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Nirmala Sitharaman schools Rahul Gandhi after he spreads misinformation again by terming ‘bad loan write off’ by banks as ‘loan waiver’

'Write-off' is a process of balance sheet cleaning up exercise undertaken by banks to depict the real status of the bank's assets and liabilities. The write-offs are not loan waivers as claimed by Congress party and its ecosystem.

On Tuesday, Finance Minister Nirmala Sitharaman schooled Congress leader Rahul Gandhi on his false claims on “wilful defaulters, bad loans and write-offs”, calling them an attempt to “mislead people in a brazen manner” and sensationalise facts. 

Finance Minister Nirmala Sitharaman’s response to Rahul Gandhi came after Gandhi-scion had claimed that the BJP government had waived off loans worth Rs 68,607 crore in the form of write-offs of top 50 wilful defaulters.

Earlier, Rahul Gandhi had attacked the ruling BJP after the Reserve Bank of India released a list of 50 wilful defaulters accused of cheating banks. These 50 defaulters included the companies of absconding diamantaire Mehul Choksi and fugitive businessman Vijay Mallya.

“I asked a simple question in Parliament — tell me the names of 50 biggest bank scammers. Finance Minister refused to reply. Now RBI has put names of Nirav Modi, Mehul Choksi and other BJP friends in the list. This is why they hid the truth from parliament,” the Congress MP had tweeted in Hindi along with a video.

Responding to the allegation of the Congress leader, Finance Minister Nirmala Sitharaman, in a series of tweets accused Rahul Gandhi of sensationalising facts by taking them out of context. Highlighting that between 2009-10 and 2013-14, scheduled commercial banks had written off Rs 1,45,226 crore, she quipped, “Wished Gandhi consulted former Prime Minister Manmohan Singh on what this writing-off was about”.

She said provisions are made for Non-Performing Assets according to a four-year provisioning cycle laid down by the RBI. “Upon full provisioning being done, banks write-off the fully provided NPA but continue to pursue recovery against the borrower. No loan is waived off,” she wrote.

Finance Minister Sitharaman said that wilful defaulters were beneficiaries of ‘phone banking’ under the UPA regime and the Modi government is chasing them to recover the dues.

Finance Minister Nirmala Sitharaman also referred to media reports quoting former Reserve Bank of India (RBI) governor Raghuram Rajan as having said that a large number of bad loans originated in the period 2006-2008 and “too many loans were made to well-connected promoters who have a history of defaulting on their loans”.

“Useful to recall the words of Raghuram Rajan: “A large number of bad loans originated in the period 2006-2008…Too many loans were made to well-connected promoters who have a history of defaulting on their loans…Public sector bankers continued financing promoters even while private sector banks were getting out. RBI could have raised more flags about the quality of lending…” Raghuram Rajan (said)… From 2015, PSBs (Public Sector Banks) were asked by the government to check all NPAs >50 crores for wilful default,” Minister Sitharaman responded to Rahul Gandhi on Twitter.

The Finance Minister then went onto explain regarding how properties belonging to fugitives Nirav Modi, Mehul Choksi and Vijay Mallya have been attached by the Modi government after they defaulted on the loans.

Sitharaman stated that immovable and movable properties belonging to fugitive Nirav Modi worth more than Rs 2,387 crores have been attached or seized, including foreign attachments of Rs 961.47 crore. “The auction of luxury items belonging to Nirav Modi has yielded for Rs 53.45 Crore. He is in prison in the UK,” said Finance Minister.

Citing progress on Mehul Choski case, Finance Minister said properties worth Rs 1,936.95 crore including foreign attachment of Rs 67.9 crore have been attacked by the union government. The government has also seized Rs 597.75 crore. She added, “Red Notice issued. Extradition Request sent to Antigua. Hearing for declaration of Mehul Choksi as Fugitive Offender is in progress”.

In connection with Vijay Mallya’s willful defaulting of loans, Finance Minister clarified stating that, “Total value at the time of attachment was Rs 8040 Crore and of seizure was Rs 1,693 Crore. Value of shares at the time of seizure was Rs 1693 Crore. Declared fugitive offender. On extradition request by GoI, UK High Court has also ruled for extradition.”

Sitharaman said it was the Prime Minister Narendra Modi-led government which was pursuing these wilful defaulters.

“9,967 recovery suits, 3,515 FIRs, invoking Fugitive Amendment Act in cases are on now. Total value of attachment and seizures in the cases of Nirav Modi, Mehul Choksi and Vijay Mallya: Rs 18,332.7 crore,” she said.

“Bank-wise details of aggregate funded amount outstanding and amount technically/prudentially written off, pertaining to top fifty wilful defaulters was provided as an annex to the answer to Lok Sabha starred question *305 of Rahul Gandhi on 16.3.2020,” the FM wrote.

Sitharaman also mentioned that a list of “borrowers flagged as wilful defaulter by Public Sector Banks under CRILIC reporting as on September 30, 2019 (for borrowers with exposure of Rs 5 crore and above, global operations) was provided”, on November 18, 2019, in the Lok Sabha.

The finance minister stated that Congress and Gandhi should introspect why they fail to play a constructive role in cleaning up the system. “Neither while in power, nor while in the opposition has the Congress shown any commitment or inclination to stop corruption and cronyism,” Sitharaman further stated.

Congress claims on loans ‘write-off’

Soon after reports emerged that the government had written-off certain loans, the Congress leaders attempted to mislead people by spinning facts between write-offs with waivers, indicating that the loan given to the wilful defaulters are completely waived-off.

In reality, ‘write-off’ is a process of balance sheet cleaning up exercise undertaken by banks to depict the real status of the bank’s assets and liabilities. The write-offs are not loan waivers as claimed by Congress party and its ecosystem.

The banks usually write off loans (an asset to the bank) given to borrowers, which have now shown signs of weakness. If banks fail to write-off these loans, it is reflected as a high-quality asset and the returns-on-assets should be classified as an income to the bank. However, the quality of a defaulted loan has deteriorated for some time now, which results in giving the wrong picture of the true assets of the bank.

Secondly, if a loan is not written-off and is continued as a healthy asset at a time when it actually is a Non-Performing Asset (NPA), then banks can continue to book interest income on the loan, on the accrual basis of accounting.

However, there are two impacts if the bank continues to do so. Firstly, the bank is artificially increasing its income by booking interest on an accrual basis, the income which is doubtful as the loan is actually an NPA.

Secondly, the bank has to pay tax on earning such interest income. With mounting bad loans, it is bad for business for banks as it increases banks’ liabilities through unnecessary tax payments. Hence, scheduled commercial banks regularly write-off loans to effective accounting.

Once a loan is “written-off”, income booking on the same is based on actual receipt of income, and not based on accrual, banks continue to earn interest on such loans and recognize it as income only when they receive it.

Write-offs are a purely technical, accounting entry. Loans, which may not be repaid by the borrower in the normal course of business are written off. Even when these loans are written off, various recovery procedures like recovery suits filed before the Debt Recovery Tribunal and action initiated under SARFAESI Act continue. Hence, the writing-off a loan is not simply a ‘waive-off’.

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