Mudra Compass

According to reports, the Finance Ministry has requested that state-owned lenders raise the recovery rate from written-off accounts to roughly 40% because it is concerned about its current low level. The recovery rate from written-off accounts is currently less than 15%. Only 14% of the written-off loans totaling Rs. 7.34 lakh crore could be recovered by Public Sector Banks (PSBs) in the five years that ended in March 2022.

State-run banks are expected to undertake a special effort to collect written-off debts after being urged by the Centre to expedite proceedings against defaulting borrowers, according to the Economic Times.

It seems that after the write off banks get complacent about recovery from those non-performing assets (NPAs), the sources said, adding, this level of recovery is not acceptable.

According to a senior official, the government has directed public sector banks (PSBs) to concentrate on written-off loans and attempt to recover at least Rs 2 trillion in this fiscal year.

Prior to 2021–2022, PSBs wiped off bad loans of Rs. 8.16 trillion from their accounts in the six years before that year. According to the most recent statistics from the RBI, PSBs wiped off bad loans worth Rs 90,958 crore in the first nine months of 2022–23.

Non-performing assets (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 the write-off.

To review the situation on the issue, the sources said, the Department of Financial Services would soon hold a meeting with senior officials of PSBs.

The official added that the banks will decide on their unique aims after meeting with their respective boards. He continued, “We have just requested them to concentrate on one area.

While lenders would increase their efforts, according to another senior bank executive, some of these cases have been stuck in recovery tribunals and courts for a very long time.

Only when it seems doubtful that a recovery will materialize soon can banks write off loans. The bank can then continue the recovery process because a write-off frees up money for it, he continued.

Loan write-offs assist in updating and cleaning up balance sheets, but the borrower is still responsible for paying back the loan. Additionally, a loan write-off can be deducted from income, saving lenders money on taxes.

Finance Minister Nirmala Sitharaman informed Parliament in December 2022 that attempts are being made to recover any unpaid debts from borrowers of written-off loans, who are still liable for payments.

“Write-off does not benefit the borrower,” she said, adding that banks continue to pursue recovery actions started in written-off accounts through various available recovery mechanisms, such as filing a lawsuit in civil courts or debt recovery tribunals, filing cases under the Insolvency and Bankruptcy Code, 2016, and through the sale of non-performing assets.

Sitharaman also added that under the board-approved staff accountability policy, at-fault officials are subject to disciplinary action when it is demonstrably clear that they are at fault for non-compliance, flaws in the established systems and procedures, misconduct, or a failure to follow the due-diligence standards.

Earlier it was informed that Public sector banks could recover only 14 percent of the written-off loans worth Rs 7.34 lakh crore in the last five years ending March 2022. Of Rs 7.34 lakh crore written-off loans, state-owned lenders recovered Rs 1.03 lakh crore, Finance Minister Nirmala Sitharaman said in a written reply to the Rajya Sabha. So after recovery, the net written-off stood at Rs 6.31 lakh crore in the last five years.

An assumption was made by rating agency CRISIL last year that Indian banks are likely to see 90 basis points fall in gross non-performing assets (NPAs) to 5% in this fiscal year to March and further improve to 4% by the end of March 2024.

In December 2022, Finance Minister Nirmala Sitharaman told Parliament that borrowers of written-off loans are still responsible for repayment and that efforts are being made to collect any outstanding debts from them. Banks continue to pursue recovery actions initiated in written-off accounts through various recovery mechanisms available, such as filing of a suit in civil courts or in Debts Recovery Tribunals, action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, she said.

(Source – Times of India, Business Standard and Economic Times)