SBI says write-offs aren’t loan waivers

SBI’s statement comes in as large write-offs by the state-owned lender rock Parliament

Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

Even as opposition parties raised the issue of large write-offs by the State Bank of India (SBI) in Parliament on Wednesday, the country’s largest lender chose to downplay the issue, stating that write-offs weren’t the same as loan waivers.

Earlier on Wednesday, the newspaper DNA reported that SBI had written off more than Rs7,000 crore in loans to 63 of its top 100 wilful defaulters as of 30 June. These included loans to Kingfisher Airlines, said the report, which quoted an unidentified document.

“A write-off is mostly just a technical write-off, which is an accounting practice. It doesn’t change anything for the borrower and they are not getting any freedom,” said Anshula Kant, SBI’s chief financial officer, without clarifying whether the amount was accurate.

An account is written off when banks have fully provided against a bad loan. This account is then removed from the balance sheet as all pending liabilities against it have been cleared by the bank. However, the bank continues to chase the borrower for repayments.

“Even if the number is correct, so what? When you write off an account, it brings down the total bad loans on the book. But on the ground, it is business as usual and recovery teams continue to chase these accounts,” Kant said.

According to an analyst presentation put up on the bank’s website, SBI had written off loans worth Rs4,613 crore in the April-June period. Since fiscal 2011, the bank has written off Rs60,295 crore.

“It would be unfair to say whether a technical write-off is a good or bad thing for the bank. It is just something they do to avoid tax implications and reduce the size of their non-performing assets (NPAs). If there is recovery in these accounts, the amount comes back through the other income route,” said a banking analyst with Reliance Securities Ltd, seeking anonymity.

The Indian banking system is grappling with bad loans worth nearly Rs6.5 trillion, which have risen significantly over the past year.

SBI is not alone in using technical write-offs to clean up its balance sheet. From fiscal 2011 to fiscal 2015, India’s banking industry wrote off a cumulative Rs1.76 trillion worth of loans.

In the Rajya Sabha, members of opposition parties, including Communist Party of India (Marxist) leader Sitaram Yechury, raised the issue of SBI write-offs. In response, finance minister Arun Jaitley pointed out that a write-off does not mean a loan waiver.

The Reserve Bank of India (RBI) in the past has made it clear that is not in favour of banks using technical write-offs as a tool for bad loan management.

“There is evidence of increased use of write-offs by banks to reduce NPAs, which is a pointer to weaknesses in credit management,” K.C. Chakrabarty, then a deputy governor of the RBI, said in a November 2013 speech.

Write-offs, Chakrabarty said, were initially introduced as a tool for banks to manage their tax liabilities on impaired assets. However, they were used by banks to manage their reported gross NPA numbers, he had pointed out.

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