Page 32 - Banking Finance April 2021

ARTICLE

via a credible and legally acceptable investigation is the sole
domain of the law enforcement agencies, most certainly not
under the purview of banks.

Banks are focused upon recovery of public money and
physical absence in no way impairs banks rights and legal
remedies at proceeding against the estate of and encashing
known/unknown assets and collaterals of the defaulters
towards recovery of their dues. This is the crux of the
matter and is the core issue underlying the concept of
technical write-offs.

The reason for the discomfort with write-offs is that it is
widely held that banks are wasting public money and taking
advantage of technicalities to hide their indiscretions. It is the process of collection is under close watch of the
felt that large corporates and their promoters are allowed concerned stressed asset recovery vertical of the bank with
to go scot free at the cost of public money. The public focused intensity and rigour.
perception is one of lost resources, money down the drain Nonetheless the question of transparency in respect of write
and no accountability of either the bank or the corporate offs and NPAs continues to be bothersome. Should the write
for such acts. This is very agonising and difficult for the public off amounts form an inseparable component of the NPAs of
to digest and they invariably make a comparison of the banks? In a recent article in The Economic Times, Ghosh and
differing treatment given by banks in recovery of loans in Jha (ET "The Technical 'Write-Off' Passage" dated 13/08/
the retail segment (personal loans, farmers loans and 2020) have held that "..it is foolhardy to add AUCA numbers
MSMEs) against that in the corporate and large business that are fully provided for in off-balance sheets to GNPA, as
segment. it amounts to double counting and significantly distorts the
GNPA-plus-AUCA number for no apparent benefit." This
It is felt that while in the retail segment loan recovery is appears to be a fallacy as in the interest of complete
brutal and banks hound the borrower for repayment, in the transparency and to present a fair and true picture of a
large business segment such stringency is not visible and bank's impaired assets, the actual NPAs do comprise both
write-offs are indicative of this laxity. This is their basic gripe the Gross NPAs, as revealed in the audited balance sheet,
- that even though their deposits fund corporate loans, the and the Write offs/AUCA, off balance sheet. There is no
playing field is not level and weighted against them - which gainsaying that the write off is carved out of the gross NPAs
has not been addressed by the banks. Banks very rarely and in a supposed situation of there being no write offs,
make efforts to clarify the distinction between technical the true GNPAs position will necessarily be all inclusive.
write-off, complete waiver (for example, the Agriculture While the Net NPA to total assets ratio will not be affected,
Debt Waiver and Debt Relief Scheme, 2008 and other such since the write off/AUCA amount is fully provided for, the
loan waiver schemes from time to time), an actual gross NPA (including AUCA) to total assets will show an
crystallised loss called a 'hair-cut' or how the loans in the upward bias and be a truer representation of the non-
two segments merit differential treatment. performing asset book.

In fact, troubled by the stigma associated with write-offs It would therefore appear that write offs do camouflage and
and to stress upon the pure accounting practice of the hide the NPA burden in a bank's balance sheet and this
transaction, SBI has changed the nomenclature of such aspect needs to be recognised. In fact taking cognizance of
entries preferring not to call them by the hitherto traditional this, SBI in their latest quarterly presentation Q1 FY 1920-
write-offs. Since FY17, the bank's presentation to analysts 21 have courageously done just this. In a marked departure
has started calling it "transfer to AUCA" instead of write- from the past, they have captured the movement of NPAs
off. The transfer to AUCA (Advance Under Collection by showing the opening and closing GNPAs with AUCA (SBI
Account) clearly implies that the debt is under recovery and Quarterly Results Q1FY 21 Analyst Presentation 31/07/2020

32 | 2021 | APRIL | BANKING FINANCE