Banks recovered a mere 13 per cent of Rs 10 lakh crore NPAs written off in last five years, reveals RTI

While bank credit was expected to grow 15 per cent per year in fiscal 2023 and 2024, thanks to broad-based economic recovery and stronger, cleaner balance sheets that allowed lenders to expand credit, responses to an RTI show that banks have only recovered 13 per cent of a massive amount of loans worth over Rs 10 lakh crore in the last five years.

According to data provided by the Reserve Bank of India (RBI) in response to The Indian Express's Right to Information (RTI) request, the mega write-off exercise has enabled banks to reduce their non-performing assets (NPAs), or defaulted loans, by Rs 10,09,510 crore in the last five years.

With the help of this massive write-off, which would have erased 61 per cent of India's estimated gross fiscal deficit of Rs 16.61 lakh crore for 2022-23, the banking sector reported a drop in gross NPAs to Rs 7,29,388 crore, or 5.9 per cent of total advances, as of March 2022. In 2017-18, gross NPAs were 11.2 percent. According to the RTI response, banks were only able to recover Rs 1,32,036 crore from written-off loans in the last five years.

It is standard practice for lenders/banks to periodically write off non performing assets as part of general book keeping. According to previously disclosed records, by the end of the fiscal year in March 2021, banks had written off bad loans totaling Rs. 2,02,781 Crore. According to data available, the total amount of money written off over the past decade is Rs 10.72 lakh crore, starting with the fiscal year 2014-15.

Over the last 4-5 years, credit growth has been constrained by asset quality issues that have resulted in higher gross non-performing assets (NPAs), referral to the prompt corrective action (PCA) framework in several cases, and limited capital buffers. In various statements recently, senior PSB officials have targeted higher growth after a significant clean-up and strengthening of balance sheets, aided by significant equity infusion. As a result, their credit growth was viewed as likely at ~12 per cent over this fiscal year and next, though it is still lower than the ~17 per cent expected for private banks.

Looking at the past, the Indian banking system faced a big problem after 2011, when the number of NPAs kept going up. By the end of the 2000s, the amount of NPAs as a share of gross advances had dropped to less than 3.5 per cent. NPAs, on the other hand, started to go up in 2011, and they reached their highest point of 11.18 per cent in the fiscal year that ended in 2018.

Public sector banks, critics say, are at fault because they carry a disproportionately high proportion of non performing loans. Bad management and governance issues in government-owned banks have often been cited as primary causes of the NPA crisis. However, the better performance of public sector banks in the 2000s cannot be attributed to their ownership by the government, some observe.

Experts argue that it's not likely that governance improved suddenly before deteriorating again. And because most of these NPAs also arose because private, for-profit businesses in other industries failed to make their payments on time, it further undermines the plausibility that poor leadership alone is to blame.