The demonetisation scheme is in full swing. Numerous attempts to stall it have failed, with even the Supreme Court refusing to step in. What does the media do now? Bring up some irrelevant fact, twist it, and present it in context of the current scheme to incite passions. This is much like what Arvind Kejriwal did when he claimed the increase in deposits in September 2016 was related to demonetisation. It started with this story in DNA, titled: “SBI writes off loans of 63 wilful defaulters”. While the headline is not totally off the mark, the report is completely off track (emphasis added):
India’s largest public sector bank has dropped more than Rs 7,000 crore, more than 80 per cent of the amount owed to it by its top 100 defaulters, into the Advance Under Collection Account (AUCA) bin for toxic loans. With efforts to recover its dues hitting a virtual dead-end, the State Bank of India (SBI) seems to be have started a clean-up of its balance sheets by writing off loans worth about Rs 7,016 crore owed to it by more than 60 of its top 100 wilful defaulters.
Towards the report did mention the real nature of AUCA accounts and write offs, but no-one seemed to have noticed that. And based on the headline and the initial misleading part, the outrage industry started, led by journalists:
Deputy Resident editor of The Hindu, quoted a tweet by Senior Asst editor of The Hindu, which first conflated “write-off” with “waiver”
मित्रों आपलोग लाइन में खड़े रहकर देश भक्ति कीजिये,मुझे माल्या का लोन माफ़ करने दीजिये,मोदी जी ने 7000cr माफ़ किया। https://t.co/WeiABoO4Xp
— Sanjay Singh AAP (@SanjayAzadSln) November 16, 2016
— Suhasini Haidar (@suhasinih) November 16, 2016
— Saikat Datta (@saikatd) November 16, 2016
DNA Exclusive: SBI writes off loans of 63 wilful defaulters https://t.co/hS7o7OYFGH
— Shivam Vij (@DilliDurAst) November 16, 2016
— Swati Chaturvedi (@bainjal) November 16, 2016
SBI Bank- Such a nice, friendly and cooperative bank- for their wilful defaulters I meant. Rest of us? queue up! pic.twitter.com/RvUGiq2eiO
— Priyanka Chaturvedi (@priyankac19) November 16, 2016
So has SBI really waived off these loans? Not really. For this we need to understand what write-offs are. A balance sheet should reflect the real situation, not imaginary assets like the balance sheet created by Ramalinga Raju. And that’s why Banks have to write off loans. If they don’t write off loans, it is like claiming to hold an asset (loans given by banks, are assets of the bank) where none exists. Will you trust an entity that doesn’t give the true picture of its assets?
Hence write-offs are a purely technical, accounting entry. Write-offs give a true picture of the bank’s assets (loans given) and the income there on (interest). Accounts where prospects of recovery is bleak, are technically written off from the live ledgers and parked in AUCA in accordance with laid down instructions. Most write offs, irrespective of outstanding, should be treated as technical write offs and parked in AUCA and recovery process of these accounts will continue till resolution of these accounts (pdf link).
Even when accounts are written off, various recovery procedures like recovery suits filed before the DRT/ Court. and action initiated under SARFAESI Act continue. Accounts held in AUCA may be taken up for dropping only after exhausting all avenues of recovery, hence merely transferring an account to AUCA is not a “waiver of the loan”.
So a write off mean the loan has been waived? Definitely not. Unless of course you are a media person with low IQ or a politician with an agenda, or a politician with low IQ or a journalist with an agenda.
Update: It was brought to our notice that a similar case of media misreporting had occurred in February 2016 also, and back then, the RBI had issued a clarification stating exactly what we have explained above:
RBI’s old clarification, which failed to educate our journalists