State Bank of India (SBI) is the largest bank in the country. The SBI had written off its bad loans worth over Rs. 1 lakh crore in the past seven years. The bank has written off Rs. 17590 crore bad loans in 2020-21 amid the pandemic. It had written off Rs. 52758 crore in past fours. This amount is one of the highest in last four years.
The banking industry generally write off bad loans when they have made provision from profits against the bad assets in the books. The efforts to recover the loan amount generally continue, but not much is expected as such loans and assets lose value over time.
These large write-off amount shows the challenges in recovering bad loans. The current loan restructuring and regulatory forbearances given by the RBI also hides the true asset quality picture.
However, Dinesh Kumar Khara, Chairman of the SBI said that the bank's asset quality has been improved and it is better than that of the previous year. The gross NPAs are at 4.98 percent in 2020-21 as against 6.15 percent in the previous year. "Our gross NPA of less than 5 percent is the lowest in the last five years," says Khara.
The bank has also sold stressed loans to asset reconstruction companies in 2020-21. The bank sold some 25 accounts with a value of Rs. 2230 crore.
The State Bank of India has a large insolvency and bankruptcy cases of Rs. 2 lakh crore. Insolvency and Bankruptcy Code, 2016 and One Time Settlement (OTS) schemes are helping banks in recovering bad loans. The haircuts in bankruptcy and one-time settlement cases also become part of the write offs.
The stress in the banking industry may be hidden today because of moratoriums and loan restructuring. Earlier this month, the RBI granted another loan restructuring option to borrowers who had not availed the benefits in an earlier scheme. The real picture of stress in the banking industry will be out only after a year or two.
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