The largest bank in the country, the State Bank of India (SBI), has written off Rs 17,590 crore bad loans in 2020-21 amid the pandemic. This amount is one of the highest in last four years. The bank had written off Rs 17,782 crore in 2018-19.
The total combined write-offs in the last four years have touched Rs 52,758 crore. The figure for write-off is over Rs 1 lakh crore in the past seven years.
While the bank has managed to bring down its gross and net NPAs in 2020-21, the large write-off amount shows the challenges in recovering bad loans.The current loan restructuring and regulatory forbearances given by the RBI also hides the true asset quality picture.
Dinesh Kumar Khara, Chairman of SBI said that the bank's asset quality is better than the previous year. The gross NPAs are at 4.98 percent in 2020-21 as against 6.15 percent in the previous year. "Our gross NPA of less than 5 percent is the lowest in the last five years," says Khara.
The bank has also sold stressed loans to asset reconstruction companies in 2020-21. The bank sold some 25 accounts with a value of Rs 2,230 crore. The bank also has a large NCLT (bankruptcy) book of Rs 2 lakh crore.
The banking industry generally write off bad loans when they have made full 100 percent provision from profits against the bad assets in the books. The efforts to recover the loan amount generally continue, but not much is expected as such loans and assets lose value over time.
SBI has a system of moving bad loans to advance under collection account (AUCA).The new bankruptcy code and one time settlements are also helping banks in recovering bad loans. The haircuts in bankruptcy and one-time settlement cases also become part of the write offs.
The stress in the banking industry may be hidden today because of moratoriums and loan restructuring. Earlier this month, the RBI granted another loan restructuring option to borrowers who had not availed the benefits in an earlier scheme.
Many suggest the real picture of stress in the banking system will be out only after a year or two. The problem areas are agri, small loans, and MSMEs. "We do not expect any threat to our asset quality going forward," says Khara. He adds banking is one sector that reflects macroeconomic fundamentals.