A clutch of banks have with each other written off loans worth Rs 25,539 crore in the December quarter, even as an interim judicial remain on the recognition of poor loans following August 31 kept slippages in verify. Data for 18 banks compiled by FE showed that create-offs stay a crucial tool for banks to decrease the quantity of non-performing assets (NPAs) on their books at a time when the approach and timelines for settlement and recovery have turn into elongated.
Banks ordinarily make two categories of create-offs. A technical create-off is created when the bank removes an account from the NPA category even as it continues to make efforts to recover the quantity involved. The other type is when the bank requires the loan off its books altogether even though offering totally for it.
The quantity above incorporates each categories of create-offs for the 18 banks, with the exception of Punjab National Bank (PNB), exactly where the worth of technical create-offs could not be ascertained.
State Bank of India (SBI) wrote off loans worth Rs 9,986 crore through Q3FY21. Chairman Dinesh Khara mentioned there have been also other approaches the bank has been employing to decrease its stock of poor loans. “We are encouraging people to enter into compromises also. Options are available even outside IBC. We are exploiting all those options,” he mentioned.
Wherever chance exists, the bank is attempting to market mergers and acquisition (M&A) activity as effectively. So we are attempting out all achievable techniques to see that our stressed book ought to get resolved,” he added.
Union Bank of India created total create-offs worth Rs 5,850 crore for the quarter. Rajkiran Rai G, MD and CEO, Union Bank, told analysts the create-offs have been largely technical in nature. The bank expects a recovery of about Rs 5,000 crore from written-off accounts in FY22. “We have not encashed much during this period because of Covid. So we could not go aggressive. Even in the resolutions or one-time settlements what we have done, we could not get the recoveries,” Rai mentioned, adding, “So now maybe in the last quarter we will see some recoveries and maybe next year will be a good year on this, given the one-time settlements we have sanctioned.”
Axis Bank, which created create-offs to the tune of Rs 4,242 crore, mentioned it has a rule-based policy for writing off loans, which was followed through Q3 as effectively. Chief economic officer Puneet Sharma mentioned, “There is limited to no judgment involved in our write-off stance…the write-offs in the current quarter based on the rule engine is predominantly coming from the wholesale book.”
Banks provide for an account based on the quantity of time an asset has stayed delinquent. There are categories defined by the Reserve Bank of India (RBI) for this — substandard (an account which stayed in the NPA category for up to 12 months), doubtful (if it has remained NPA for two years) and loss asset (one exactly where loss has been identified by the bank or internal or external auditors or the RBI inspection but the quantity has not been written off wholly).
Banks ordinarily create off a loan when it has been totally offered for, which should take place when the loan has remained in the doubtful category for more than 3 years (or NPA for 4 years). Generally, it is a doubtful asset that gets written off and in order to do that, the bank should have created one hundred% provisions. The loan goes off the book altogether and ceases to get reflected in the NPA pile. The banks continue to make recovery efforts and what ever recovery is created flows into the ‘other income’ segment. Most frequently, this requires the kind of a provision writeback.