SBI wrote off ₹1 trillion in last two years to clean up its loan book
- With a big chunk of bad loans written off in FY19, SBI’s outstanding gross NPAs declined 23% year-on-year (y-o-y) to ₹1.72 trillion
- SBI’s loan recoveries and loan upgrades (accounts which resumed paying interest) touched ₹31,512 crore in FY1
State Bank of India (SBI), India’s largest lender by assets, has written off over ₹1 trillion worth of loans in the two years ended 31 March as it purged its accounts of legacy bad loans.
It wrote off ₹61,663 crore in the year ended 31 March and an additional ₹40,809 crore in the previous fiscal year, taking the aggregate to ₹1.02 trillion. This is close to double the ₹57,646 crore that the lender wrote off in the preceding three financial years.
With a big chunk of bad loans written off in FY19, SBI’s outstanding gross non-performing assets (NPAs) declined 23% year-on-year (y-o-y) to ₹1.72 trillion.
Meanwhile, SBI’s loan recoveries and loan upgrades (accounts which resumed paying interest) touched ₹31,512 crore in FY19. To be sure, keeping pace with the increasing write-off, the bank’s recovery and upgrades have also increased during the same period.
While it recovered and upgraded ₹28,632 crore loans in the three years ended 31 March 2017, in the past two years, SBI could get back ₹45,429 crore.
It is important to note that banks write off bad loans once it becomes unviable to recover them. Banks have to ensure they fully provide for these loans before they are written off.
State Bank of India (SBI), India’s largest lender by assets, has written off over ₹1 trillion worth of loans in the two years ended 31 March as it purged its accounts of legacy bad loans.
It wrote off ₹61,663 crore in the year ended 31 March and an additional ₹40,809 crore in the previous fiscal year, taking the aggregate to ₹1.02 trillion. This is close to double the ₹57,646 crore that the lender wrote off in the preceding three financial years.
With a big chunk of bad loans written off in FY19, SBI’s outstanding gross non-performing assets (NPAs) declined 23% year-on-year (y-o-y) to ₹1.72 trillion.
Meanwhile, SBI’s loan recoveries and loan upgrades (accounts which resumed paying interest) touched ₹31,512 crore in FY19. To be sure, keeping pace with the increasing write-off, the bank’s recovery and upgrades have also increased during the same period.
While it recovered and upgraded ₹28,632 crore loans in the three years ended 31 March 2017, in the past two years, SBI could get back ₹45,429 crore.
It is important to note that banks write off bad loans once it becomes unviable to recover them. Banks have to ensure they fully provide for these loans before they are written off.
However, the provision requirements do not arise suddenly since lenders have to constantly increase provisions on bad loans as they age, under the central bank’s Income Recognition and Asset Classification (IRAC) norms.
That apart, banks recover from written-off loans and these recoveries help shore up their other income. The Reserve Bank of India (RBI) defines technical or prudential write-off as the amount of non-performing loans which are outstanding in the books of the branches, but have been written off (fully or partially) at the head-office level.
Last Friday, after announcing the bank’s FY19 results, SBI chairman Rajnish Kumar said that while the bank calls it a write-off, it is only an accounting practice. “We have several times clarified that it is just a movement to advances under collection account (AUCA) and the follow-up is with the same intensity. So, it is an accounting entry, nothing else,” said Kumar. In fact, since FY17, the bank’s presentation to analysts has started calling it “transfer to AUCA” instead of write-off.
In the past five years, SBI has recovered ₹22,859 crore from written-off accounts, of which ₹13,678 crore came in FY18 and FY19.
Moreover, write-offs have clearly outpaced recoveries in the past five years even if recoveries from written-off accounts are considered. While write-offs were over ₹1.6 trillion, recoveries (including that from written-off accounts) were at ₹96,920 crore.
Anshula Kant, SBI managing director (stressed assets, risk and compliance), said on Friday that the bank is increasing its provisions, leading to a rise in its provision coverage ratio (PCR), and this allows SBI a chance to clean up its books.
“It gives us the freedom to write-off some accounts from the balance sheet as they are fully provided for. There is no let-up in the recovery efforts. Our stressed asset vertical is equally going after live NPAs and accounts which are transferred to AUCA category. There is no difference in approach at all,” said Kant.
SBI posted a net profit of ₹838.40 crore in the fourth quarter of FY19, missing analysts’ estimates after making hefty provisions to pare bad debt. In the corresponding quarter last year, the bank had posted losses of ₹7,718.17 crore.
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First Published:13 May 2019, 10:57 PM IST
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