Bank NPA write-offs could rise 50% this year

The pace of bad industrial debt written off by public sector banks in India increased substantially this year, according to RBI data.

In the first six months of the financial year (April to September), public sector banks wrote off 36,510 cr of bad industrial debt, compared to only 2,369 cr of agricultural debt.

If the current rate of write-offs is maintained, the total industrial debt written off this year will be Rs 73,000 cr, a 51% increase over the last financial year.

In all, government banks wrote off Rs 84,945 cr of bad loans in the 18 months ended September.

In comparison, the total farm loans written off during the period is Rs 9,560 cr.

In other words, the government ‘forgives’ nearly ten times as much industrial debt as agricultural debt.

Government banks are forced to write-off large corporate debt — sometimes running into thousands of crores — as these companies simply ‘go bad’.

Many companies go belly up because of flawed investment strategies, over-estimation of demand for their products or other reasons such as mismanagement.

As the loans are taken by the company, and not by the promoter, the banks cannot recover the amounts from the owner or the promoter even though they may have enough assets to pay back the loan.

In addition to write-off by the banks, agricultural loans are also paid off by various state governments to give relief to farmers. The Uttar Pradesh government led by Yogi Adityanatha, for example, has waived off Rs 7,371 cr of farm loans.

Government-controlled banks have 7.34 lakh cr of bad debt and private banks have Rs. 1.03 lakh cr.

Out the total NPAs of all commercial banks, 77% is owed by leading corporate and industrial houses of India.

Bad loans comprise over 10% of the total loanbook of the sector. In other words, out of 100 rupees lent by Indian banks, 10 rupees is not coming back.