the decline in the write-offs, it is believed that better monitoring of doubtful accounts, better recovery, and a reduction in non-performing assets are key reasons behind it. Last December, the government informed Parliament that, against an aggregate loan write-off of ₹10.42 lakh crore, PSBs recovered ₹1.61 lakh crore from written-off loans from financial year 2014-15 till 2022-23. Figures for recovery under write-offs for FY24 have not been made available so far.

As per the Reserve Bank of India (RBI) guidelines and policy approved by bank boards, NPAs, including those in respect of which full provisioning has been made on completion of four years, are removed from the balance sheet of the bank concerned by way of write-off. The government has always maintained that write-offs do not result in a waiver of liabilities of borrowers to repay. The process of recovery of dues from the borrower in written-off loan accounts continues.

Further, banks continue to pursue recovery actions initiated in written-off accounts through various recovery mechanisms. These mechanisms include filing of civil suits or cases in Debts Recovery Tribunals, action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, filing of cases in the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016, negotiated settlement/compromise, and sale of non-performing assets.

Write-offs also help banks in freeing up capital for further disbursement. The money that was set aside by the bank for a loan write-off is freed up for provisioning other loans. A certain percentage of the loan amount is set aside by the banks for provisioning a loan. A minimum of 5 per cent to a maximum of 20 per cent is the standard rate of provisioning for loans in Indian banks, depending on the business sector and the repayment capacity of the borrower. 100 per cent provisioning is required in accordance with the Basel-III norms in the case of non-performing assets.

Meanwhile, data also showed that write-offs by scheduled commercial banks in terms of loans to ‘Large Industries and Services’ recorded a decline in all but one of the last five years. The amount was ₹1.59 lakh crore in FY20, but in FY22, around ₹70,000 crore was written off. FY23 saw a rise to over ₹1 lakh crore, but in FY24, the written off amount was around ₹71,000 crore.

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