{"id":144521,"date":"2024-11-26T19:44:45","date_gmt":"2024-11-26T14:14:45","guid":{"rendered":"https:\/\/pwonlyias.com\/stage\/?post_type=current-affairs&#038;p=144521"},"modified":"2025-02-13T15:58:55","modified_gmt":"2025-02-13T10:28:55","slug":"loan-write-offs","status":"publish","type":"current-affairs","link":"https:\/\/pwonlyias.com\/stage\/current-affairs\/loan-write-offs","title":{"rendered":"Loan Write-Offs by Scheduled Commercial Banks"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Even as loan write-offs by scheduled commercial banks reduced by 18.2 per cent in the financial year 2023-24, over one-fifth of the banks saw an increase in the amount of the loans written-off in the year ended March.<\/span><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>Trends in Loan Write-Offs<\/b><\/span><\/h2>\n<ul>\n<li><b>Banks with Rise in Write offs:<\/b><span style=\"font-weight: 400;\"> Official data for the top ten banks in terms of the highest amount of loans written off in FY24 showed that six out of the top ten banks.<\/span>\n<ul>\n<li><span style=\"font-weight: 400;\">Punjab National Bank, Canara Bank, HDFC Bank, Bank of India, Indian Bank and Axis Bank recorded an increase in the loan write-offs during the year.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Overall Decline in Write-Offs: <\/b><span style=\"font-weight: 400;\">Loan write-offs by scheduled commercial banks (SCBs) declined by <\/span><b>18.2%<\/b><span style=\"font-weight: 400;\"> in FY24, amounting to <\/span><b>\u20b91.70 lakh crore<\/b><span style=\"font-weight: 400;\">, compared to \u20b92.08 lakh crore in FY23.<\/span><\/li>\n<li><b>Five-Year Write-Off Data: <\/b><span style=\"font-weight: 400;\">Total write-offs during FY20\u2013FY24 amounted to <\/span><b>\u20b99.90 lakh crore<\/b><span style=\"font-weight: 400;\">, showing a general decline, barring a spike in FY23.<\/span><\/li>\n<li><b>Gross NPAs as of March 31, 2024<\/b><span style=\"font-weight: 400;\">: <\/span><b>\u20b94.81 lakh crore<\/b><span style=\"font-weight: 400;\">, a decrease from \u20b95.72 lakh crore in March 2023.<\/span>\n<ul>\n<li><b>Top contributors in NPA are State Bank of India (<\/b><span style=\"font-weight: 400;\">\u20b984,276 crore) and <\/span><b>Punjab National Bank <\/b><span style=\"font-weight: 400;\">(\u20b956,343 crore)<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Decline in Recovery Rates: <\/b><span style=\"font-weight: 400;\">Recovery in FY24 was at a <\/span><b>three-year low<\/b><span style=\"font-weight: 400;\"> of \u20b91.23 lakh crore (-22.8% compared to FY23).<\/span>\n<ul>\n<li><b>While overall loan write-offs and NPAs declined in FY24, recovery rates fell significantly, raising concerns about efficiency in recovering bad loans.<\/b><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p style=\"text-align: center;\"><span class=\"vc_button\"><a href=\"https:\/\/www.pw.live\/batches\/upsc\/pw-only-ias?utm_source=seo+upsc+batch&#038;utm_medium=seo+upsc&#038;utm_campaign=seo&#038;utm_id=upsc\" target=\"_blank\" rel=\"noopener\">Enroll now for UPSC Online Classes<\/a><\/span><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>About Loan Write-Off<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Loan write-off is the process of removing bad loans from the books of banks after making adequate provisions for them.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Implication<\/b><span style=\"font-weight: 400;\">: Writing off a loan means it will no longer be counted as an asset on the bank\u2019s balance sheet.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Significance<\/b><span style=\"font-weight: 400;\">: By writing off loans, banks can reduce the level of non-performing assets (NPAs) on their books.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Borrower Liability<\/b><span style=\"font-weight: 400;\">: Loan write-off<\/span><b>s do not absolve borrowers of their repayment obligations<\/b><span style=\"font-weight: 400;\">, <\/span><b>nor do they imply<\/b><span style=\"font-weight: 400;\"> that banks<\/span><b> stop pursuing recovery from them<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Purpose<\/b><span style=\"font-weight: 400;\">: Loan write-offs are done <\/span><b>to clean up the balance sheet of banks<\/b><span style=\"font-weight: 400;\"> and reflect their true financial position.