The State Bank of India (SBI), has decided to write off loans worth almost 7016 Crore Rupees, owed to it by 63 willful defaulters including Vijay Mallya’s Kingfisher Airlines.
The move is a part of a cleanup process of the bank’s balance sheets. While the loans of the 63 willful defaulters have been written off completely, 31 have been partially written off and remaining 6 of the bank’s top 100 defaulter’s list have been shown as non-performing assets (NPAs).
In other words, SBI has categorized these loans as toxic and put them into Advance Under Collection Account (AUCA).
The Top Five Defaulters
• Vijay Mallya’s Kingfisher Airlines tops the list with dues amounting to almost 1201 Crore Rupees. A court in Mumbai has issued a non-bailable warrant against Mallya in connection with money laundering.
• KS Oil, edible oil maker is the second in the list with dues amounting to 596 Crore Rupees. The company had invested a large amount of money on plantations in Indonesia and Malaysia, which failed to deliver the expected returns. It was declared NPA from 30 September 2013.
• The third top defaulter, Surya Pharmaceuticals, was added to the list of willful defaulters in 2013. The company allegedly committed fraud and misused its funds. An audit by Ernst & Young declared its account as a fraud one.
• Get Power is the fourth defaulter with debts of around 400 Crore Rupees. Mismanagement and delayed projects got the company into the list. It was declared as a willful defaulter on 23 August 2016.
• Sai Info, the fifth defaulter has debts amounting to 375 Crore Rupees. Sunit Kakkad, the main promoter of the company ran away in June 2013. He was arrested and brought back to India and is out on bail now. The company was declared as a willful defaulter on 26 August 2016.
• The exercise is adopted by banks to clear off all the bad debts showing on their balance sheets.
• It is a strategy employed to reduce the number of their non-performing assets.
• It is applied after the Bank exhausts all its methods of recovering the loan amount.
• By writing off these debts, banks are able to reduce its earnings and thus reduce its taxable income and overall tax liability.
• However, writing off a debt does not take away bank’s right to follow up on it. It cannot be considered as a waiver, as the bank will still chase the defaulters. In many cases, bad debt accounts are handed over to a collection agency. The agency then gets in touch with the defaulter.
The move of writing off these willful defaulters came right after PM’s announcement of demonetization of 500 and 1000 rupee notes.