What is loan write-off? Read details

A loan write-off is a tool which is used when banks have to clear out their balance sheets from non-performing assets (NPA). An asset is termed non-performing when it stops generating income for the bank. Loan write-offs are not to be confused with loan waivers. A loan write-off doesn’t imply that a debt is forgiven. But in loan waiver, the borrower is not required to repay the loan. This usually occurs when the government agrees to compensate banks. Loans are typically written off in case of no recovery scope. For instance, a bank has a disbursed loan of Rs 1 crore and Rs 10 lakh as provision has been set aside by it. In case the borrower defaults on Rs 50 lakh, an amount of Rs 40 lakh can be written off by the bank from its balance sheet and termed as expense. The bank frees up its Rs 10 lakh that it had set aside in this case. The bank can seek loan recovery even after a write-off. The loan can be written off if it becomes bad on the account of the repayment defaults for at least 3 consecutive quarters. As per the latest Right to Information (RTI) disclosure by Canara Bank, it has written off loans worth Rs 1.29 lakh crore over the last 11 years. However, according to The Print, the discussion surrounding this not only erroneously fuses loan write-offs with loan waivers, but also misses the important improvement in write-off behaviour of public sector banks. Following the disclosure by Canara Bank, some opposition leaders and political commentators including lawyer Prashant Bhushan and CPI(M) general secretary Sitaram Yechury slammed the government over the supposed “loot” of public money due to loan write-offs by public sector banks. The data given by Minister of State for Finance, Bhagwat Karad, in a written reply to the Rajya Sabha on 2 August in the last five years, reveals that the amount written off by public sector banks reduced steadily to Rs 1.08 lakh crore in financial year 2021-22 after initially increasing to Rs 1.83 lakh crore in 2018-19. Simultaneously, the amount of money recovered from written-off loans rose to Rs 24,739.1 crore in 2021-22 from Rs 10,451.14 crore in 2017-18. Read all the Latest News , Trending News ,  Cricket News , Bollywood News , India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.