Banks write off Rs 60,000 crore NPAs in five years

The Rs 60,000 crore farm loan relief package announced by finance minister P Chidambaram in the budget might have become an issue of debate but write-offs are not new to the banking system.

During the last five years, banks have written-off loans "�farm, retail and corporate -- amounting to over Rs 60,000 crore to clean up their balance sheet.

According to data culled out from Reserve Bank of India reports, public sector banks, which account for over 70 per cent of banking assets in India, wrote-off bad assets of around to Rs 48,000 crore, while private banks took a hit of Rs 10,000 crore.

Besides write-offs, banks and financial institutions have used the debt restructuring mechanism to deal with stressed assets. The CDR mechanism, that was put in place in 2002-03, has restructured loans worth Rs 78,609 crore till October 2006. The major benefit of the revamp has reached to corporates from sectors like steel, power, textiles sectors, helping many turn the corner. 
 

BAILING OUT Major industries using CDR (Rs cr)
Industry	No of  cases	Aggregate  debt
Iron & Steel	17	28,644
Fertilizers	9	13,156
Refineries	1	4,874
Cement	7	4,663
Telecom	6	4,285
Power	5	3,486
Textiles	21	2,835
Chemicals	14	2,692
Engineering	9	2,615
Sugar	15	2,527
Note: Figures as on Oct 31, '06

Banks have worked on improving (cleaning) balance sheet to provide improved look of books. This was done to meet stringent regulatory norms as well as get better valuation when raising capital and funds from the market, Indian Bank's Association deputy chief executive officer K Unnikrishnan said.

The ambit of write-off covers sector ranging from steel to power, refinery, retail, small scale industry as well as agricultural loans. Bankers said, cases where the recovery prospects were bleak typically see the amount written-off.

This exercise has partly meant carving out portion of profits for provisions of such NPA accounts. However, this does not mean borrowers were freed from the obligation of paying dues. Any future repayment by borrowers who had failed to pay installments on time would help banks improve their bottomline, a banking analyst with foreign broking house said.

Unnikrishnan said, the extent of write-off has been large in the past. "But with better loan appraisal, improved risk management systems and proactive account monitoring, the extent of write-offs could be limited in the future," he added.