Banks write off Rs 16.61 lakh crore in loans since 2014; recovery stands at 16%

Indian banks have written off loans amounting to Rs 16.61 lakh crore since 1 April 2014, according to data from the Reserve Bank of India (RBI) shared in response to a Right to Information (RTI) query by civil rights activist Praful P. Sarda. A news report in The Wire said that of this amount, only Rs 2.69 lakh crore, or approximately 16 per cent, has been recovered by September 30, 2024.

Public sector banks (PSBs) accounted for the lion’s share of write-offs, with Rs 12.08 lakh crore, followed by private sector banks (PVBs) at Rs 4.46 lakh crore. Urban cooperative banks contributed Rs 6,020 crore to the total. However, recovery figures remained modest across the board.

PSBs recovered Rs 2.16 lakh crore, while PVBs managed Rs 53,248 crore. Recovery data for urban cooperative banks was not available.

Data presented by Union Minister of State for Finance Pankaj Chaudhary in November 2024 revealed that write-offs for the financial year 2023-24 (FY24) stood at Rs 1.7 lakh crore, marking the lowest figure in five years. Write-offs had peaked at Rs 2.34 lakh crore in FY20.

Among PSBs, Punjab National Bank, Union Bank of India, and State Bank of India topped the list, while HDFC Bank, Axis Bank, and ICICI Bank led among PVBs.

Although overall write-offs declined in FY24, over 20 per cent of banks reported higher write-offs compared to the previous year. The RBI attributed these write-offs to technical, prudential, or collection-related reasons, emphasising that they are primarily accounting measures and do not absolve borrowers of repayment obligations.

Despite significant write-offs, recoveries have remained sluggish. An earlier RTI response from August 2024 noted that banks had recovered only 18.7 per cent of written-off loans in the last five years.

Meanwhile, the RBI's Financial Stability Report (FSR) in December 2024 highlighted improvements in the banking sector’s asset quality. The gross non-performing assets (GNPA) ratio of banks fell to a 12-year low of 2.6 per cent in September 2024, aided by reduced slippages, higher write-offs, and steady credit demand. The net NPA ratio also dropped to 0.6 per cent.

However, the RBI cautioned that the GNPA ratio could rise under certain risk scenarios, potentially reaching 5.3 per cent by March 2026. The banking system’s capital adequacy ratio, which stood at 16.6 per cent in September 2024, may slightly decrease to 16.5 per cent by March 2026, though all banks are expected to remain above the minimum requirement of 9 per cent.

The RBI has flagged concerns over the rise in write-offs, particularly among private sector banks. It warned that these write-offs could obscure worsening asset quality in the unsecured lending segment and reflect dilution in underwriting standards.

To address risks, the central bank has tightened rules on personal loans and credit cards, restricted non-compliant lenders, and made borrowing costlier for non-banking finance companies.

The RBI’s focus on curbing excesses and ensuring financial stability is expected to play a critical role in maintaining the robustness of the banking sector as it navigates the evolving economic landscape.