Why State Bank Of India (SBI) wrote off NPAs and bad loans worth of 76,600 Crore?
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State
Bank Of India (SBI) wrote off NPAs and bad loans worth of 76,600 Crore!!
Due to series of RTI application following the
Supreme Court judgement that directed, the RBI to disclose the information on
non-performing assets (NPA) and bad debts. Under the right to information act
(RTI), RBI discloses the bank wise break-up.
In the last 3 years, The Indian banking system
has lost Rs. 1.76 lakh crore on account of bad loans of 416 Defaulter each
owing RS 100 crore or more being written off. On an average of Rs.424 crore per
borrower. There were 980 borrowers have
been enlisted by the RBI whose debts of more than RS 100 crore each had to be
written off by banks. Of these 220 accounts belongs to the SBI which is
one-fifth of the total number. Of the 71 total accounts reported as having
defaulted on loans of over and above Rs. 500 crore each, the SBI’s share turned
out to be 33-46% of the total.
The state bank of India is the largest bank in
India has lost more money as compare to other bank. It has written off bad
loans worth of RS 76,600 crore of 220 defaulters who owed more than 100 crore
each. As of march 31, 2019, the SBI has declared as unrecoverable outstanding
worth of 37,700 crore Rs that 33
borrowers, with loans of Rs 500 crore and more, owed it.
In private banks
While SBI and PNB topped in the list among the
public sector banks, the IDBI Bank was at the top among the private banks. The
IDBI banks ranked 3rd among all the scheduled commercial banks in
declaring bad loans of Rs 100 crore or more.
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| big banks write offs NPAs or bad loan |
What is non-performing assets (NPAs)?
An assets is called to be non- performing when
it cease to generate income for the bank. Means if the interest charged to the
amount is not realized within the prescribed time 90 days. It is type of bad
loan which can’t generate revenues for the bank.
Bank runs on the public’s money, bank invest
this money on different sector by giving rent and earn interest from that
money. So it is a very risky business . when the bank couldn’t generate any
intrest, the main purpose for which it was lent. Then the account is call
nonperforming assets. There are other reasons also for an account to be NPA
like failure to submit the statements and dormancy etc.
As
the NPA increases the bank will find difficulties to circulate the money and
hence it reduces the power of the bank. Which may leads to economic slowdown.
So banks always want to avoid this type of situation. That’s why bank write off this type of NPAs
and bad loans.
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| Gross non-performing assets(GNPAs) RBI,Financial stability reports |
What is a loan write off?
It is tool used by the bank to clean up their
balance sheet. It is applied in case of NPAs and bad loans. If a loan turns to
be bad on the account of the repayment, when it defaults for the last three
consecutive quarters, the loan can be written off. A loan writes off is a
procedure in which bank can free a set of money parked by the banks for
provisioning the loans. Provision of loan means, a certain percentage of loan
keep aside by the banks. in India the standard provisioning rate for loans is
5-20% it may vary depending upon the
repayment capacity of the borrower and the business sector.
How write off helps the banks
By write off the loans bank can easily clean
their balance sheet. And from the provisioning money bank can generate interest.
Let’s take
an example
Suppose A person take loan 100 crore from a
bank. And bank is required to 10% provision for it. Bank sets 1 crore aside
without waiting for the person to default on repayment. When the bank write off
this loan then bank frees that 1 crore initially set aside for provisioning.
This money is available for the bank to invest in other business. The bank
writes off the loans that do not mean that it lost their rights. The bank has
full rights to recover the money from the borrower through legal means. As it
writes off the loan from the balance sheet whatever banks recover from the
borrower is considered to be as profit for the bank in that financial year.That’s
why State Bank Of India (SBI) wrote off NPAs and bad loans worth of 76,600
Crores.
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