Banks’ loan write-offs registered a year-on-year decline of 18 percent in the last fiscal year, marking a positive trend as recoveries of written-off loans increased steadily. Central bank data showed that scheduled commercial banks’ loan write-offs declined to Rs 170,270 crore in FY 2024 from Rs 208,037 crore in the previous year. This indicates a sustained effort by lenders to recover more loans while limiting additional write-offs.
In the last five years, banks have written off bad loans worth Rs 990 crore. However, this massive clean-up exercise has helped reduce the number of bad assets or unpaid loans on their books by nearly Rs 10 crore. Encouragingly, recoveries of previously written-off loans increased marginally to Rs 46,036 crore in the last fiscal year as compared to Rs 45,551 crore in the previous year. Despite ongoing clean-up efforts, banks have been able to recover only around 19 per cent of the loans written off in the last five years.
Thanks to the significant reduction in bad debts, the non-performing loan ratio of commercial banks reached a 12-year low of 2.8 percent at the end of March 2024. If the recovery momentum continues, this key indicator of financial health could fall further to 2.5 percent by next year, according to analysts. With write-offs declining and recoveries showing moderate growth, banks appear to be moving in the right direction in their quest to strengthen their balance sheets and credit quality. To maintain this positive trend, continuous monitoring of repayment performance is crucial.
