Writing Off Bank Loans – Endemic Corruption?

Recent news reports reveal that the Indian banks wrote off loans worth Rs 1.53 lakh crore in 2020-2021 to show low non-profit assets in their books. This is the second highest amount being written off in the past decade.

The highest write off was in 2018-2019 at Rs 2.54 lakh crore. The striking part is that the biggest defaulters are corporate houses whose loans are written off with the stroke of a pen. The highest write-offs were in the quarter ending December 2020; 55.65% of total non-performing assets (NPA) written off in the year.

When someone posted the above news report on Facebook, a retired diplomat responded by saying: “Ignorant article. A write off cleans up a balance sheet by accepting that certain loans will not be paid back. So it reduces the asset base, never an easy decision but a brave one, it's being realistic. It does not make a balance sheet look good as it wipes out reserves. But it does not let off the defaulters. Their liability remains.”

A friend responded to the diplomat’s comment saying: “One needs to analyze whose debts were written off. Obviously it will be corporate.” To this the diplomat replied: “Nobody”.

Wonder what prompted the diplomat to write the above comments but he would do well to talk to sources in banks to ascertain: why bad bank loans are given; on whose behest or in return for what favours; what were the bank guarantees; what recoveries were made over the past few years; and against whom no recoveries were made at all.

To say that “liability of the defaulter remains” is being too simplistic because banks will tell you that in some cases recoveries are not made for “certain reasons” including the time, effort and resources required for litigation to make recoveries. So some liabilities can continue in perpetuity.

Another report of November 30, 2020 revealed that 12 top nationalized banks wrote off Rs 6.32 lakh crore in eight years but recovered just 7% of the written off debt from big defaulters. These 12 nationalized banks were the State Bank of India, Bank of Baroda, Bank of Maharashtra, Union Bank of India, IDBI Bank, Punjab National Bank, Indian Overseas Bank, Central Bank of India, Canara Bank, UCO Bank, Indian Bank and Bank of India.

Of these 12 banks, the largest bad loans were written off by State Bank of India, Bank of Baroda, Union Bank of India, IDBI Bank, Punjab National Bank, Canara Bank, Indian Bank and Bank of India. The report also brought out that recovery of bad loans made by banks in last eight years was as under:

- State Bank of India recovered Rs 8,969 of the Rs 1.23 lakh crores bad loans written off in eight years.

- Bank of Baroda recovered Rs 1,057 crore after writing off Rs 21,474 crore bad loans in past eight years.

- Bank of Maharashtra recovered only 4% of the Rs 7,100 crore bad loans written off in past eight years.

- Union Bank of India wrote off Rs 26.027 crore bad loans in eight years but stalled RTI query on recoveries made and names of bid defaulters.

- IDBI Bank recovered only 8% off Rs 45,693 crore bad loans written off in seven years.

- Punjab National Bank recovered 22% off Rs 31,966 crore bad loans written off in past four years.

- Indian Overseas Bank recovered only 0.5% of Rs17,821 crore bad loans written off debt from 66 big defaulters including Bhushan Steel, Lanco group, Frost International, ABG Shipyard, Rotomac and Iragavarapu Venkata Reddy Construction Limited (IVRCL).

- Canara Bank recovered 19% after writing off bad loans worth Rs 47,310 crores.

- UCO Bank recovered only 7% after writing off Rs 25,266 crore bad loans over nine years.

- Indian Bank recovered only 1% after writing off bad loans worth Rs 4,792 crore of big defaulters.

- Bank of India refused to share under RTI Information on Rs 57,275 crore bad loans written off and only 23 percent recovered.

According to news reports of June 23, 2021, the Enforcement Directorate has seized assets worth Rs 18,170 crore in cases related to fugitives Vijay Mallya, Nirav Modi and Mehul Choksi, about half of which has been transferred to the banks and Centre. But, what about the balance bank loans written off?

Another media report, quoting the Swiss National Bank report, says that while deposits by Indians in 2019 amounted to Rs 6,625 these have grown to Rs 20,700 crore during the pandemic – an increase by 212% which is the highest in the past 13 years.

In addition is money laundering being done in Seychelles and Mauritius by Indians by registering individuals and firms that are only discussed in undertones?

Suffice to say that this business of writing off bad loans is endemic corruption which is hardly possible without politico-bureaucratic pressures.

The 1993 Vohra Committee Report contained several observations on the criminal network which was virtually running a parallel government. It also discussed criminal gangs who enjoyed the patronage of politicians, of all political parties as well as protection of government functionaries.

It revealed that political leaders had become the leaders of gangs. Over the years criminals had been elected to local bodies, State Assemblies and Parliament. It also said that if all facts were revealed many governments could fall.

That was in 1993 when NN Vohra was the Home Secretary and members of the Committee included the Secretary (R), Director Intelligence Bureau (IB), Director CBI and JS (PP) MHA. 28 years later what environment prevails in the country readers can well conjecture. However, it appears that the practice of writing off bank loans will continue as part of endemic institutionalized corruption.

Finally, the nukkad talk is that enormous funds are needed for elections especially since there is a steep hike in prices of sale/purchase of lawmakers even without GST.


Lt General Prakash Katoch (Retd) is a veteran of the Indian Army. Views expressed are personal.