Definition
Write-Off (Loans)
A loan write-off is the removal of a bad loan from a bank's balance sheet against provisions already made, even though the bank may still pursue recovery.
Writing off a fully provided NPA cleans up the balance sheet and reduces reported gross NPAs, but it does not mean the borrower is let off. Banks continue recovery efforts through the SARFAESI Act, courts or the IBC, and any money recovered later is booked as a recovery.
In India, large technical write-offs by PSU banks have drawn public scrutiny because they shrink headline NPAs. Analysts therefore look at gross slippages and recoveries from written-off accounts, not just the reported GNPA, to judge true asset quality.
Related terms
- Gross NPA Ratio (GNPA)The Gross NPA ratio is the share of a bank's total advances that have turned into non-performing assets, before deducting provisions held against them.
- Provision Coverage Ratio (PCR)The Provision Coverage Ratio is the proportion of a bank's gross non-performing assets covered by provisions, showing how well it is buffered against loan losses.
- Recovery (Loans)Loan recovery is the money a bank gets back from a defaulted or written-off borrower, through settlement, asset sale, legal action or insolvency proceedings.
- SARFAESI ActThe SARFAESI Act lets banks and certain NBFCs enforce security and seize a defaulting borrower's pledged assets without going through the courts.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.