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State-run banks recover Rs 6.4 lakh crore bad loans, and written-off loans since FY15 even as opposition creates confusion between ‘loan waiver’ and ‘loan writeoff’

Data demonstrates that the gross NPA ratio of state-run banks has dropped from 14.6% on March 31, 2018, to 7.4% on March 31, 2022, while the net NPA ratio has decreased from 8% to 2% over this period. Stressed assets came down to 8.7% from 15.3%.

The Modi government recently completed 8 years of rule in the country. Reports released by the government state that the Public Sector Banks (PSBs) have recovered bad loans worth Rs 6.42 lakh crore since the financial year 2015. Along with this, 98.5% of willful defaulters have also been sued.

According to the reports, from the financial year 2011 to the financial year 2016, the government has infused Rs 3.36 lakh crore in PSBs, while banks have raised an additional Rs 2.99 lakh crore on their own from the markets. With this, the Provision Coverage Ratio of PSBs has improved from 46% at the end of March 2015 to 86.9% at the end of March 2022. PCR is the percentage of funds that a bank sets aside for losses due to bad debts.

Further, since the financial year 2015, the banks have recovered Rs 5.17 lakh crore in Non-Performing Assets (NPAs) and Rs 1.24 lakh crore in written-off accounts. Data demonstrates that the gross NPA ratio of state-run banks has dropped from 14.6% on March 31, 2018, to 7.4% on March 31, 2022, while the net NPA ratio has decreased from 8% to 2% over this period. Stressed assets came down to 8.7% from 15.3%.

A senior government official elaborating on the data stated that the Indian banks continue to pursue recovery actions initiated in written-off accounts through various recovery mechanisms available. The occurrence of fraud proportional to the gross advances of PSBs fell from a high of 1.32% during the financial year 2013-14 to 0.05% during the financial year 2021-22.

Earlier, the government had released a report claiming that the concrete steps taken by the government and the Reserve Bank of India had helped the Indian Banks to recover the bad loans. “Government and RBI (Reserve Bank of India) regularly issue guidelines and have taken several initiatives aimed at resolution of long-standing stressed assets on the books of banks as well as timely identification and recognition of stress immediately upon default and take corrective action for mitigation of the same”, Bhagwat Karad, the minister of state for finance had said in a written reply to the Lok Sabha in July.

Rahul Gandhi and Arvind Kejriwal creating confusion between loan waivers and loan write-offs

However, it is important to note that the opposition leaders have intentionally or unintentionally created confusion between loan waivers and loan write-offs. For instance, in December 2020, Congress leader Rahul Gandhi put out misleading information on the alleged ‘waiving-off’ loans of industrialists by the Modi government. He came up with some magical numbers of Rs 2,37,206 crore, claiming that the Modi government helped some industrialists by ‘waiving off’ their loans. According to Rahul Gandhi, the huge amount, which according to him was ‘waive-off’ by the government, could have been provided for 11 crore families in the difficult time of COVID, each with Rs 20,000.

Gandhi was not the only one who rode on the “confused” wagon. Chief Minister of Delhi Arvind Kejriwal, who continues to stay irked by Prime Minister Modi’s ‘free ki revdi’ statement, also targeted the government with a similar tweet. Kejriwal wrote, “Providing free education to the children of the country and arranging free treatment for every Indian is patriotism, virtue, religion, nation building. It is treason against Maa Bharti to give free revdi on own friends.”

Kejriwal had posted a photograph of a newspaper clipping that talked about the statement given by MoS Karad in Rajya Sabha. Interestingly, Kejriwal is an IIT graduate and former Income Tax official and one would expect that of all people he would know the difference between loan waiver and loan write-off. Except, he is also a politician now and hence facts don’t seem to matter.

Also recently, BJP leader Varun Gandhi targeted the central government over ‘written-off loans’ in the past five years and confused it with ‘loan waiver’. He shared an infographic made by the All India Bank Employees Association (AIBEA) based on the reply given by Minister of State for Finance Bhagwat K Karad on August 2 in Rajya Sabha and wrote, “The House which aspires to get a ‘thank you’ for giving 5 kg ration to the poor. The same House says that in 5 years, the loan of corrupt ‘money animals’ up to 10 lakh crore has been waived. Mehul Choksi and Rishi Aggarwal’s names are on top among those who take ‘Free Ki Rewari’. Who has the first right on the government treasury?”

The difference between loan written off and loans waive off

From time to time, the leaders of the opposition have used the term written-off in a completely misleading manner. They depict as if the banks have forgotten about the loans when they write them off. As reported earlier, a bad loan is written off to remove them from the balance sheet. It is a regular process that banks follow as per the RBI guidelines.

A balance sheet should reflect the real position of assets and liabilities. Hence Banks have to write off loans given to borrowers, which are “assets” to the banks, which have now shown signs of weakness. If they don’t write off loans, it is like claiming to hold a high-quality asset, when the quality has deteriorated. Will you trust an entity that doesn’t give the true picture of its assets?

Secondly, if a loan is not written off and is continued as a healthy asset (when it is a Non-Performing Asset), then banks can continue to book interest income on the loan, on the accrual basis of accounting. This has two impacts: First, the bank is artificially increasing its income by booking interest on an accrual basis, income which it may or may not receive (since the loan is an NPA). Second, the bank has to pay tax on such interest income. Both are undesirable. A write-off prevents banks from doing this, since once a loan is “written-off”, income booking on the same is based on actual receipt of income, and not based on accrual. Banks do not stop earning interest on such loans, but now they can recognize it as income only when they receive it.

Hence 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 are filed before the DRT/ Court. and action initiated under SARFAESI Act continues. Now, the bank takes control of the assets secured against such loans and sells them off to recover the loans.

When loans are ‘waived’, however, the money lent is gone forever.

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Siddhi Somani
Siddhi Somani
Siddhi Somani is known for her satirical and factual hand in Economic, Social and Political writing. Having completed her post graduation in Journalism, she is pursuing her Masters in Politics. The author meanwhile is also exploring her hand in analytics and statistics. (Twitter- @sidis28)

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