Synopsis: FY19 witnessed the highest loan write-offs at ₹2.4 lakh crore, primarily influenced by the Asset Quality Review (AQR) initiated in 2015. By FY24, write-offs fell to ₹1.7 lakh crore, just 1% of the total bank credit of ₹165 lakh crore. PSBs contributed 53% of write-offs in FY20-FY24 but also outperformed private banks in loan recovery, with gross NPAs dropping significantly.
Detailed Analysis:
Write-Off Trends and Reasons:
Loan write-offs by banks have been a critical mechanism for addressing non-performing assets (NPAs) and freeing up balance sheets for fresh lending. In FY19, write-offs peaked at ₹2.4 lakh crore following the AQR, which highlighted the systemic issues in loan classification. However, write-offs steadily declined to ₹1.7 lakh crore by FY24 due to improved monitoring and recovery efforts.
Role of Public Sector Banks (PSBs):
PSBs accounted for 53% (₹6.5 lakh crore) of write-offs between FY20 and FY24. Despite this, they have shown a robust recovery trajectory. For instance, PSBs recovered 21.3% of the written-off loans in the last five years compared to 13.7% by private banks. SBI led the write-offs with ₹2 lakh crore, followed by Punjab National Bank at ₹94,702 crore.
Recovery Mechanisms:
Banks employ various mechanisms, including:
- Civil suits and actions through Debt Recovery Tribunals.
- The Insolvency and Bankruptcy Code (IBC) for large corporate defaulters.
- Negotiated settlements and asset sales under the SARFAESI Act.
PSBs have excelled in recovery efforts, with their share of recovered loans rising from 64% in FY20 to 81% in FY24.
Sectoral NPA Trends:
Gross NPAs in the banking sector have been on a downward trajectory. As of September 2024:
- PSBs reported NPAs of ₹3.16 lakh crore (3.01% of total loans).
- Private banks reported ₹1.34 lakh crore (1.86% of total loans).
This reflects an overall improvement in asset quality, aided by stricter provisioning norms and regulatory oversight.
Conclusion:
The Indian banking sector's write-offs, though substantial, have been pivotal in managing NPAs and enabling credit growth. The decline in write-offs over the years underscores enhanced credit discipline and better recovery practices. PSBs, despite their larger share of write-offs, have shown resilience in recovering bad loans. As the sector progresses, sustained focus on governance, technology adoption, and risk management will be essential to minimize NPAs further and bolster economic stability.
Disclaimer:
This article is for informational purposes only. Data and trends are based on publicly available reports and may vary with new disclosures or updates. Readers should consult financial experts or trusted sources for specific advice.
