Between FY15 and FY24, Indian commercial banks wrote off loans amounting to Rs 12.3 lakh crore, with public sector banks contributing significantly to the total. This large-scale write-off highlights ongoing efforts by banks to clean up their balance sheets while continuing to recover loans, despite the challenges.
Public Sector Banks Lead in Loan Write-Offs
Public sector banks accounted for Rs 6.5 lakh crore of the total write-offs in the last five years, making up over 50% of the amount written off. This trend is indicative of the continuing efforts by government-owned banks to address non-performing assets (NPAs) and improve their financial health. The highest level of write-offs occurred in FY19, when commercial banks wrote off Rs 2.4 lakh crore, largely due to an asset quality review process that started in 2015.
Declining Write-Offs: A Shift in Trends
Loan write-offs peaked at Rs 2.4 lakh crore in FY19 but have since declined, falling to Rs 1.7 lakh crore in FY24. The write-offs in FY24 represent just 1% of the total bank credit of approximately Rs 165 lakh crore, showing that although the total amount of write-offs has decreased, they still play a significant role in managing the financial challenges faced by banks.
Recovery Efforts Continue Despite Write-Offs
It’s important to note that write-offs do not erase borrower liabilities. In fact, banks continue to pursue recovery through various means, including filing suits in civil courts, taking actions under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), and using the Insolvency and Bankruptcy Code (IBC) for corporate recoveries. Recovery efforts also include negotiated settlements and selling off NPAs to specialized agencies.
Public Sector Banks Show Improvement in Asset Quality
Despite high loan write-offs, public sector banks (PSBs) have made significant strides in improving their asset quality. As of September 2024, the gross NPAs of PSBs dropped to 3.01%, down from a much higher level of 14.6% in 2018. This improvement, along with the highest-ever net profit of Rs 1.41 lakh crore for FY24, demonstrates the banks’ progress in addressing NPA challenges.
Looking Ahead: Sustainable Recovery for Banks
As Indian banks continue to focus on reducing NPAs and improving credit quality, they remain committed to recovery efforts. This strategic approach ensures that write-offs do not negatively impact borrowers, with banks actively pursuing recovery through legal and financial channels.
