SRIPARVATHI / ARJAVA MEDIA
No lender can write off any delinquent borrower’s loans because there is no regulatory law or government order for banks to forget any loan. “Write off’ is only a tax accounting term, not a pardon to the defaulters. It is not waiver of any loan.
A social media post said: “43 banks settled Ambani’s Rs 49,000 debt for Rs 455 crore. The rest was written off. Such posts are either completely untrue or shared out of one’s ignorance. Many people, including the so-called ‘erudite’ politicians, still seem to have misunderstood the word, write-off – or go by the dictionary meaning of the phrase.
The government cannot write off the loans commercial banks disburse. If the government asks the banks to write off anyone’s loans, the Parliament has to approve it and allocate an equivalent amount in the annual budget. Does anyone who clamours about the write-off have any such information? People who share such absurdity must ask themselves. Yes, banks write off bad debts from their balance sheet. That is a process of tax audit. In a real sense, the write-off is only an accounting adjustment to maintain a tax rationale. It is not a relief to any defaulter.
Under the prudential norms, banks must provide for all bad and doubtful debts from their profits. On the provisions, the banks do not pay tax. Banks cannot carry forward such tax-avoided provisions for a long time and must write back to the profit even if the banks fail to recover the loans. That compels the banks to write off the bad debts and normalize the provisions. But once the banks recover from the bad debts, they are sown under the category of ‘recovery from written-off accounts”. Banks never stop recovery attempts until they recover the loans – either directly from the borrowers or through debt resolution through NCLT under the Insolvency and Bankruptcy Code 2016 (IBC -16). No bank can ever write off anyone’s loan upon the government’s direction. A loan becomes a non-performing asset once the borrower fails to pay the interest and principal amount for 90 days. There are prudential norms to classify banks’ assets.
However, after a certain limit is exceeded on the assets retained on the balance sheet, excluding income tax, banks will have to pay tax whether the loan amount is recovered. The process by which banks remove bad debts from the balance sheet to calculate the tax on a pro-rata basis only when the loan amount is recovered is technically called ‘write-off’ – and it is not a release from the obligation to repay the loan to the borrower. On the other hand, along with the write-off, banks also take strong legal measures to recover the debt. An effective legal measure has also been in place since 2016 to recover the debt on a time-bound basis.
Banks give only loans to eligible ones, not money to anyone because banks use their depositors’ money. For that reason they never let a borrower go off unpaid. No law in the country makes them show leniency to anyone.
After the IBC-2016 the Corporate Insolvency Resolution Process became smoother and faster. Lenders have an edge over borrowers with better ways to recover their loan assets. Delinquent borrowers receive the warning of losing their business to someone – maybe their rivals. How Essar Steel lost to Arcelor Mittal, Bhushan Steel to Tata Steel, Electrosteel Castings to Vedanta, Alok Industries to Reliance Industries, etc., show the power of loan recovery laws in the country. Many delinquent borrowers are on the verge of losing their business empire to outsiders. Those who repeatedly sing about the ‘write-off’ must not forget that no lender can forgive delinquent borrowers, and lenders have a powerful law in their hands to recover their loan assets from anyone with whatever power.
