Loan Write-offs Surge in India: A Deep Dive

Between FY15 and FY24, commercial banks in India collectively wrote off loans amounting to Rs 12.3 lakh crore. Notably, public sector banks (PSUs) accounted for 53% of these write-offs, totaling Rs 6.5 lakh crore in the last five years (FY20-24). This data was revealed by the government in response to queries raised in Parliament.

The loan write-offs peaked in FY19 at Rs 2.4 lakh crore, a consequence of the asset quality review initiated in 2015. The lowest level of Rs 1.7 lakh crore was recorded in FY24, representing just 1% of the total bank credit of approximately Rs 165 lakh crore outstanding at that time.

Currently, PSU banks hold a 51% share of the banking sector's incremental credit, a slight dip from the 54% recorded in FY23. Pankaj Chaudhary, Minister of State for Finance, highlighted that according to RBI data, gross NPAs of public sector banks and private sector banks as of Sept 30, 2024 were Rs 3,16,331 crore and Rs 1,34,339 crore, respectively.

The recovery methods employed by banks include filing suits in civil courts or debt recovery tribunals, actions under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, cases in the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016, negotiated settlements, and the sale of NPAs.

In a separate statement, the government noted that public sector banks achieved their highest-ever aggregate net profit of Rs 1.41 lakh crore in FY24, supported by an improvement in asset quality, with the gross NPAs ratio declining to 3.12% in Sept 2024.