Understanding Loan Write-Offs: Policies and Procedures in India

Introduction

The Government of India has not introduced any policy to write off loans for willful defaulters in the last five years. Loan write-offs are managed by banks in accordance with Reserve Bank of India (RBI) guidelines, and they follow procedures approved by each bank's board.

Key Aspects of Loan Write-Offs

Write-Off Procedures

1. Non-Performing Asset Management: Banks write off loans after fully provisioning them, usually taking up to four years.
2. Continued Liability: Borrowers remain responsible for repayment post write-off, and banks may continue legal recovery efforts.
3. Recovery Mechanisms: Options include:
   • Civil suits
   • Actions under the SARFAESI Act, 2002
   • Proceedings under the Insolvency and Bankruptcy Code, 2016

Sectoral Data on Loan Write-Offs

• Recent data indicates that scheduleNote: The RBI does not provide state-wise data on loan write-offs.*

Ministerial Statement

Under Unstarred Question No-144, the Minister of State in the Ministry of Finance, Shri Pankaj Chaudhary, provided the following responses:

Questions and Answers

(a) No, the Government has not formulated a policy for writing off loans of willful defaulters in the last five years.

(b) This question does not apply.

(c) The Government does not write off loans; rather, banks write off non-performing assets according to RBI guidelines and their board policies. This does not absolve borrowers of their liabilities.

(d) Banks must have a loan policy endorsed by their Boards. Decisions regarding credit and collateral requirements are based on their internal evaluations in line with regulatory guidelines.

(e) Prior to writing off loans, banks explore various recovery strategies, such as:

• Filing suits in civil courts or Debts Recovery Tribunals.
• Actions under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
• Filing cases in the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016.
• Negotiated settlements and asset sales.

Conclusion

This discussion clarifies the procedural approach to loan write-offs by banks, emphasizing the continuous responsibility of borrowers and the methods employed for recovery. The focus remains on managing NPAs effectively without waiving the obligations of defaulters.