Vanishing Loans

The disclosure that public sector banks in India have written off over Rs 4.48 lakh crore in nonperforming assets (NPAs) over just four financial years is more than a technical statistic. It is a powerful reflection of deep-rooted inefficiencies and structural weaknesses in India’s banking ecosystem. The list includes most nationalised banks. In isolation, these figures are staggering. Collectively, they point to a recurring pattern where public money is used to absorb the consequences of misjudged lending, poor credit discipline, and opaque accountability. The government insists that these write-offs are “technical” and do not mean that the borrower’s obligation is waived. In practice, however, recovery postwrite-off remains murky.

There is no detailed disclosure on how much has actually been recovered once a loan is written off. Meanwhile, the public is left to infer that balance sheets are being cleaned up at the cost of transparency. It is true that gross NPAs in the system have come down from 9.11 per cent to 2.58 per cent in the past four years. But without a clear picture of recoveries, this improvement could be misleading. If NPAs are merely being written off and moved out of sight, then the decline in headline numbers is cosmetic rather than structural. Many of these bad loans stem from a handful of large corporate defaulters, whose strategic defaults often exploit legal loopholes, further weakening the public’s faith in the system. This also raises uncomfortable questions about how NPAs are being created in the first place. Are risk assessments and credit appraisals at public sector banks robust enough? Are politically connected or large corporate borrowers being extended loans on preferential or lax terms?

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Are institutional checks weak when it comes to follow-up and recovery? We must not lose sight of the fact that these are public institutions handling public funds. Every rupee written off is ultimately borne by the broader economy, either through recapitalisation, higher borrowing costs, or weakened fiscal space. Yet, unlike private banks, public sector lenders operate with far less market discipline and often suffer from dual control, answering to both government and regulatory authorities. The mechanisms for recovery ~ SARFAESI, IBC, debt tribunals ~ are in place, but how effectively are they functioning? Without regular, accessible updates on recovery performance, public confidence erodes.

The question is no longer whether banks should write off loans, but whether they are being held accountable for the followthrough. What is urgently needed is not just better oversight but greater transparency and public reporting on recoveries after write-offs. At the very least, citizens deserve to know what is being done to recover what has been lost. In the end, reforms cannot be judged by declining NPA ratios alone. A credible banking system rests not just on how it reports losses, but how determinedly it prevents them. There is no getting away from the fact that Rs 4.48 lakh crore is a staggering sum.