Loan written off: Depositors suffer
Banks had written off bad loans worth over Rs 2.09 lakh crore during the year ended March 2023, taking the total loan write-off by the banking sector to Rs 10.57 lakh crore in the last five year.
This huge loan write-off aided banks to bring down gross non-performing assets (GNPA) – or loans defaulted by borrowers — to a 10-year low of 3.9 per cent of advances in March 2023. Gross NPAs of banks had fallen from Rs 10.21 lakh crore in 2017-18 to Rs 5.55 lakh crore by March 2023, mainly on the back of loan write-offs by banks.
Banks have written off a whopping Rs 15,31,453 crore since 2012-13, as per RBI data. However, what is to be noted is that loans written off by banks will remain in the books of banks as unrecovered loans. The central bank RTI reply had said that the banks recovered only Rs 1.09 lakh crore from Rs 5.87 lakh loans written off in the last three years, revealing that they could only recover 18.60 per cent of the write-offs during the three-year period.
The total defaulted loans (including write-offs but excluding loans recovered from write-offs in three years) amount to Rs 10.32 lakh crore, according to back-of-the-envelope calculations. Including write-offs, the total NPA ratio would have become 7.47 per cent of advances as against 3.9 per cent reported by the banks. Bank write off NPAs when it is more than 4 years to get tax benefits as NPA are treated assets on which banks pay taxes .A loan became NPA when no interest or principal is paid for more than 90 days
Due to write off banks had reduced provisioning amount and there by net profit increased. NPA was reduced but it is depositors who suffer most. They were paid lower interest even negative real interest to compensate the losses.