Mumbai: Loan write-offs at public sector banks (PSBs) grew at a faster clip than outstanding loans in the June quarter on account of low credit demand, selective lending to corporates and the focus on recoveries, data compiled by Mint shows.

A group of 16 large- and mid-sized PSBs has written off more than ₹ 31,000 crore in the June quarter of FY19—a 37% increase over a year ago. The same set of banks saw a 4.5% growth in loan books in that period, albeit from a higher base, while gross advances at the end of the quarter stood at ₹ 53 trillion.

While 14 of these banks saw a rise in loan write-offs, 10 have seen an increase in their volume of advances. For instance, Punjab National Bank’s (PNB) write-offs rose 70% year-on-year (y-o-y), while its loan growth rose 7% y-o-y in the same period; Bank of Baroda’s (BoB’s) write-offs increased a massive 63 times while its loan growth was 9%, and Central Bank of India’s write-offs rose 14 times, while loans grew by a tepid 2%.

Banks write off bad loans only once it becomes unviable to recover them. Banks have to ensure that they fully provide for these loans before they are written off. However, the provision requirements do not rise suddenly as banks have to constantly increase provisions on bad loans as they age under the central bank’s Income Recognition and Asset Classification (IRAC) norms. Banks make some recoveries from their written-off assets and this helps shore up their other income. State Bank of India (SBI) recovered ₹ 2,426 crore from written-off accounts in Q1 and PNB managed to get ₹ 508 crore in the same quarter.

The Reserve Bank of India (RBI) defines technical or prudential write-off as the amount of non-performing loans that are outstanding on the books of the branches but have been written-off (fully or partially) at the head office level. The amount of technical write-off should be certified by statutory auditors as mandated by RBI.

Meanwhile, banks have gone slow on credit growth as they try to lend more to higher rated corporates and to retail clients. For instance, at BoB, 63% of the loan book is rated A and above.

Sameer Narang, chief economist, BoB, told analysts after its Q1FY19 results that A and above customers comprised 52% of the loan book in the last quarter and 40% in the June quarter of last year. “So there is a substantial improvement in the rating profile both of the retail as well as the corporate loan book," he said.

At PNB, while retail advances witnessed a growth of 10% y-o-y, large corporate loan growth increased to 7% y-o-y and growth in small and medium enterprises was a modest at 4% y-o-y. The bank’s international advances dropped 23% in the same period.

“We forecast muted loan growth at 3% CAGR (compound annual growth rate) over FY2018-21, estimated," said analysts led by M.B. Mahesh at Kotak Institutional Equities in a report dated 8 August.

SBI, India’s largest bank by assets, however, bucked the trend and reported a 24% y-o-y lower write-offs and its loan growth was 6% in the June quarter of 2018-19. Rajnish Kumar, chairman, SBI, told analysts on the bank’s Q1FY19 results call that when retail, corporate and SME are taken together, a 10% loan growth seems very feasible this year. “I don’t think there’s a need to revise that tactic and even on international banking, now, they work (in a) more focused (manner) on booking the long-term assets through syndications, so that [growth] strategy will continue."

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