On August 6, BJP MP from Pilibhit Varun Gandhi, in a tweet, targeted the central government over ‘written-off loans’ in the past five years and confused it with ‘loan waiver’. Varun Gandhi 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.
In his tweet, Gandhi 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?”
Varun Gandhi seems to be walking in his cousin Rahul Gandhi’s footsteps and mistaken loan write off with loan waiver.
Difference between written-off and waived-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. In reality, 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 actually 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 actually is an Non Performing Asset), then banks can continue to book interest income on the loan, on accrual basis of accounting. This has two impacts: First, the bank is artificially increasing its income by booking interest on accrual basis, income which it may or may not receive (since the loan is actually 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 normal course of business are written off. Even when these loans are written off, various recovery procedures like recovery suits filed before the DRT/ Court. and action initiated under SARFAESI Act continue. 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.
Rahul Gandhi and his complicated relationship with loans
There have been countless occasions when the Congress leader has intentionally or unintentionally got confused between loan waiver and loan write-off. For example, in December 2020, he 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 forgave 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 revri 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 difference between loan waiver and loan writeoff. Except, he is also a politician now and hence facts don’t seem to matter.
AIBEA’s incomplete data analysis
AIBEA is an organisation comprising of bank employees, and one may expect a better understanding of the data. It is also expected from a union like AIBEA to put out complete facts and not just incomplete information that could result in misleading the general public. On August 3, they published the said infographics on its social media accounts and urged the government to recover bad loans.
There was no mention if any of the amounts were recovered by the banks and which banks had written-off the loans as per the information provided by MoS Karad. The incomplete information gave a chance to the leaders like Varun Gandhi, and similar incomplete information by media houses let the likes of Kejriwal mislead the public.
MoS Karad explained loans written off and recoveries done by banks
MoS Karad was replying to Congress MP Mallikarjun Kharge, who had sought information on bad loans written off by commercial banks and public sector banks in the last five years, loan defaulters, and recoveries made by commercial and public sector banks. In his written reply, MoS Karad informed the house that in the past five financial years, commercial banks have written off bad loans worth Rs 9,91,640 crores.
He further added that as per data provided by the Central Repository of Information on Large Credits (CRILC) database of the Reserve Bank of India, there were 2,207 willful defaulters in 2019 having aggregate credit exposure of Rs 5 crore and above. In 2020, the number went up to 2,469, followed by 2,840 willful defaulters in 2021 and 2,790 in 2022.
As per the data, the State Bank of India has written off Rs 2,04,486 crores in five years. Similarly, Union Bank of India has written off 1,42,339 crores, Punjab National Bank has written off 92,340 crores, Bank of Baroda has written off 75,701 crores, and Canara Bank has written off 60,035 crores. Other banks listed by MoS included Bank of India, Central Bank of India, Indian Bank, Indian Overseas Bank and more.
Top defaulters included Gitanjali Gems Limited, which has Rs 7,110 crores of bad loans, Era Infra Engineering Limited has Rs 5,879 crores of bad loans, Concast Steel and Power Limited owned Rs 4,107 crores of bad loans, REI Agro Limited had Rs 3,984 crores of bad loans and ABG Shipyard Limited had Rs 3,708 of bad loans among many others.
Coming to the recovery part that Varun Gandhi, Kejriwal and many media houses miss, MoS Karad mentioned that SBI had recovered Rs 41,006.94 crores of bad loans that were waived off during that period, and the process of recovering the remaining bad loans is in the process by the bank. Similarly, Union Bank of India recovered Rs 6,955.12 crores, Punjab National bank recovered 11,821.37 crores, Bank of Baroda recovered Rs 9,540.04 crores, and Canara Bank recovered Rs 7,348.52 crores. The government of India is using all possible means to recover the bad loans, and the results are visible in the stats. In recent years, the recovery process and paced up, and year-wise, recovery has increased for almost all commercial banks.
Not to forget, it was reported in February 2022 that Rs 18,000 crores were recovered from three defaulters including Vijay Mallya, Nirav Modi and Mehul Choksi.
Amusingly, the infographic Varun Gandhi shared talked about how banks should not be privatised and thought this loan writeoff data was a clinching evidence that banks in India should not be privatised. However, he seems to have missed the part where the banks that had actually loaned the money written off were all public sector banks. If at all, it actually makes a case for privatisation of banks. But why let facts get in the way of narrative building.