On April 5, Randeep Singh Surjewala of the Congress, claimed in a tweet that the government has granted a Rs 2.4 lakh crore “loan waiver” for “crony capitalists”:
Mr Surjewala, it appears, has made a categorical mistake. What’s involved here are loan write-offs and not loan waivers. The two are not the same.
Mr Surjewala’s categorical mistake was repeated by his party, the Congress:
However, while Mr Surjewala and his party’s error was categorical, his party colleagues too posted tweets which appear to betray their ignorance about the difference between a loan waiver and a loan write-off. For instance, below is Congress’s national spokesperson Manish Tewari’s tweet posted on April 4:
Shortly before the tweet from the Congress party, journalist Nidhi Razdan tweeted a promo of her programme the same night on the same topic:
Although Ms Razdan, too, talks of loan write-offs, the allusion appears to be to waivers since the taxpayer angle has been brought in. The question of taxpayer money would come in if waivers were involved, meaning a loss. However, in a write-off, there is a recovery mechanism which comes into play.
The fundamental flaw (let’s call it that for now) in the logic of the above line of argument is the confusion of loan write-offs with loan waivers. The two are not one and the same thing. Before we explain further, let’s look at the MoS Finance’s answer to the Rajya Sabha question in full:
The highlighted part of the reply offers the answer and explanation: Not only is writing-off of non-performing assets a regular exercise conducted by banks to smoothen processes and achieve efficiency but it is not a waiving of the borrowers’ liabilities. As the reply says: “Borrowers of such written off loans continue to be liable for repayment.” The reply further elaborates that “Recovery of dues takes place on ongoing basis under legal mechanisms… Therefore, write-off does not benefit borrowers.”
So, that is the basic difference between a waiver and a write-off that seems to have been overlooked or not understood by Mr Tewari — and certainly by Mr Surjewala. A write-off is not a waiver. A debt write-off or write-down is not debt forgiveness. It only means that the bank does not treat the loan as a normal asset any more. It is a procedural tool to clean up the balance sheet and increase operational efficiency. The debtor is still pursued and the bank has the recovery mechanism at its disposal.
How is this done? At the end of the process, if the money cannot be recovered, the debtors’ assets too can be auctioned/ sold off. If we look for examples, there are Essar Steel, Bhushan Steel, etc. These are companies which have gone to the National Company Law Tribunal (NCLT) whereby the auctioning of their assets has been going on, with periodic hearings and so on. Screenshots of a few news reports on loan write-offs and auctioning of assets of the companies mentioned above are presented below to serve as examples:
Therefore, to go by Mr Tewari’s logic, if farm loans were to be “written-off”, farmers’ would see their farmlands auctioned off like the assets of these defaulters!
Also, the Debts Recovery Tribunals (DRTs) exist for quick adjudication and debt recovery for banks. Besides, the government has enacted the Insolvency and Bankruptcy Code (IBC) which has been smoothening the process further. The IBC means banks are able to foreclose on insolvent firms. The Code set up the Insolvency and Bankruptcy Board of India (IBBI) as the regulator on October 1, 2017. The NCLT was, of course, already in place. Empowered by the regulator and the law, banks are recouping bad loans rather than simply extending them as in the past.
Late last year, a controversy had been created about SBI’s loan write-offs by calling the same a “loan waiver”. The Union Finance Minister himself had stepped in to clear the air and dispel the confusion created by the misinformation:
Below we present two instances of loan write-offs in last months of the previous administration:
Thus, not only were write-offs of loans happening in the days when the government run by Mr Tewari’s own party was in office but we also see evidence of how the process functioned (or malfunctioned) back then.
Loan write-offs, therefore, have always been a regular exercise, as the Rajya Sabha reply too stated. Moreover, with the legal changes and action brought in by the present administration, the situation today appears to be quite different on that count too.
In conclusion, therefore, those criticising the government on the matter of loan write-offs by banks do not appear to know the difference between a write-off and a waiver. In a write-off, the borrower/ defaulter is still pursued, with the recovery mechanism kicking in. We may then also question the intent of those – this includes Mr Manish Tewari, Mr Surjewala and the Congress — spreading what appears to be clearly a false narrative on the matter.