State-run banks in India are likely to launch a special drive to recover written-off loans after the government nudged them to fast-track proceedings against errant borrowers.
A senior official told ET that the government has asked public sector banks (PSBs) to focus on the written-off loans and try to recover at least ₹2 lakh crore in this financial year.
PSBs wrote off bad loans of ₹ 8.16 lakh crore from their books in the six years to 2021-22. In the first nine months of 2022-23, PSBs wrote off ₹90,958 crore of bad loans, as per the latest data.
“It is for the banks to decide individual targets after consultation with their respective boards. We have only asked them to focus on this area,” said the official, who did not wish to be identified.
A senior bank executive said lenders will double up their efforts, but some of these cases have been stuck at recovery tribunals and courts for years. “Banks write off loans only when recovery looks impossible in the near future. A write-off then helps the bank free up capital so it can continue with the recovery process,” the executive said on condition of anonymity.
Loan write-offs clean up and update balance sheets, but the borrower is still liable for repayment. Additionally, a loan write-off can be deducted from income, allowing lenders to save tax.
In December 2022, finance minister Nirmala Sitharaman told Parliament that borrowers of written-off loans continue to be liable for repayment and that the process of recovering dues from the borrower in written-off loan accounts continues. “Write-off does not benefit the borrower,” she said, adding that banks continue to pursue recovery actions initiated in written-off accounts through various recovery mechanisms available, such as filing a suit 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 further said that in cases where it is prima facie found that officials are responsible for non-compliance, lapses in the laid-down systems and procedures, misconduct or non-adherence to the due- diligence norms, action is initiated against the erring officials under the board-approved staff accountability policy.
In December 2022, minister of state for finance Bhagwat Karad informed Parliament that scheduled commercial banks had recovered an aggregate amount of ₹6.59 lakh crore, including ₹1.32 lakh crore from written-off loan accounts, during the past five financial years, as per the Reserve Bank of India data.
Courtesy: Dheeraj Tiwari – ET Bureau – May 1, 2023