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>RBI Guidelines<\/b><span style=\"font-weight: 400;\">: Banks write off fully provisioned loans after four years.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>About Non-Performing Assets (NPA)<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Non-performing assets (NPAs) refer to loans or advances of a bank that are in default or arrears.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Criteria for NPA Classification<\/b><span style=\"font-weight: 400;\">: A loan is in arrears when principal or interest payments are late or missed.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">It becomes an NPA when the interest and\/or installment of the principal remains overdue for <\/span><b>more than 90 days.<\/b><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>Classification of Non-Performing Assets<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Sub-Standard Assets<\/b><span style=\"font-weight: 400;\">: Assets classified as NPAs for a period less than or equal to 12 months.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Doubtful Assets<\/b><span style=\"font-weight: 400;\">: Assets that have been non-performing for a period exceeding 12 months.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Loss Assets<\/b><span style=\"font-weight: 400;\">: Assets deemed uncollectible, where there is little or no hope of recovery, and require full write-off.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-size: 18pt;\"><b>Asset Reconstruction Companies (ARCs)\u00a0<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>ARCs are specialized financial institutions<\/b><span style=\"font-weight: 400;\"> that purchase Non-Performing Assets (NPAs) from banks and financial institutions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Role in NPA Resolution:<\/b><span style=\"font-weight: 400;\"> ARCs help banks clean up their balance sheets by acquiring bad loans and attempting to recover the funds through various strategies.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Recovery Methods: <\/b><span style=\"font-weight: 400;\">ARCs employ strategies like restructuring loans, asset sales, legal actions, and debt recovery to maximize recovery.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Regulation: <\/b><span style=\"font-weight: 400;\">ARCs are regulated by the <\/span><b>Reserve Bank of India (RBI)<\/b><span style=\"font-weight: 400;\"> under the <\/span><b>Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest<\/b><b><br \/>\n<\/b><b>\u00a0 <\/b><b>Act, 2002 (SARFAESI Act).<\/b><\/li>\n<\/ul>\n<p style=\"text-align: center;\"><span class=\"vc_button\"><a href=\"https:\/\/store.pw.live\/govt-entrance-exams\/upsc-books\/upsc-textbooks?utm_source=SEO&#038;utm_medium=PW+Live&#038;utm_campaign=UPSC+Textbooks\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Check Out UPSC NCERT Textbooks From PW Store<\/span><\/a><\/span><\/p>\n<h2><span style=\"font-size: 18pt;\"><b>Evergreening of loans\u00a0<\/b><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Evergreening of loans is a practice where banks extend new loans or additional credit to borrowers who are struggling to repay their existing debt. This is done to prevent loans from being classified as Non-Performing Assets (NPAs) or bad loans.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">While it might temporarily mask the issue, it can lead to serious problems like:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Hiding the true financial health of banks: It can create a false impression of the bank&#8217;s financial health.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Deteriorating asset quality: It can increase the risk of defaults and further damage the bank&#8217;s balance sheet.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Distorting financial indicators: It can lead to inaccurate financial reporting and decision-making.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Reserve Bank of India (RBI) has taken steps to curb this practice and promote better lending practices.<\/span><\/li>\n<\/ul>\n<div class=\"vc_table_green\"><\/p>\n<table style=\"width: 99.6375%;\">\n<tbody>\n<tr>\n<td style=\"width: 111.19%; 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