Writing off doesn’t mean forgiving the defaulters’ loan. It is only a technical term used in the accounting of commercial banks for recalibration of non-performing assets (NPA) to save tax, after making full provision against the NPA. This practice is done since prudential norms came into existence many years ago.
Many people, including intellectuals and pseudo-intellectuals, still publicise “writing off’ of corporate loans, as if the lenders have forgiven the loans. Surprisingly, they do not know the term write-off is only a misleading argument. It is no more freedom for the borrowers to sit without the liability of repaying it. Every borrower will have to repay their loans even if the banks write off the loan from their books.
Writing off doesn’t mean forgiving the defaulters’ loan by a lender. No bank has ever forgiven any corporate loan. It is only a technical term used in the accounting of commercial banks for recalibration of non-performing assets (NPA) to save tax, after making full provision against the NPA. This practice is done since prudential norms came into existence many years ago. From the books of banks, such accounts are usually separated to keep under an account head called Advanced Under Collection Accounts (AUCA). The written-off amount is parked under this head.
Banks are supposed to make provisions against unpaid loans from time to time and over a period they have to make full provision against the total amount of the loan loss. Once the provision coverage ratio reaches 100 per cent they are written off from the books for convenience of accounting. Such loans are not a waiver. The banks have to continue their recovery proceedings. And the banks continue with the process also until the last security asset of the delinquent borrower is liquidated to recover the loan. Moreover, no bank is supposed to waive any loan of any size of a defaulter so long as the case is pending with tribunal or High Court.
The banks continue with their recovery process as usual even after the exercise called write off until the amount is fully recovered through available legal resources.
There is no need for filing and RTI also to ascertain how much a bank has written off, whose loans were written off. Nevertheless, those who cry about write-off also must know, banks report recovery from written-off accounts every quarter while announcing their quarterly results. Quarterly results and annual results usually show “recovery from written-off accounts” – an answer to the wrong propaganda.
