This suggests a steady improvement in the financial status of public sector banks, who have largely cleaned up their books in recent years following the asset quality review initiated by the central bank in December 2015.
The net written-off loans of state-run banks involving large borrowers, who owed at least Rs 100 crore each, have sharply dropped from Rs 1.17 trillion in FY20 to Rs 63,869 crore in FY21 and just Rs 18,537 crore in the first half of the current fiscal, the government has told Parliament. This suggests a steady improvement in the financial status of public sector banks, who have largely cleaned up their books in recent years following the asset quality review initiated by the central bank in December 2015.
In a written reply in the Rajya Sabha, minister of state for finance Bhagwat Karad said recovery made by PSBs, as percentage of their gross bad loans at the beginning of the financial year, rose from 11.33% in FY18 to 13.52% in FY19 and 14.69% in FY20. However, it dropped to 12.28% in FY21 when the pandemic hit recovery measures. This recovery, however, pertains to all accounts, both small and large, he added.
Karad stressed that borrowers of the written-off accounts continue to remain liable for repayment. Banks continue to pursue recovery actions against them through mechanisms like DRT, SARFAESI Act and the Insolvency and Bankruptcy Code (IBC). They also resort to negotiated settlements or sale of NPAs to recover dues from written-off accounts. Bankers say the recovered amount gets written back to their balance sheets.
According to the Reserve Bank of India guidelines and policies adopted by boards of lenders, non-performing assets that are older than four years require 100% provisioning and banks usually write them off after that. Banks also voluntarily write off NPAs in order to clean up their balance sheets, avail tax benefits and optimise the use of capital.