Page 31 - Banking Finance April 2021

ARTICLE

Further in response to a news item in the Indian Express of by Indian banks are inequitable and should be stopped. It is
09/02/2016, under the heading "Rs. 1.14 lakh crore of bad a big scam. Small loans are rarely written off, most of them
debts: The great government bank write-off", RBI reiterated are big loans," he told the Indian Express. (Quoted from
and clarified, "Writing off of non-performing assets is a Indian Express February 07, 2017).
regular exercise conducted by banks to clean up their
balance sheets. Substantial portion of this write-off is, The former finance minister Chidambaram is reported to
however, technical in nature. It is primarily intended at have recently said that one cannot deny the rule that banks
cleansing the balance sheet and achieving taxation can write off loans technically and recoveries can continue
efficiency. In 'Technically Written Off' accounts, loans are against willful defaulters, but why has the rule applied to
written off from the books at the Head Office, without fugitives, who fled the country, after committing frauds.
foregoing the right to recovery. Further, write offs are "One is not denying such a rule that can be applied to a
generally carried out against accumulated provisions made willful defaulter. But, we are asking these are fugitives and
for such loans. Once recovered, the provisions made for they have left the country and are absconding. Why are you
those loans flow back into the profit and loss account of applying this rule to Nirav Modi, Mehul Choksi, Vijay
banks." (rbi.org.in - "Bank Write-offs Clarification" dated 09/ Mallya," he said at a press conference conducted through
02/2016) video conferencing. The former finance minister said, "When
they are fugitives, the technical rule in the book should not
In this context, RBIs use of the words Head Office seem be applied to them. This is my view." (The Economic Times,
inapt as no separate balance sheet is published for branches PTI April 29, 2020).
and head offices do not maintain accounts. The balance
sheet is drawn up and published for the bank as a whole When a former FM and an ex-regulator and former
and, insofar as the loans and deposits are concerned, is just chairman of two banks make such statements they throw
an aggregation of branch level positions. Suffice to say that up serious questions regarding conceptual clarity about write
the loss asset is written off from the bank's books. offs and their consequences. Admittedly, the former FM's
Nonetheless, the clarification sufficiently confirms that the statement is politically loaded and possibly meant for
write off exercise by banks is a standard and acceptable creating and sowing ripples of doubt amongst domestic
practice.
constituents regarding intent and bonafides of the decision
makers, banks and the government. Similarly, attributing
It is therefore quite surprising that as late as 2017 the former overtones of "scandal" to write-offs is also quite perverse
Reserve Bank Deputy Governor KC Chakrabarty had
since the process has sanction of the banking regulator. Bank
questioned the practice of "technical write-offs" stating such boards and management work within approved framework
write-offs are scandals that create non-transparency, and regulatory guidelines. They are highly unlikely to deviate
destroy the credit risk management system and bring all on account of compliance issues.
types of wrong-doings into the system. "Technical write-offs
Of course, it is not an intention to dissect and impute
meanings to the two views quoted above but just to make
the point that if very learned and erudite persons hold such
a view we cannot fault the man on the street from looking
at write-offs with a jaundiced eye. In actuality, write offs
have little to do with the status of the defaulter - whether
he is a fraudster and absconding, gone into hiding, or even
dead - the physicality is not material to the aspect of
recovery. It is relevant only to the extent of apprehending
and putting behind bars a fraudster against whom criminal
proceedings have been initiated. An FIR in such matters may
be at the behest of the bank but the catching of culprits,
bringing them to book and determining criminal culpability,
breach of trust, cheating, diversion and defalcation of funds

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