Finance Minister Arun Jaitley Monday defended loan write-offs by public sector banks, saying they do not lead to loan waivers and the exercise helps lenders clean up their balance sheets and achieve taxation efficiency.
He said public sector banks have recovered Rs 36,551 crore of bad loans or NPAs during April-June quarter of the current financial year as compared to Rs 74,562 crore recoveries made in the full 2017-18 fiscal.
Commenting on reports that the country’s 21 state-owned banks wrote-off Rs 3.16 lakh crore of loans in four years of the BJP government and made recoveries of Rs 44,900 crore of written off loans, Jaitley in a Facebook blog said “technical write-offs” are resorted to by banks as per the Reserve Bank of India (RBI) guidelines.
“This however does not lead to any loan waiver. Recovery of loans continues rigorously by banks,” he said. “In fact the defaulting management of most insolvent companies have been removed under the Insolvency and Bankruptcy Code (IBC).”
Congress President Rahul Gandhi used the report to attack the government, saying demonetisation converted black money into white and Rs 3.16 lakh crore of loans were written off.
“Modi’s India – For Common Man: Notebandi-line up and put your money in banks. All your details into Aadhar. You can’t use your own money. For Crony capitalists: Notebandi-convert all your black money to white. Let’s write off 3.16 lakh crore using common man’s money,” Gandhi said in a tweet.
Jaitley however defended loan write-offs, saying they are done for “tax benefit and capital optimisation.”
“Writing-off of non-performing assets is a regular exercise conducted by banks to clean up their balance sheet, and achieving taxation efficiency,” he said. “Borrowers of such written off loans continue to be liable for repayment.”
Recovery of dues, he said, takes place on ongoing basis under legal mechanisms, which include the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), and Debts Recovery Tribunals (DRTs).
Stating that public sector banks (PSBs) are making concerted efforts in recovery of NPAs, he said they have already recovered Rs 36,551 crore during the first quarter of financial year 2018-19 against the total recoveries of Rs 74,562 crore in financial year 2017-18.
“The cash recovery targets for PSBs for financial year 2018-19 is Rs 1,81,034 crore. NPAs has peaked and has declined by Rs 21,000 crore during quarter ending June 2018 over March 2018,” he said.
Jaitley said when the BJP government came to power in 2014, it inherited the problem of large-scale NPAs in the banking sector.
“The main reason for this spurt in NPA is that gross advances of PSBs increased rapidly as a result of aggressive lending from 2008 to 2014. The total loan outstanding of PSBs, which was about Rs 18 lakh crore till March 2008, increased to about Rs 52 lakh crore till March 2014,” he said.
The Modi government, he said, decided to ensure transparent recognition of stressed assets and NPAs which were hidden under the carpet.
“Asset Quality Review initiated by RBI in 2015, and subsequent transparent recognition by banks revealed high NPAs. NPAs of PSBs increased from Rs 2.26 lakh crore in March 2014 to Rs 8.96 lakh crore in March 2018.
“Aggressive lending coupled with laxity in credit risk appraisal and loan monitoring, wilful defaulters inter alia led to a spurt in stressed assets,” he said.
The finance minister said stressed accounts were treated as non-NPA through flexibility in loan classification, evergreening and often repeated restructuring under the previous government. “This means NPAs were put under the carpet disguised as stressed assets. Now even one-day default is to be reported,” he said.
“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,” he said.