State-run banks likely to launch special drive to recover written-off loans

After being prodded by the Centre to expedite proceedings against defaulting borrowers, state-run banks are likely to launch a special drive to recover written-off loans, Economic Times reported.

The government has instructed public sector banks (PSBs) to focus on written-off loans and try to recover at least Rs 2 trillion in this fiscal year, a senior official told ET.

In the six years leading up to 2021-22, PSBs wrote off bad loans worth Rs 8.16 trillion from their books. In the first nine months of 2022-23, PSBs wrote off  Rs 90,958 crore of bad loans, RBI’s latest data said.

The official further said that after consulting with their respective boards, the banks will determine their individual targets. We have only asked them to focus on this area, he added.

Another senior bank executive stated that while lenders would step up their efforts, some of these cases have been stalled in recovery tribunals and courts for a long time.

Banks only write off loans when recovery appears unlikely to occur soon. A write-off then frees up capital for the bank, allowing it to continue with the recovery process, he added.

Loan write-offs help to clean up and update balance sheets, but the borrower is still obligated to repay the loan. A loan write-off can also be deducted from income, allowing lenders to save tax.

In December 2022, Finance Minister Nirmala Sitharaman told Parliament that borrowers of written-off loans are still responsible for repayment and that efforts are being made to collect any outstanding debts from them.

“Write-off does not benefit the borrower,” she said, adding that banks continue to pursue recovery actions started in written-off accounts through various available recovery mechanisms, such as filing a lawsuit in civil courts or debt recovery tribunals, filing cases under the Insolvency and Bankruptcy Code, 2016, and through the sale of non-performing assets.

In addition, Sitharaman said that under the board-approved staff accountability policy, action is taken against at-fault officials in situations where it is evidentially determined that they are to blame for non-compliance, flaws in the established systems and procedures, misconduct or non-adherence to the due-diligence standards.