Write – off doubtful assets in financial institutions - with special referance to select banking sectors

Abstract

The economic history of many countries reveals that financial sustainability provides not only economic development but also develops financial infrastructure, always both should go hand in hand” Now a days, financial institutions are playing vital role in the development of economy particularly banking sectors includes Commercial banks and Investment banks, leasing companies,microfinance institutions. All these forms of financial institutions are united for providing intermediate financial flow by accepting deposits from the individual depositors or wide range of Business Operations provided these financial flows to the individuals and corporate borrowers, mainly in the form of business and commercial lending in the form of short term and long-term basis and charge interest. Because of customers or clients just don’t pay what they owe, recession (trade and industrial activities are reduced) lower exports and restriction in cash withdrawals create high percentage of Non-Performing Assets (NPA). Particularly it creates Doubtful assets and loss assets. Usually banking sectors use the allowance method for purpose other than income tax and direct method to write off these assets. The finance minister informed the Lok Sabha that Schedule Commercial Banks have been written off loans worth Rs. 5.85-lakh crore. Due to large scale disruption caused by COVID- 19, bad loans in the banks are likely to increase by 200 to 300 bps by March 2021 this certainly call for special dispensation to deal with bad loans and to maintain financial health of banks. Towards this end Indian Bankers Association has again mooted a off balance sheet solution. This paper study the impact of these issues.