Bad loan waivers of corporates far higher than farmers, says RBI

Mumbai: Data collected by Reserve Bank of India over a period of one year blows the lid off what goes as loan classification in banks. In a presentation at the annual bankers' conference, RBI deputy governor K C Chakrabarty showed how banks have sacrificed over Rs 1 lakh crore by writing off bad loans to corporates, which is much higher than Union finance minister P Chidambaram's farm loan waiver in 2008 — a move that received flak from the industry. 

    Under the Debt Waiver and Debt Relief Scheme, 2008, the Centre had waived off around Rs 60,000 crore to farmers. 
    "In the past 13 years, banks have written off 1 lakh crore and 95% of these are large loans. Everyone talks of the farm loan write-off, but it is the medium and large enterprises segment that has a 50% share in NPAs," said Chakrabarty. 
    The deputy governor flayed banks for using 'technical write-offs' to reduce their nonperforming assets (bad loans) over the years. Technical writeoff is a process adopted by banks whereby they take a hit on their profits and stop including the defaulting loan in the list of those from whom repayments are due. It is called a technical write-off because although banks do not show these loans as receivables in their books, they continue to pursue recovery in courts or other forum. 
    A technical write-off enables banks to claim they do not have any bad loans on their books by fully providing for the loans from their earnings. It also reduces their tax outgo. 
    Chakrabarty also raised the issue of restructured loans — advances where potential defaulters are given more time to repay without being called defaulters. "Restructuring of loans with retrospective effect has killed credit quality in banks," he said. He warned banks that the leeway might not be available in future. 
    "We must move away from restructuring, there should not be any category called restructuring. The moment it is restructured, it should be declared as NPA, there should not be any technical write-off… be prepared for that, unless you do that you might not be able to get out of the mess," he said. 
    RBI numbers showed that the banks added Rs 4,94,836 crore to their bad loans between 2007 and 2013. During the same period, they reduced NPAs to the extent of Rs 3,50,332 crore. This was possible because loans worth Rs 1,41,295 crore were written off and another Rs 90,887 crore were upgraded to repaying loans and Rs 1,18,149 crore was recovered from defaulters. According to Chakrabarty, after a technical write-off, there is no incentive to pursue recovery. 
    "Between 2007-13, credit to 10 large corporate groups has more than doubled. We have seen that wherever credit growth has been higher, NPAs are also higher."