Lok Sabha Question No. 610 (UNSTARRED), answered on 2018-07-20
Subject: Written off Bad Loans by Banks
Ministry: FINANCE
Asked by: Kunhalikutty, P.K., A. ARUNMOZHITHEVAN, JYOTIRADITYA MADHAVRAO SCINDIA

610:

## GOVERNMENT  OF INDIA MINISTRY  OF FINANCE DEPARTMENT  OF FINANCIAL SERVICES

LOK SABHA UNSTARRED  QUESTION  NO: 610 TO BE ANSWERED  ON THE 20th JULY,  2018/ASHADHA  29, 1940 (SAKA)

## QUESTION WRITTEN OFF BAD LOANS BY BANKS

SHRI P.K. KUNHALIKUTTY:

SHRI JYOTIRADITYA  M. SCINDIA:

Will  the Minister  of FINANCE  be pleased to state:

- a) whether  the Public  Sector  Banks (PSBs) have written  off bad loans worth  Rs. 1.44 lakh  crore which  is nearly  one and a half times  more  than  their  total  losses posted  in 2017-18;
- c) the  basis on  which   PSBs  have  written  off  loans  and  removed   from   the  bank's   balance   sheet during  2017-18;
- b) if so, the facts and details  thereof;
- d) whether  the guidelines  of the Reserve  Bank of India have been adhered  to by  the PSBs that  loan write  offs are not done in arbitrary and non-transparent  ways;  and
- e) if so, the steps taken  by  the Government  for faster resolution  of stressed accounts?

## ANSWER To be answered by

## (SHRI SHIV PRATAP  SHUKLA)

THE MINISTER  OF STATE  IN THE MINISTRY  OF FINANCE

(a) to (c): As per Reserve  Bank of India (RBI) guidelines  and policy  approved  by  bank  Boards,  nonperforming  loans,  including, inter-alia , those in respect of which  full  provisioning  has been made on completion   of  four  years,   are  removed   from   the  balance-sheet   of  the  bank   concerned   by   way   of write-off.  Writing-off  of non-performing  assets is a regular  exercise  conducted  by  banks  to clean  up their  balance  sheet,  and achieving  taxation  efficiency.  Writing  off of loans is done, inter-alia , for tax benefit   and  capital optimisation. Borrowers   of  such  written off  loans  continue   to  be  liable   for repayment.  Recovery  of dues takes  place on ongoing  basis under legal  mechanisms,  which  include, inter-alia, the  Securitization and  Reconstruction of  Financial   Assets  and  Enforcement   of  Security Interest  Act  (SARFAESI  Act),  and Debts Recovery  Tribunals  (DRTs).  Therefore,  write-off  does not benefit  borrowers.

Asset Quality  Review  (AQR)  carried  out in 2015 for clean and fully  provisioned  bank  balance-sheets revealed  high  incidence  of Non-Performing Assets (NPAs).  Expected losses on stressed loans,  not provided   for  earlier   under flexibility given   to  restructured   loans,   were   reclassified   as  NPAs   and provided   for.  PSBs  initiated   cleaning   up by   recognising   NPAs   and  provided   for  expected   losses. Primarily as  a  result of  AQR   and  subsequent   transparent   recognition, the  gross  NPAs   of  PSBs increased  by  Rs. 6,16,586  crore  between  March  2015 and March  2018 (provisional  data),  as per RBI data.  As per RBI guidelines  and policy  approved  by  bank  Boards,  non-performing  loans,  including, inter-alia , those in respect of which  full  provisioning  has been made on completion  of four years  are removed   from  the  balance-sheet   of  the  bank   concerned   by   way   of  write-off.   Thus,   the  amount written   off  during   the  financial   year   2017-18  is  substantially  on  account   of  such  stressed  loan

SHRI A. ARUNMOZHITHEVAN:

accounts   of  earlier   years,   which   have  been  transparently recognised   following   AQR   and  fully provisioned.   As  per  RBI  data  on  global   operations,   during   the  financial   year   (FY)  2017-18,  the aggregate  written  off amount  for PSBs was Rs. 1,28,229 crore.

