Loan write-offs by banks registered an 18 percent annual decline in the last fiscal year, marking a positive trend as recoveries of written off loans increased steadily. Data from the central bank showed that loan write-offs by scheduled commercial banks eased to Rs. 170,270 crore in FY24 compared to Rs. 208,037 crore in the previous year. This indicates a sustained effort by lenders to recover more loans while limiting additional write-downs.
Over the past five years, banks have written off a substantial Rs. 9.9 lakh crore in bad loans. However, this massive clean-up exercise has helped lower non-performing assets, or unpaid loans, on their books by nearly Rs. 10 lakh crore. Encouragingly, recoveries of previously written off loans rose marginally to Rs. 46,036 crore last fiscal compared to Rs. 45,551 crore a year ago. Despite ongoing recovery efforts, banks have only been able to recoup around 19 percent of loans written off over the last five years.
Thanks to the sizeable reduction in bad debt, the overall non-performing loan ratio of commercial banks touched a 12-year low of 2.8 percent at the end of March 2024. If recovery momentum continues, analysts predict this key financial soundness metric could dip further to 2.5 percent by next year. With diminishing write-offs and moderate growth in recoveries, banks appear to be moving in the right direction in their bid to strengthen balance sheets and credit quality. Ongoing monitoring of repayment performance will be crucial to sustain this positive trend.
