In the last ten years, Indian banks have written off loans worth about ₹10 lakh crore. This helped the banks reduce their NPAs by 50%. But tellingly, they were able to recover only 13% of the loans written off – a very poor rate that raises many questions, for it is generally not easy to get a loan from a bank, and banks have many options for recovering loans.
Another interesting aspect of the write-offs is that the bulk of the NPAs were from big corporate borrowers, with the NPA rates among smaller borrowers such as microenterprises being much lower. So, why do banks write off big ticket loans? Why is the recovery rate so poor? And how does the combination of massive write-offs and poor recovery rate affect taxpayers?