WRITE OFF- NO LOAN WAIVER
- Arun Jaitley
1. An article has been reported in news media regarding write-off of loans by Public Sector Banks (PSBs). Technical write-offs are resorted by banks as per Reserve Bank of India (RBI) guidelines. However, this does not lead to any loan waiver. Recovery of loans continues rigorously by Banks. In fact the defaulting management of most Insolvent companies has been removed under the IBC.
2. The Government when it came to power in 2014 inherited the problem of large scale NPAs in the banking sector. The main reason for this spurt in NPA is that gross advances of PSBs increased rapidly as a result of aggressive lending from 2008 to 2014. The total loan outstanding of PSBs, which was about Rs. 18 lakh crore till March 2008, increased to about Rs. 52 lakh crore till March 2014.
3. The Government decided to ensure transparent recognition of stressed assets and NPAs which were hidden under the carpet. Asset Quality Review initiated by RBI in 2015, and subsequent transparent recognition by banks revealed high NPAs. NPAs of PSBs increased from Rs. 2.26 lakh crore in March 2014 to Rs. 8.96 lakh crore in March 2018.
4. Aggressive lending coupled with laxity in credit risk appraisal and loan monitoring, wilful defaulters inter alia led to a spurt in stressed assets. Moreover, stressed account was treated as non-NPA through flexibility in loan classification, evergreening and often repeated restructuring. This means NPAs were put under the carpet disguised as stressed assets. Now even one day default is to be reported.
5. As per RBI guidelines and policy approved by Bank Boards, non-performing loans, including, inter-alia, those in respect of which full provisioning has been made on completion of four years are removed from the balance-sheet of the bank concerned by way of write-off.
6. Writing-off of non-performing assets is a regular exercise conducted by banks to clean up their balance sheet, and achieving taxation efficiency. Writing off of loans is done, inter-alia, for tax benefit and capital optimisation. Borrowers of such written off loans continue to be liable for repayment. Recovery of dues takes place on ongoing basis under legal mechanisms, which include, inter-alia, the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), and Debts Recovery Tribunals (DRTs).
7. The PSBs are making concerted efforts in recovery of NPAs. It has already recovered an amount of Rs. 36,551 crore during the first quarter of financial year 2018-19 against the total recoveries of Rs. 74,562 crore in financial year 2017-18. The cash recovery targets for PSBs for financial year 2018-19 is Rs. 1,81,034 crore. NPAs has peaked and has declined by Rs. 21,000 crore during quarter ending June 2018 over March 2018.