While resolving the ‘Non-Performing Assets’ (NPA) problem through write-offs is indeed important, arbitrary write-offs should be checked.
It would be ideal for RBI to make it mandatory for banks to give information on every such loan account beyond a particular limit (say 100 crores).
How are NPAs dealt with presently?
An asset is declared as non-performing if the borrower hasn’t paid interests (or principle) even after 90 days from the due date.
Presently, gross NPAs of Indian banks were estimated at Rs 10.25 lakh crore.
From a technical accounting standpoint, declaration of certain assets as NPAs helps in assessing the real asset potential of banks at any point in time.
Assets that are declared as Non-performing are then taken off the bank’s balance sheets, although some of it might eventually be recovered.
But significantly, the amount written-off (waivered) totalled to Rs 1.5 lakh crores during 2017-18 and aggregated Rs 4.8 lakh crores over the last 10 years.
Not surprisingly, 83% of all write-offs were by public sector banks (PSB).
What is trouble with NPA write-offs?
The problem with write-offs is when they are done in an arbitrary and non-transparent manner, which might involve illegal pecuniary benefits for some.
In the past, RBI has been wary about disclosing the names of big defaulters, as there is a confidentiality clause between lenders and borrowers.
Also, the argument that “maligning a promoter’s reputation will only hamper the company’s finances further and affect repayment” is mooted.
But if loans become unrecoverable, and public money is to be foregone due to the borrower’s inability to repay, then transactions needs to become public.
In such cases of write-off, neither the commercial argument nor the moral clause holds ground.
The RBI is presently doing a commendable job in forcing banks to recognise the true extent of their NPAs and then supporting their resolution.
Now, it should also make it mandatory for banks to disclose the names of those behind large loan write-offs (say above 100 crores) to usher in transparency.
