PSBs write off Rs 55,356 crore in first half of FY18 to clean balance sheet

In a bid to keep their balance sheet clean, the public sector banks (PSBs) have resorted to write off loan worth Rs 55,356 crore in the first half of FY18, said an Indian Express citing data from ICRA.

The data compiled by ICRA reportedly revealed that the PSBs written-off loan is nearly 54% higher compared to write-off of Rs 35,985 crore done in the corresponding period of the previous year.

The report said that given the current trend, bankers expect the total write-off would be nearly Rs 1 lakh crore by end of FY18.

Debt write-off occurs when a lender realises that it has little or no scope of collecting a loan, therefore it has no choice but to write it off as a loss. The write-off thus means that a debt is worthless asset and is deducted from lenders balance sheet.

As per the Reserve Bank of India (RBI), "writing off of non-performing assets is a regular exercise conducted by banks to clean up their balance sheets. Substantial portion of this write-off is, however, technical in nature. It is primarily intended at cleansing the balance sheet and achieving taxation efficiency."

It further says that in ‘Technically Written Off’ accounts, loans are written off from the books at the Head Office, without foregoing the right to recovery. Also, write offs are generally carried out against accumulated provisions made for such loans. Once recovered, the provisions made for those loans flow back into the profit and loss account of banks.

The write-off, however, does not constitute a waiver of the bank's right to collect on it. The lender still can chase you for repayment of the debt.

One procedure of lenders to recover the debt is by seizing your funds stored in your account within the same bank you owe money to. Such is  called the right of offset.

Also depending on how much loan you owe in bad debt, the lender accordingly has the right to sue you in a civil court. This would lead to severe action against you so much so that a lien can be placed on your property.

The write-offs can even handed over to a collection agency. Either the bank hires the agency to collect on its behalf or the bank sells the debt to the agency outright.

Stressed assets in the banking system, especially for PSBs, have been rising sharply, hampering their earnings and credit portfolio.

Gross NPAs of these banks, which stood at Rs 2.94 lakh crore in March 2015, increased to Rs 5.69 crore in March 2016, and further to Rs 6.49 lakh crore in September 2016, have inched up to Rs 8.38 lakh crore.

PSBs' NPA ratio has been range-bound for two quarters at a specified level and then increased to a new one which is between 10-11% in June/Sept 2016 before crossing to 11-12% in the next two quarters and then 12-13% range in the subsequent periods. 

Thus, as per the ICRA data, loan write-off in a decade has reached to Rs 360,912 crore.