Page 29 - Banking Finance October 2023

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Trends in Loan Compromise and Loan compromise and loan write off. For any violation of the same
may question the staff accountability.
Write off:
Data relating to loan compromise by banks at the aggregate In particular, it is necessary to create awareness of loan
level are not available. But, some idea regarding loan compromise scheme of the banks so that more eligible
compromise shall be developed by looking into performance compromise proposals shall be mobilised. But, care should
of Lokaadalts which are engaged in recovery of bank dues be taken to avoid this drive not to give a wrong signal to
from small borrowers through counselling and amicable regular borrowers at large. The valuation of assets charged,
settlement. Accordingly, the amount of loan outstanding negotiation with the borrower and adoption of the
of the cases referred to Lokadalts for loan recovery through committee approach would decide the success of the loan
compromise settlement stood at Rs. 67,801, Rs. 28,084 and compromise.
Rs. 119,005 crores as on Mach end, 2020, 2021 and 2022
respectively. Similarly, the success of loan technical write off depends on
the timing of cases considered, valuation of securities
charged, delegation of power and observance of due
But, the percentage of actual recovery from the amount of
diligence of the Board approved policy. In both loan
loan involved in the above remained insignificant being just
6.2, 4.0 and 2.3 as on March end, 2020, 2021 and 2022 compromise and loan technical write off cases, professional
approach is called for.
respectively. In view of low loan recovery through
Lokadalats, it is necessary to strengthen Lokadalts on one Even today, there has been hesitancy on the part of bank
hand and create awareness of the Lokadalats on the part staff to go in for the compromise and technical write off due
of bank officers (5). In respect of technical loan write off, to lack of clarity. Hence, the RBI has rightly brought out the
the situation is different. To elaborate, as per the recent Framework for loan compromise and loan write off and,
RBI's RTI, banks in India wrote off bad loans worth over Rs banks have to create awareness of the same so that
2.09, Rs. 1.74 and Rs. 2.03 lakh crore by March end 2023, collective efforts shall be put in to reduce the level of NPAs.
2022 and 2021 respectively.
In addition, bank officers shall be exposed to training to

However, the actual loan recovery after the written off encourage them to initiate loan compromise and loan write
off more professionally and in line with the Framework. In
cases is hardly Rs. 45,548, Rs. 33,534 and Rs. 30,104 crores
by March end, 2023, 2022 and 2021 respectively. Regarding addition, top management in the banks shall create a
conducive environment for the officers to go in loan
the bank wise data relating to reduction in NPAs due to
compromise and loan write off in terms of the Framework
write-offs in 2022-23, the position of major banks in public
without any fear of staff accountability. Towards this end,
sector is : State Bank of India = Rs 24,061 crore, Punjab
banks have a long way to go.
National Bank = Rs 16,578 crore, Union Bank= Rs 19,175
crore, Central Bank of India = Rs 10,258 crore and Bank of References:
Baroda = Rs 17,998 crore. (6). Thus, efforts of banks need
1. RBI circular on revised guidelines for compromise
to be strengthened in stepping up loan recovery from
settlement of chronic Non-Performing Assets (NPAs) of
compromise and written off cases. public sector banks, July 29, 2003.
2. RBI circular on compromise/negotiated/one time
Conclusion: settlement of NPAs , June 21, 2010.
To summarise, non legal recovery measures are always 3. Prudential Framework on resolution of stressed assets,
preferred to legal recovery measures. Now a days, loan RBI Circular, June 07, 2019.
compromise and write off are given importance since the 4. RBI circular on framework for compromise settlements
introduction of the recent Framework by RBI in June 2023 and technical write-offs, June 08, 2023.
to provide clarity and adopt uniform approach in the interest 5. Report on Trend and Progress of Banking in India, RBI,
of banks and borrowers. It is necessary to observe due for different years.
diligence of the Board approved policies on loan 6. Indian Express, June 24, 2023.

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