Write-off of bad loans to uplift bank’s NPA profile
All Indian banks write off loans worth Rs 1.53 lakh crore in 2020-21 to show reduced non-performing assets (NPAs) on their books, calculations based on numbers released by individual banks showed. The second-highest amount of loans being written off in a financial year over the last decade after 2018-19’s record Rs 2.54 lakh crore write-offs.
Loans that have been bad for years are being dropped from the balance sheet of banks through a write-off, and corporates comprise a majority of such loans. What is troublesome is a gradual fall in recoveries. For instance, Bank of India and Bank of Baroda have seen a 37 per cent and 7 per cent fall in recoveries. Similarly, recoveries and upgrades for ICICI Bank stood at Rs. 6,463 crore, down by 15.7% compared with 2020.
Write-offs were high during the fourth quarter of FY21, comprising 55.65% of the total quantum of bad loans written off during the year.
Because the lenders recognised bad loans for the first time in the quarter since the nationwide lockdown last year, initial estimates showed that banks were sitting on Rs 1.2-1.4 lakh crore worth unrecognised bad loans in December 2020, were identified after the Supreme Court’s order on a standstill of asset classification was lifted.
The Yes Bank saw the sharpest surge in write-offs, hitting Rs 17,208 crore in FY21, against Rs 6,358 crore in FY20. Axis Bank (Rs. 13,906 crore), Bank of India (Rs. 8,732 crores), DCB Bank (Rs. 126 crores), Central Bank of India (Rs. 5,992 crores), Karnataka Bank (Rs. 1,153 crores) and IDBI Bank (Rs. 8,392 crores) were among the other banks with higher write-offs in FY21.
Few banks managed to reduce their yearly write-offs. It includes Punjab & Sind Bank, which saw its total loan write-offs at just Rs. 70.51 crores in FY21, down 96 per cent from Rs.1,781 crore a year ago. SBI alone wrote off about Rs. 34,403 crore worth of bad loans in the year ended March 2021, albeit lower than Rs. 52,387 in FY20. Moreover, Punjab National Bank (PNB) wrote off loans worth Rs. 15,877 crore, Bank of Baroda (Rs. 14,878 crores), ICICI Bank (Rs. 9,608 crores), UCO Bank (Rs.9,411 crore), Karur Vysya (Rs. 1,719 crores), IndusInd Bank (Rs. 1,602 crores) and Kotak Mahindra Bank (Rs. 625 crores) in FY21.
Explaining the trend of bad loans, Care Ratings chief economist Madan Sabnavis said that banks’ gross non-performing assets increased sharply by 43.7 per cent from Rs. 7.1 lakh crore in March 2017 to reach Rs. 10.2 lakh crore by the end of March 2018. But after FY18, the NPAs saw moderation and reached Rs 8.9 lakh crore by the end of March 2020, driven by a large share of write-offs and lower slippages.
Over the last couple of years, public sector banks (PSBs) registered a substantial contraction in their gross NPAs, and they are expected to be around Rs 6 lakh crore at the end of March 2021 compared with Rs 6.8 lakh crore as at the end of March 2020. Gross NPAs of private sector banks (PvBs) remained within Rs 2 lakh crore from September 2017 to September 2019. Unlike PSBs, the PVBs have recorded a rise in gross NPA amount from Rs.1.8 lakh crore in March 2018 to over Rs. 2 lakh crore levels in December 2019. It is expected to have retreated slightly to around Rs 1.96 lakh crore by the end of March 2021.
During March, banks have seen their gross NPAs improve. Despite including uncollectable bills, the gross NPA ratio of PSBs, which disclosed FY21 numbers, stood at 9.63 per cent against 10.93 in Q4 FY20. In contrast, for PVBs, it stood at 4.19 per cent compared with 4.34 per cent during the corresponding quarter of the previous year. Sequentially, however, the GNPA ratio rose from 3.4 per cent and 9.21 per cent for private banks and state-run banks, respectively.
Once the transfer of the likely Rs 89,000 crore (first phase) from 22 stressed accounts to the proposed National Asset Reconstruction Company Limited is carried out and are considered on the books at the end of FY21, the estimated headline gross NPA figure is expected to go down further. However, stress would continue to be present in the banking system.