Public sector banks’ net canceled loans to large borrowers plunge

This suggests a steady improvement in the financial position of public sector banks, which have largely cleaned up their books in recent years following the asset quality review initiated by the central bank in December 2015.

Net loans written off by public banks involving large borrowers, who owed at least Rs 100 crore each, fell sharply from Rs 1.17 trillion in FY20 to Rs 63,869 crore in FY20. FY21 and just Rs 18,537 crore in the first half of the current fiscal, the government has told parliament. This suggests a steady improvement in the financial position of public sector banks, which have largely cleaned up their books in recent years following the asset quality review initiated by the central bank in December 2015.

In a written response to the Rajya Sabha, the Minister of State for Finance, Bhagwat Karad, said the collection made by PSOs, as a percentage of their gross bad debts at the beginning of the financial year, has increased from 11.33% in FY18 to 13.52% in FY19 and 14.69. % in FY20. However, it fell to 12.28% in FY21 when the pandemic hit stimulus. This recovery, however, concerns all accounts, large and small, he added.

Karad stressed that borrowers of delisted accounts remain liable for repayment. Banks continue to pursue collection actions against them through mechanisms such as the DRT, the SARFAESI Act and the Insolvency and Bankruptcy Code (IBC). They also use negotiated settlements or the sale of NPAs to collect assessments from charged accounts. Bankers say the amount recovered is recorded on their balance sheets.

According to Reserve Bank of India guidelines and policies adopted by lender boards, non-performing assets older than four years require 100% provisioning and banks generally write them off thereafter. Banks are also voluntarily canceling NPAs in order to clean up their balance sheets, benefit from tax advantages and optimize the use of capital.

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