Reserve Bank of India asks banks to redouble recovery efforts

Mumbai: Reserve Bank Deputy Governor Swaminathan J on Thursday asked banks to double down on recovery efforts to limit the losses from the write-off of loans, saying it will help them post higher profits.

The career commercial banker who recently joined the regulator also added that a bank's ability to recover or a borrower's liability to repay does not diminish with a loan write-off and recoveries can help a lender post higher profits.

Earlier this week, the government informed Parliament that over Rs 14.56 lakh crore of advances were written-off by banks since FY15.

"We would like the banks to redouble their efforts because these are accounts that are parked in a special account and we would like to see more and more recoveries," Swaminathan told reporters at the central bank headquarters here.

Stating that there is a need to get the "context right" in this matter, he offered some nuances and stressed that there is a need to be "guarded" in "passing judgements".

The DG said an NPA account, which is over 4-5 years old will typically have witnessed a diminishing of the realizable value of the securities and one has to look at the age of the NPA and the availability or absence of underlying security.

Swaminathan said banks make a provision against a dud asset and at the time of a write-off the provisions have to equal the outstandings in an account.

For the purpose of tax efficiency and as part of the overall balance sheet management, such loans which are written-off go into a special account outside the balance sheet of a bank, he said, adding that this is what banks refer to as a "technical write-off", and the same happens as per a board-approved policy.

Meanwhile, Deputy Governor M Rajeshwar Rao also said that the regulator has not decided on a timeframe by when it intends to make the banks switch to the expected credit loss (ECL) system of provisioning and the same will take some time.