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Loans Write Off

About Write off Loans Meaning

  • Write off Loans India is a tool used by banks to clean up their balance-sheets. It is applied in the cases of bad loans or non-performing assets (NPA).
    • Non-Performing Assets (NPA): Any loan provided by a bank can turn into an NPA if the principal or interest payment for the same has not been paid for over 3 months.
  • The loan can be written off if it becomes bad on the account of the repayment defaults for at least 3 consecutive quarters.
  • A loan write-off doesn’t imply that a debt is forgiven.

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Loan waive-off   Loan write-off
  • The borrower need not pay the outstanding loan amount. The individual is free from the burden of repaying the outstanding loan amount. It means complete cancellation of loan recovery by the lender.
  • Here, the loan will be written off by your lender to have a clean balance sheet. But it does not mean the complete cancellation of loan recovery.
  • Bank will take no legal action against the borrower. The loan stops.
  • The loan is not closed by the bank/lender. They will try to recover the outstanding loan amount with the help of a legal authority.
  • Here, if the borrower has given any collateral or security against the borrowed amount, it will be given back to the borrower.
  • Any collateral or security given against the loan by the borrower will be confiscated by the bank and auctioned if the repayment is not completed.
  • Loan waive-off is a facility provided by the government to help mainly the farmers at times of natural calamities that are beyond human intervention.
  • Loan write-off is a regular activity conducted by banks or financial institutions to have a clean balance sheet and minimize tax liabilities.
  • It’s a voluntary action by the lender with the support from Govt.
  • It’s a mandatory practice carried out by banks/ lenders.

Write off Loans Highlights in India

  • Write-off exercise has enabled banks to reduce their non-performing assets (NPAs), or defaulted loans, by Rs 10,09,510 crore ($123.86 billion) in the last five years.
  • As of March 2022, banking sector NPAs amounts to Rs 7,29,388 crore, or 5.9 per cent of the total advances.
    • Gross NPAs were 11.2 per cent in 2017-18.
  • It reduces 61 per cent of India’s estimated gross fiscal deficit of Rs 16.61 lakh crore for 2022-23.
  • Slow rate of Recovery: However, banks were able to recover only Rs 1,32,036 crore (13%) from the written off loans in the last five years.
  • Majority of Write-off from Public Sector: Public sector banks share of write-offs at Rs 734,738 crore accounting for nearly 73 per cent of the exercise.
    • Composition: State Bank of India (Rs 2,04,486 crore), Punjab National Bank at Rs 67,214 crore and Bank of Baroda at Rs 66,711 crore. ICICI Bank’s at Rs 50,514 crore (Private banks).

Write off Loans Advantages in India

  • It helps a bank or lender to set free the money originally blocked for a borrower. The money can be now utilized by banks for doing their businesses.
  • Clean balance sheet: Writing off a bad loan does not mean that the bank will lose the legal right to recover the due amount So, any recovery made against a bad loan after writing off is considered as a profit for the bank in the year of recovery.
    • It helps the bank to make its balance sheet clean.
  • Generate revenue: When a loan is written off, the lender or bank receives a tax deduction on the loan value. But the lender is still legally allowed to pursue the debts and generate revenue from it.

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