బ్యాంకు రుణాల Write-off అంటే మాఫీ చేయడం కాదా? || What Is Bank Loan Write-off ?||
A needless controversy has erupted over RBI revealing that banks have written off bad loans worth Rs 68,607 crore in its response to Right-to-Information (RTI) query. The presumption in some quarters that banks will not pursue the debts of these 50 top defaulters and let absconding diamantaire Mehul Choksi or liquor baron Vijay Mallya go scot-free is wrong. The writing-off of a toxic loan does not mean the loan has been forgiven. It means that the bank has made 100% provisioning (setting aside capital) against the loan, to protect depositors even if not a paisa of that loan is repaid. Banks use write-offs to remove bad loans from their balance-sheets and minimise their tax liability.
The amount that the bank has written off will not be counted as part of its gross and net non-performing assets. However, the borrower will not be exempt or pardoned from debt repayment as banks will not halt recovery. So, banks do not lose interest in the written-off asset and may recover their loan in part when the bad loan reaches resolution. When a value is realised, the provisions are written back. A write-back goes into the profit and loss account of the bank, and boosts the bank’s bottomline. A recent example is the reported write-back to SBI in the Essar Steel resolution.
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బ్యాంకు రుణాల Write-off అంటే మాఫీ చేయడం కాదా? || What Is Bank Loan Write-off ?|| A needless controversy has erupted over RBI revealing that banks have written off bad loans worth Rs 68,607 crore in its response to Right-to-Information (RTI) query. The presumption in some quarters that banks will not pursue the debts of these 50 top defaulters and let absconding diamantaire Mehul Choksi or liquor baron Vijay Mallya go scot-free is wrong. The writing-off of a toxic loan does not mean the loan has been forgiven. It means that the bank has made 100% provisioning (setting aside capital) against the loan, to protect depositors even if not a paisa of that loan is repaid. Banks use write-offs to remove bad loans from their balance-sheets and minimise their tax liability. The amount that the bank has written off will not be counted as part of its gross and net non-performing assets. However, the borrower will not be exempt or pardoned from debt repayment as banks will not halt recovery. So, banks do not lose interest in the written-off asset and may recover their loan in part when the bad loan reaches resolution. When a value is realised, the provisions are written back. A write-back goes into the profit and loss account of the bank, and boosts the bank’s bottomline. A recent example is the reported write-back to SBI in the Essar Steel resolution.