As regards  profit,  as per provisional  data reported  by  banks,  PSBs had an aggregate  operating  profit of  Rs.  1,55,586 crore   in  FY  2017-18.  Due  to  transparent   recognition   of  NPAs   by   PSBs  and consequent   requirement   of  ageing   provision,   they   have  reported   aggregate   net  loss  of  Rs.  85,370 crore  in the financial  year.

- (d): RBI has informed  that  compliance  to its guidelines  are examined  on sample  basis by  RBI's Senior Supervisory  Managers  of the respective  banks  during  the supervisory  process and observations,  if any,  are taken  up with  the bank  for rectification.
- (e): A number  of steps have been taken  for faster resolution  of stressed accounts.

The  Insolvency   and  Bankruptcy Code   (IBC)  has  been  enacted   to  create   a  unified   framework for resolving  insolvency  and bankruptcy matters.  The Banking  Regulation  Act,  1949 has been amended, to provide  for authorisation to RBI to issue directions  to banks  to initiate  the insolvency  resolution process  under   IBC. Under   this,   by   adopting   a  creditor-in-saddle   approach,   with   the  interim resolution   professional   taking   over  management   of  affairs  of  corporate   debtor   at  the  outset,   the incentive  to resort  to abuse of the legal  system  has been taken  away.  This  coupled  with  debarment  of wilful  defaulters  and persons  associated  with  NPA  accounts  from  the resolution  process,  has affected a fundamental  change in the creditor-debtor  relationship. Further,  as per RBI's directions,  cases have been  filed  under   IBC  in  the  National   Company   Law   Tribunal   (NCLT)   in  respect   of  39  large defaulters,  amounting  to about  Rs. 2.69 lakh  crore  funded exposure.  In addition,  recapitalisation of PSBs,  announced   and  initiated   by   the  Government,   has  enabled   upfront   provisioning, easing apprehensions  in actively  pursuing  resolution.  As per data reported  by  PSBs in May  2018, 1,402 cases pertaining   to  stressed  accounts   of  PSBs,  amounting   to  Rs.  3,44,062 crore,   have  been  admitted   in NCLT.  Several  of these are at an advanced  stage, including  accounts  of high  value.  Recovery  in these has  begun,   with   reported   deduction in  NPAs   of  PSBs  of  Rs.  34,463  crore   in  the  first   large-value account.  Through  these steps, a clean  and effective  system has  been put in place.

In addition  to the above changes in the financial  ecosystem,  reforms  have been initiated  in public sector banks  under  the PSB reforms  Agenda  announced  by  the Government  this January.  These will help avoid recurrence  of a situation  of high  NPAs  and enable  resolution/recovery in respect of NPA accounts,  PSBs have committed  to ensure  at least 10% share in consortium  lending,  ring-fencing  of cash flows,   strict   enforcement   of  conditions   of  sanction,   engaging   specialised   monitoring agencies for loans above Rs. 250 crore  for clean post-sanction  follow  up, ensure  strict  role  segregation  and setting  up of Stressed Asset Management  Verticals  for stringent  recovery.

Further,   the  Securitisation   and  Reconstruction of  Financial   Assets  and  Enforcement   of  Security Interest Act,  2002 (SARFAESI  Act) has been amended  for faster recovery  with  a provision  for three months  imprisonment  in case the borrower  does not provide  asset details  and for the lender  to get possession of mortgaged  property  within  30 days.  Also,  six new  Debts Recovery  Tribunal  have been established  to expedite  recovery.

In  addition,   under the  PSBs  Reforms   Agenda,   PSBs  have  created   Stressed  Asset  Management verticals   for  stringent   recovery,   segregated   pre-  and  post-sanction   follow-up   roles   for  clean   and effective  monitoring, initiated   creation   of  online   one-time   settlement   platforms   and  committed   to monitoring  large-value  accounts  through  specialised  monitoring agencies.