Banks have written off loans worth Rs 10 lakh crore in last 5 years: Report

In the past five years, Rs 10 lakh crore in write-offs have aided banks to reduce their Non Performing Assets (NPA) by half. The banks reportedly have only recovered Rs 1.32 crore lakh from the write-offs during this time till March 2022.

The RBI's reply was in response to an RTI filed by The Indian Express.

The reply from RBI said that the write-offs have allowed the banks to keep a lid on defaulted loans of Rs 10,09,510 crore in the past five years.

What is an NPA?

Any loan prvided by a bank can turn into an NPA if the principal or interest payment for the same has not been paid for over 3 months. The banks, according to the RTI reply by RBI, have only recovered 13 per cent of the total amount that is in NPAs and defaulted loans after writing off over Rs 10 lakh crore.

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The write-off has resulted in the domestic banking sector report a decline in gross NPAs to Rs 7,29,388 crore, as of March 2022. Comparing between 2017-18 to the current FY 2021-22, the gross NPAs were 11.2 percent as compared to this year, which is at 5.9 per cent of the total, the report said.

So what happens when a loan is written off by the bank?

When a bank/lender writes off a loan, the said amount moves out of the bank's asset book and the lender reports the NPAs as loss. The primary reason for a lender to do so is if there is a very remote chance of the bank recovering the amount from the borrower. Writing off the loans is in some ways beneficial to the bank as apart from the fact that it would reduce its NPAs, it would also reduce taxes since the written off amount is allowed to be deducted from profit before tax.

The reply from RBI said that public sector banks have reported to have the biggest share of write offs at Rs 7,34,738 crore, which is over 70 per cent of the entire amount.

Writing off NPAs is a regular banking process which is periodically carried out by lenders/banks for upkeep of their balance sheets. In previous records revealed earlier, banks wrote off Rs 2,02,781 crore of bad loans in the fiscal end of March 2021. In the past 10 years of write-offs, Rs 10.72 lakh crore write-off has happened since financial the year 2014-15.

Banks, however have not disclosed the names of borrowers whose loans were written off.