Description

In a major revelation with far-reaching implications for India's banking and governance sectors, the Ministry of Finance has disclosed in the Rajya Sabha that Public Sector Banks (PSBs) have written off non-performing assets (NPAs) exceeding Rupees 12 lakh crore between FY2016 and FY2025. Despite these write-offs, the government emphasized that rigorous recovery efforts remain in motion, alongside a robust recruitment initiative to strengthen human resources within the sector.

This development holds critical relevance for candidates preparing for competitive exams such as UPSC, RBI Grade B, and banking exams, particularly under topics related to Indian Economy, Public Finance, and Banking Governance.

Why Do Banks Write Off Loans?

Loan write-offs by banks are governed by Reserve Bank of India (RBI) guidelines. According to the current framework, banks may write off an NPA after four years, provided the full provisioning has been done. However, this does not absolve the borrower from repaying the amount. Instead, it is an accounting move to clean up the bank’s balance sheet and reduce tax liabilities.

Recovery actions continue post write-off through various legal mechanisms, including:

• Debt Recovery Tribunals (DRTs)

• Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act

• National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC)

NPA Write-Off Trends (FY2016–FY2025)

• Total NPAs Written Off: Rupees 12,08,828 crore

• NPAs Written Off During FY2021–FY2025: Rupees 5.82 lakh crore

Among the 12 public sector banks, 10 reported a decrease in the volume of write-offs over the last five years. However, larger institutions like the State Bank of India (SBI) and Canara Bank registered an uptick in write-offs, particularly in the financial year 2024–25. This variation suggests a non-uniform approach to NPA management, influenced by bank-specific risk appetites, borrower profiles, and operational strategies.

Recovery Efforts And Legal Proceedings

The Ministry has affirmed its continued focus on recovering bad loans, using both domestic and international legal frameworks. Key updates include:

• 1,629 wilful defaulters (with loans exceeding Rupees 1.62 lakh crore) identified as of March 31, 2025

• Assets worth over Rupees 15,000 crore confiscated under the Prevention of Money Laundering Act (PMLA)

• Assets valued at Rupees 750 crore seized under the Fugitive Economic Offenders Act (FEOA)

• Over Rupees 25,000 crore restituted to banks through action in major bank fraud cases

• Nine individuals have been convicted under PMLA, and nine others declared Fugitive Economic Offenders

These figures reflect the government’s aggressive stance on tackling financial irregularities and loan defaults through legislative and investigative frameworks.

Public Sector Bank Recruitment Drive

Amid challenges posed by loan defaults, the government is also strengthening the banking workforce. As per official data:

• As of March 31, 2025, 96% of sanctioned posts in PSBs are filled.

• Between FY2020 and FY2025, 1.48 lakh new employees were inducted across public banks.

• For FY2025–26, the recruitment process for 48,570 new positions is already underway.

Vacancies are largely attributed to superannuation, voluntary exits, and early retirements. This recruitment initiative is expected to revitalize operations and improve banking outreach, especially in underserved areas.

Conclusion

The massive write-off of over Rupees 12 lakh crore in NPAs by Public Sector Banks over a decade highlights the structural and operational vulnerabilities in India's banking system. However, the ongoing recovery drives and proactive recruitment strategies indicate the government’s commitment to ensuring financial stability and improving public sector efficiency.

For aspirants preparing for banking, economy, and governance-related competitive exams, these developments offer crucial insights into India's financial sector reforms, asset quality trends, and workforce dynamics.

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