According to reports, the Finance Ministry has requested that state-owned lenders raise the recovery rate from written-off accounts to roughly 40% because it is concerned about its current low level.
The recovery rate from written-off accounts is now less than 15%. Only 14% of the written-off loans totaling Rs. 7.34 lakh crore could be recovered by Public Sector Banks (PSBs) in the five years that ended in March 2022.
State-owned lenders recovered Rs. 1.03 lakh crore of the debts that were written off for Rs. 7.34 lakh crore. At the end of March 2022, the net written-off amount was Rs 6.31 lakh crore after recovery.
According to the sources, it seems that following write-offs banks get complacent about recovering from such non-performing assets (NPAs), adding that this level of recovery is unacceptable.
A better recovery from written-off accounts, they said, immediately boosts their bottom line and strengthens their capital.
According to the sources, the Department of Financial Services will shortly meet with top PSB officials to examine the circumstances on the matter.
The scheduled conference will assess the status of cases involving these accounts that are ongoing in different courts, such as the Debt Recovery Tribunal and Debt Recovery Appellate Tribunal.
With relation to significant written-off accounts, banks have been instructed to take additional initiative.
Up till the financial year 2021–2022, banks have written off Rs. 11.17 lakh crore as bad loans from their books. According to statistics from the RBI, during the course of the previous six fiscal years, public sector banks (PSBs) and private sector banks wrote off a combined total of Rs 8,16,421 crore and Rs 3,01,462 crore, respectively.
The write-off process removes non-performing assets (NPAs), including those for which full provisioning has been made at the end of four years, off the balance sheet of the concerned bank.
In order to maximise capital, clean up their balance sheets, and get tax advantages, banks often write off NPAs. The banks write down assets in compliance with the RBI's norms and board-approved regulations.