Public sector banks have written-off bad loans worth Rs 1.20 lakh crore, an amount that is nearly one-and-a-half times more than their total losses reported in 2017-18, according to official data.
This is a double whammy for the struggling state-owned lenders as they had massive write-offs as well as huge losses in the last financial year. This is for the first time in a decade that banks have made huge write-offs of bad loans, along with booking of hefty losses.
Till 2016-17, 21 state-owned banks made combined profits, while in 2017-18, they suffered a staggering loss of Rs 85,370 crore, according to the data. During 2016-17, these banks wrote off non-performing assets worth Rs 81,683 crore against a combined net profit of Rs 473.72 crore.
State Bank of India alone has written off bad loans of Rs 40,196 crore, nearly 25 percent of the total write-offs in 2017-18. This was followed by Canara Bank (Rs 8,310 crore), Punjab National Bank (Rs 7,407 crore) and Bank of Baroda (Rs 4,948 crore).
According to the data provided by rating agency ICRA Ltd., Indian Overseas Bank has written-off NPAs worth Rs 10,307 crore, followed by Bank of India (Rs 9,093 crore), IDBI Bank (Rs 6,632 crore) and Allahabad Bank (Rs 3,648 crore). These banks, along with seven others, come under the Reserve Bank of India’s prompt corrective action framework.
According to government data, banks’ write-offs stood at Rs 34,409 crore in 2013-14. The figure has jumped nearly fourfold in five years. In 2014-15, the banks wrote off Rs 49,018 crore; Rs 57,585 crore in 2015-16, Rs 81,683 crore in 2016-17 and hit a record Rs 1.20 lakh crore (provisional) in 2017-18.
Write-off in banking parlance means that a bank has made a 100 percent provision from its earnings against that account. Following this, NPA is no longer part of its balance sheet. However, a write-off puts pressure on banks’ balance sheet as it erodes operating profit.
The Indian banking sector is grappling with mounting NPAs and host of scams. The NPA in the banking sector stood at Rs 8.31 lakh crore as of December 2017. Weak financials due to mounting bad loans have pushed 11 of the 21 banks under the PCA framework.
The tight prudential norms released by the RBI on February 12 have added to the NPA woes.
Interim Finance Minister Piyush Goyal has announced setting up of a committee to give recommendations in two weeks on formation of an asset reconstruction company for faster resolution of stressed accounts.
The committee under Sunil Mehta, non-executive chairman of Punjab National Bank, will make recommendations for the same. The minister said the committee will consider whether such an arrangement will be good for the banking system and, if any such suggestion is advisable, it will also consider the modalities by which such an asset reconstruction company should be set up.