11 things to know before you jump into corporate loan waiver news

The Indian express report  noted that over the last decade, banks have written of Rs 2,28,253 crore in nine years (from FY 2008 to FY 2016).

The RBI in June identified 12 large defaulters including Essar Steel, Monnet Ispat, Bhushan Steel and Bhushan Steel and Power.

PSBs have dragged all these corporate houses to the National Company Law Tribunal (NCLT) and the resolution process is in advanced stages.

The central bank too has clarified that these write-offs are basically technical in nature and are carried out to cleanse bank balance sheets and bring down tax burden.

“A substantial portion of this write-off is, however, technical in nature. It is primarily intended at cleansing the balance sheet and achieving taxation efficiency. In ‘Technically Written Off’ accounts, loans are written off from the books at the Head Office, without foregoing the right to recovery. 

Further, write-offs are generally carried out against accumulated provisions made for such loans. Once recovered, the provisions made for those loans flow back into the profit and loss account of banks,” 

According to the RBI, PSBs had written off Rs 2.28 lakh crore in bad loans in the nine years to fiscal 2015-16.

To avoid political controversy over the insolvency proceedings, the government has tightened rules to bar wilful defaulters or those whose loan accounts have been classified as non-performing assets for more than a year from bidding their own assets in auctions which are to be conducted soon.

Even promoters whose companies defaulted on loan repayments due to loss of revenue and profitability under unfavourable market conditions are also being treated on par with wilful defaulters.

The government amended the Banking Regulation Act in May this year to empower the central bank to issue directions to PSBs to resolve their bad loans. The extraordinary step was taken by the government as bankers were shying away from taking decisions on resolution of loans which would necessitate accepting deep haircuts for lenders.

Bank officials feared that they could face probes in the future if their decisions were seen as favouring borrowers.

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