Bad loans: Banks write off Rs 39,000 crore in Q3

The October-December quarter may have been a good one for public sector banks (PSBs), with higher profits and lower slippages, but a closer glance at their numbers suggests write-offs remain an important means of reducing the pool of bad loans. Banks wrote off Rs 38,974.4 crore in Q3, show data from 21 banks that have disclosed their write-off figures.

While many banks saw the value of written-off loans falling on a sequential basis, a few saw the numbers inching up in Q3, including private banks like ICICI Bank and IndusInd Bank. Most PSBs wrote off less aggressively than in Q2FY22, but the numbers were elevated nonetheless.

For instance, State Bank of India’s (SBI) gross non-performing assets (NPA) fell by Rs 6,493 crore during Q3, with recoveries and upgrades accounting for only Rs 2,306 crore of the reduction. This means that the bank may have made technical write-offs of around Rs 4,187 crore. In addition, the bank did a full write-off worth Rs 7,532 crore. A technical write-off refers to the practice of moving a fully provided account out of the balance sheet even as efforts to recover it continue. When a bank recognises that there is no scope for further recovery in a particular account, it does what is known as a full write-off or an actual write-off.

SBI’s management said in a post-results call that the write-offs were made in several small accounts and all of them are fully provided accounts. Swaminathan J, managing director, SBI, said: “Recoverability from written-off accounts varies from 20-40%. It depends on the security available at the time when we transfer it to the technical write-off pool. We have been, on an average, been realising in excess of 20%.”

Similarly, ICICI Bank, which saw the value of write-offs rising to Rs 4,088 crore in Q3 from Rs 1,717 crore in Q2, said the surge occurred across retail products. Rakesh Jha, chief financial officer, ICICI Bank, said, “There is no specific explanation per se, but indeed we have a high level of provisions against the gross NPA and that’s what we have written off. A fair bit of that will also be against the retail NPAs. You would have seen the gross retail NPAs have also come down in the December quarter over September quarter.”

Bankers often assert that loan write-offs are a routine part of the process of balance sheet management. However, a high amount of write-offs also suggests that banks’ NPA books would have actually been larger by an equivalent amount in the absence of write-offs.

Analysts tracking the banking sector have observed that the phenomenon of elevated write-offs has been prominent since FY18. In recent quarters, non-banking financial companies (NBFCs) have also been prone to aggressive write-offs of bad loans. The Reserve Bank of India’s (RBI) report on trend and progress of banking in India for FY21 said as observed since 2018, write-offs have been the predominant recourse for lowering gross NPAs in 2020-21.

from Banking & Finance – The Financial Express https://ift.tt/6WNurKV