SBI has done nothing WRONG in writing off Mallya's loan. Here's why

The outrage comes after a report in a national daily suggested that the State Bank of India has written off loans worth about Rs 7,016 crore.

Are you baffled with reports about banks writing off loans worth over Rs 7,000 crore owed to it by more than 60 wilful defaulters, while you stand in the long unending lines in the banks to withdraw your hard-earned money? When Prime Minister Narendra Modi announced a ban on all old Rs 500 and Rs 1000 notes, he said the move is being taken to curb black money in the economy and to get hold of those who are hoarding unaccounted cash.

Now, questions are being raised that the ones who are actually holding cash and have defaulted payments worth crores are being let off scot-free by the government. The outrage comes after a report in a national daily suggested that the State Bank of India has written off loans worth about Rs 7,016 crore owed to it by more than 60 of its top 100 wilful defaulters. As on June 30, 2016, SBI has written off Rs 48,000 crore worth bad loans, the report says.

The news report just said that the loans are being written off, but the impression that is being created is that the loans have been waived off. Is there any truth in the same? The answer is a NO.

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What does writing off a bad loan mean?

Writing off a loan is a method used by the banks to clear their balance sheets. Banks use the Reserve Bank of India (RBI) approved tool, Advance Under Collection Accounts (AUCA), by which transfer of accounts to a specific AUCA is only a process to reduce the non-performing assets (NPA).

The step is taken when the banks have exhausted all methods of recovery of the money that is owed to them. Writing off a bad loan and transferring it to AUCA does not mean that the loan has been waived off. The recovery process of these accounts will continue till the money is recovered from those accounts.

As per the said report, here are the top 5 defaulters:

Kingfisher Airlines: It’s been over a year that the government has been trying to bring back Vijay Mallya from the United Kingdom to settle the amount he owes to the banks. Cases are being fought but to no avail. Mallya-owned Kingfisher Airlines alone owes a total of Rs 6,963 crore to 17 banks, of which SBI’s loan is Rs 1,201 crore. The banks have made several attempts to auction his properties, but there have been no bidders for any of them.

KS Oil: Once a leading edible oil player, the company is now burdened with debts. It spent huge amounts on plantations in Indonesia and Malaysia but failed to get the expected returns. KS oil has allegedly indulged in the diversion of funds from its core business. It was declared a non-performing asset in 2013 with effect from September 30, 2011.

Surya Pharmaceutical: The company allegedly indulged in fraud, diversion of funds in retail and education sectors. SBI has symbolic possession of eight properties and is struggling for another in Jammu and Kashmir.

GET Power Ltd: Ajay Kumar Vishnoi’s promoted company was declared wilful defaulter on August 23, 2016. The company’s mismanagement and the delay in projects led to trouble for the promoters.

Sai Info: It has dues worth Rs 375 crore. The company’s main promoter Sunil Kakkad absconded in June 2013 but was brought back to India and arrested. The company has cancelled two high-value projects – from the Department of Posts and a Mumbai CCTV surveillance project – worth Rs 2,200 crore.

As per the norms of the RBI, the NPA accounts with 100% provision are considered for writing off through settlement. The accounts where prospects of recovery is bleak are technically written off from the live ledgers but their record is maintained in the AUCA.

There is also a structured mechanism for follow-up of accounts parked in AUCA which the banks are to meticulously follow. In fact, the accounts in the AUCA are also considered as part of NPAs for internal monitoring at all levels. The policy of write off does in no way dilute the recovery process.

So don’t be paranoid if you read reports of such loans being written off. Your money is yours. No rich or no defaulter is benefitting from your hard money being deposited in the banks.