According to an RBI report, banks have written off debts of around Rs 10 lakh crore in the last five years. In this huge figure, public sector banks have reported a substantial portion of these write-offs, worth Rs 734,738 crore. On the other hand, private sector banks accounted for around 27.28 per cent of the total write-offs.
The RBI has released the data in response to queries on the right to information.
Indian banks have only been able to recover 13% of the Rs 10,09,510 crore. The rest of the amount had been amortized.
Understanding Bank Loan Charge-Offs!
In situations where a bank releases debts owed to a company or an individual, what is returned along with the principal amount is a decent amount of interest. Therefore, this is considered an asset for the bank.
Writing off loans implies that the bank believes that the amount will not be recovered and therefore will no longer be considered an asset.
Therefore, when a bank writes off a particular loan, it considers it a non-performing asset. In this case, it will not be considered an asset for the bank.
The use of cancellation of bank loans.
We know that the cancellation of loans implies loss of assets for the bank. However, it also provides some additional advantages. These include liability depreciation and tax exemption.
Writing off loans allows a bank to reduce the level of delinquencies on its books. This in turn provides various benefits along with exemptions.
An additional advantage is that the amount thus canceled reduces the bank’s tax obligation.
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Source: ptivs2.edu.vn