Loan write-offs aren’t loan waivers: What happens to bad loans after banks write them off
A loan write-off is an accounting action that removes an NPA from the books without waiving the lender’s claim. A loan waiver, however, forgives the borrower’s liability.
- Aug 25, 2026,
- Updated Aug 25, 2026 4:43 PM IST
Indian banks have written off nearly ₹9.95 lakh crore in loans extended to large industries and services over the past 12 financial years, according to data presented in Parliament this month. The figure can easily create the impression that borrowers have been let off or that the money has simply disappeared. In banking terms, however, a write-off is not the same as a loan waiver.
A loan write-off is primarily an accounting action. The Reserve Bank of India defines it as the derecognition of a non-performing asset (NPA) for accounting purposes without waiving the lender’s claim against the borrower. The borrower’s legal obligation to repay therefore remains intact.
A loan waiver, by contrast, involves forgiveness of the borrower’s liability, usually under a specific government, lender or policy decision. Once an amount is waived, the borrower is no longer liable for that portion. A technical write-off does not produce that outcome.
Recently it was reported that Bank of Baroda (BoB) wrote off ₹35,715 crore in loans involving borrowers with outstanding dues of ₹100 crore or more between FY21 and FY26, while recovering ₹9,946 crore, or about 28% of the amount. The bank also reported ₹7,817 crore in haircuts while settling large loan accounts during the period.
However, BoB declined to disclose the names of the borrowers, citing exemptions under the RTI Act, including Section 8(1)(j) relating to privacy. The figures were disclosed in response to an RTI application filed by activist Vivek Velankar. The bank said the write-offs were technical write-offs, meaning the loans were removed from its books for accounting purposes, but recovery efforts could continue.
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What happens after a write-off?
Writing off a loan does not mean banks stop trying to recover the money. Recovery can continue through mechanisms including insolvency proceedings, Debt Recovery Tribunals, civil courts, enforcement or sale of secured assets, and settlement processes.
This creates an important distinction between the accounting status of a loan and its legal status. A bank may remove an exposure from its active balance sheet after making the required provisions, while simultaneously pursuing the borrower through legal or recovery channels.
Any money recovered subsequently can still accrue to the bank. In other words, the accounting entry does not close the recovery file.
Why do banks write off bad loans?
There are several reasons. First, writing off fully or substantially provided NPAs can help banks present a more realistic picture of their current loan book. Carrying long-deteriorated assets at values that no longer reflect their expected recoverability can overstate the quality of the balance sheet.
Second, write-offs allow banks to recognise losses and align their books with economic reality. They can also help banks focus management resources on active exposures while specialised teams, legal channels or recovery agencies continue pursuing older accounts.
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The scale and pace of write-offs, however, differ sharply across lenders. The RBI’s July 2026 Financial Stability Report showed private banks wrote off 49.7% of their gross NPAs, compared with 24.3% for public sector banks. Across the banking sector, lenders wrote off 33.2% of bad loans worth at least ₹1.28 lakh crore during the year.
The recovery figures reinforce why a write-off should not be mistaken for a waiver. Public sector banks wrote off ₹3,57,185 crore in NPAs between FY2021-22 and FY2025-26 (provisional), while recovering ₹1,64,710 crore from written-off accounts during the same period.
Ultimately, a write-off is about recognising and managing a distressed asset, not forgiving the borrower. It can make a bank’s balance sheet more transparent, but it does not by itself answer whether the original lending decision was prudent, whether enforcement was effective or whether recoveries were adequate.
The bottom line: a loan can disappear from a bank’s active books without disappearing from the borrower’s legal obligations. A write-off cleans up the accounting; recovery efforts can continue long after.
MUST READ: RBI proposes new loan pricing rules: Banks, NBFCs may face tighter interest rate norms
Indian banks have written off nearly ₹9.95 lakh crore in loans extended to large industries and services over the past 12 financial years, according to data presented in Parliament this month. The figure can easily create the impression that borrowers have been let off or that the money has simply disappeared. In banking terms, however, a write-off is not the same as a loan waiver.
A loan write-off is primarily an accounting action. The Reserve Bank of India defines it as the derecognition of a non-performing asset (NPA) for accounting purposes without waiving the lender’s claim against the borrower. The borrower’s legal obligation to repay therefore remains intact.
A loan waiver, by contrast, involves forgiveness of the borrower’s liability, usually under a specific government, lender or policy decision. Once an amount is waived, the borrower is no longer liable for that portion. A technical write-off does not produce that outcome.
Recently it was reported that Bank of Baroda (BoB) wrote off ₹35,715 crore in loans involving borrowers with outstanding dues of ₹100 crore or more between FY21 and FY26, while recovering ₹9,946 crore, or about 28% of the amount. The bank also reported ₹7,817 crore in haircuts while settling large loan accounts during the period.
However, BoB declined to disclose the names of the borrowers, citing exemptions under the RTI Act, including Section 8(1)(j) relating to privacy. The figures were disclosed in response to an RTI application filed by activist Vivek Velankar. The bank said the write-offs were technical write-offs, meaning the loans were removed from its books for accounting purposes, but recovery efforts could continue.
MUST READ: Can banks change your loan benchmark? RBI draft says borrower consent will be needed
What happens after a write-off?
Writing off a loan does not mean banks stop trying to recover the money. Recovery can continue through mechanisms including insolvency proceedings, Debt Recovery Tribunals, civil courts, enforcement or sale of secured assets, and settlement processes.
This creates an important distinction between the accounting status of a loan and its legal status. A bank may remove an exposure from its active balance sheet after making the required provisions, while simultaneously pursuing the borrower through legal or recovery channels.
Any money recovered subsequently can still accrue to the bank. In other words, the accounting entry does not close the recovery file.
Why do banks write off bad loans?
There are several reasons. First, writing off fully or substantially provided NPAs can help banks present a more realistic picture of their current loan book. Carrying long-deteriorated assets at values that no longer reflect their expected recoverability can overstate the quality of the balance sheet.
Second, write-offs allow banks to recognise losses and align their books with economic reality. They can also help banks focus management resources on active exposures while specialised teams, legal channels or recovery agencies continue pursuing older accounts.
ALSO READ: Will your loan EMIs go up? Here's why RBI may leave rates unchanged this time
The scale and pace of write-offs, however, differ sharply across lenders. The RBI’s July 2026 Financial Stability Report showed private banks wrote off 49.7% of their gross NPAs, compared with 24.3% for public sector banks. Across the banking sector, lenders wrote off 33.2% of bad loans worth at least ₹1.28 lakh crore during the year.
The recovery figures reinforce why a write-off should not be mistaken for a waiver. Public sector banks wrote off ₹3,57,185 crore in NPAs between FY2021-22 and FY2025-26 (provisional), while recovering ₹1,64,710 crore from written-off accounts during the same period.
Ultimately, a write-off is about recognising and managing a distressed asset, not forgiving the borrower. It can make a bank’s balance sheet more transparent, but it does not by itself answer whether the original lending decision was prudent, whether enforcement was effective or whether recoveries were adequate.
The bottom line: a loan can disappear from a bank’s active books without disappearing from the borrower’s legal obligations. A write-off cleans up the accounting; recovery efforts can continue long after.
MUST READ: RBI proposes new loan pricing rules: Banks, NBFCs may face tighter interest rate norms