Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
From UPSC perspective, the following things are important:
Prelims level: Not much
Mains level: Writing off bad loans is a part of NPA crisis.
Bad Loans: Wrote off
- The SBI wrote off bad loans worth Rs. 20,339 crore in 2016-17, the highest among all public sector banks
- The data pertains to the period when the associate banks of State Bank of India (SBI) were not merged with it
Data on ‘writing off’ by other banks
- All PSBs had a collective write-off of Rs. 81,683 crore for the fiscal 2016-17
- Public sector banks’ (PSBs) write-offs stood at Rs. 27,231 crore in 2012-13, government data showed
The ‘writing off’ figures has jumped almost threefold in five years
- In 2013-14, state-owned banks wrote off bad loans worth Rs. 34,409 crore; Rs. 49,018 crore in 2014-15; Rs. 57,585 crore in 2015-16, hitting Rs. 81,683 in the fiscal ended March 2017
- In the current financial year, PSBs have written off loans worth Rs. 53,625 crore in the six months to September
What is writing off bad loans?
- Banks prefer to never have to write off bad debt since their loan portfolios are their primary assets and source of future revenue
- However, toxic loans—loans that cannot be collected or are unreasonably difficult to collect—reflect very poorly on a bank’s financial statements and can divert resources from more productive activity
- Banks use write-offs, which are sometimes called “charge-offs,” to remove loans from their balance sheets and reduce their overall tax liability