According to experts, “writing off” the outstanding loans is totally different from “waving-off”, and is a healthy practise as it gives a true picture of the balance sheet, something that companies in India do not generally do.
Examples of “waving off” includes loan waiver of Rs 70,000 crore that was given to farmers by the UPA government or waiving of processing fee that are waived off by banks in festive season for car loan etc. The loans and the bank fee that are waived off cannot be recovered.
“In the present case, the SBI has made it clear that the Rs 7,000 crore outstanding loans, which it was treating as an asset so far, has turned into a loss and now it has “written it off”. This can be termed as “cleaning of balance sheet” or in a very layman’s term it can be explained by saying that that the losses have been acknowledged on the paper. However, “writing off” does not mean that the recovery proceedings against the wilful defaulters that include seizing of their personal assets and that of the guarantors will stop. The recovery proceedings will continue and the banks will recover and extract whatever money that they can from the wilful defaulters,” an official with the SBI, who is not authorised to speak to the media, said.According to media reports, the SBI this year cleaned-up its balance sheets by “writing off” loans worth about Rs 7,016 crore owed to it by 63 of its top 100 wilful defaulters. While 63 accounts in the list have been fully written off, 31 have been partially written off and six have been shown as non-performing assets (NPAs), media reports said. According to SBI officials, the outstanding loan has been dropped into a specially created account for “toxic loans” which is called the Advance Under Collection Account (AUCA), technically known as a write-off.
An outstanding loan account is put to AUCA after it is clear that the outstanding loan account cannot be revived, expert said. “The idea behind putting it into AUCA is to make sure that the focus of the banking officials now shifts to various means of recovery like taking legal action, reaching for compromises etc rather than reviving the loan. This in no way means that the banks have ‘forgotten’ the loan that they gave to the defaulters,” a Chartered Accountant who has dealt with some of the wilful defaulters said.