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Home >Industry >Banking >Write-offs help banks post lower bad loans in Jan-Mar

MUMBAI : Several large and mid-sized banks aggressively wrote off large chunks of legacy bad loans in the March quarter as they sought to bring down their non-performing assets (NPA), a Mint analysis of quarterly results showed.

On an aggregate basis, eight large and mid-sized banks wrote off 15% more bad loans in the quarter from a year ago, including both technical as well as regular write-offs. At the same time, recoveries and upgrades rose just 3% from a year ago. Upgradation refers to a bad loan account being regularized after payments are made by the borrower.

While things were gradually improving in January-March, the second covid wave set in during the end of the quarter, impacting recoveries.

Banks with higher write-offs include Bank of India, Punjab National Bank (PNB), Bank of Baroda (BoB), Axis Bank and IDBI Bank. Among these, recoveries fell 17-50% at BoB and Bank of India.

The quantum of loans written off by the eight banks stood at 32,852 crore, higher than 23,894 crore recovered by the same lenders in the fiscal fourth quarter.

“Technical write-offs are only for balance sheet management purposes. It gives you multiple advantages, both optically and also brings down the priority sector requirements," Prashant Kumar, chief executive of Yes Bank, said last month.

To be sure, most lenders have written off these loans to be prudential and are free to pursue them at any time. When recovered, these loans are shown as under-recovery from written-off accounts as part of a bank’s other income in the profit and loss statement.

For all their problems with bad loan accretion, public sector banks seem way ahead of private peers in terms of disclosure of write-offs in their investor presentations. Among these eight banks, data on recoveries from written-off accounts is available for seven lenders, adding up to 6,112 crore.

“As far as recovery is concerned, more or less, the numbers would remain in line with what we had achieved last time. But the only difference will be that in the last couple of years, there were certain chunky accounts that got resolved," said Swaminathan Janakiraman, managing director, SBI.

Recoveries in FY22 and ahead will have to happen across many accounts and will depend on how fast the second wave settles down so that recovery efforts can get intensified, Janakiraman told analysts on 21 May

India’s largest lender, therefore, refrained from giving guidance on recoveries as there were several variables at play. The bank said it will probably be able to provide more clarity after the June quarter.

Analysts said the government’s move to extend the repayment deadline for some sovereign-backed loans will delay the recognition of bad loans.

“Several public banks who have disclosed special mention account (SMA) data as of March 2021 or have disclosed slippages under the small and medium enterprise segment for FY21 show the stress is quite high," analysts at Kotak Institutional Equities said in a report on 31 May.

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