Indian banks have written off nearly ₹9.95 lakh crore* in loans extended to large industries and services over the past 12 financial years, according to data presented in Parliament this month. When banks write off loans, the headlines can suggest that the money has disappeared or that borrowers have been let off the hook. In banking terms, neither conclusion is necessarily correct.
The key distinction is this: a loan write-off is generally an accounting action, while a loan waiver is a legal or policy decision to forgive a borrower’s liability.
What is a technical write-off?
The Reserve Bank of India describes it as a process in which the non-performing asset is derecognised by the lender for accounting purposes, without waiving the lender’s claim against the borrower. The borrower’s legal obligation to repay therefore remains intact.
Banks may take this step when an account has been fully or substantially provided for, recovery appears difficult, or maintaining the exposure on the active balance sheet is no longer considered useful.
In simple terms, the bank is cleaning up its books and not erasing the debt.
Write-off versus waiver
A technical write-off involves accounting and balance-sheet treatment, while a loan waiver involves forgiveness of the borrower’s liability. In a technical write-off, the borrower’s legal obligation continues, whereas it is usually extinguished to the extent waived in the case of a loan waiver.
Recovery action can continue after a technical write-off, while it generally ends for the waived amount in the case of a loan waiver. A technical write-off means the loan is removed or reduced on the active balance sheet, whereas in a waiver, the bank accepts that the amount will not be recovered from the borrower.
The regulatory purpose of a technical write-off is to improve the accuracy of reported asset quality and reflect provisioning. A loan waiver, on the other hand, is intended to provide relief under a government, lender or policy decision.
Recovery does not stop
The Ministry of Finance has reiterated that borrowers remain liable even after loans are written off, and that banks continue recovery action through the available legal mechanisms.
This is important because recovery may take years. A loan may be written off in the bank’s financial statements while litigation, insolvency proceedings, asset sales or settlement negotiations continue separately. Banks can continue using various mechanisms such as Debt Recovery Tribunals, Civil courts, Sale or seizure of secured assets, etc.
Any amount recovered later can still benefit the bank. It is not correct to assume that a written-off account has become irrelevant or legally closed.
Why do banks write off loans?
There are four broad reasons. To present a cleaner balance sheet, keeping old, unrecoverable or fully provisioned accounts on the active balance sheet can obscure the quality of a bank’s current loan book. Removing them gives a more accurate picture of the performing assets that remain.
To align accounting records with economic reality, if a loan has been distressed for several years and recovery is uncertain, carrying it at its original value may overstate the value of the bank’s assets. A write-off reflects a more cautious assessment.
To avoid tying up management resources, some accounts require prolonged litigation and enforcement efforts with uncertain returns. The bank can write down the accounting value while continuing recovery through specialised teams, legal channels or asset-recovery agencies.
To comply with regulatory and board-approved policies, the Ministry of Finance has stated that banks write off NPAs, including accounts for which full provisioning has been made after four years, in accordance with RBI guidelines and policies approved by their boards.
The analysis needs more context
For example, public-sector banks reported aggregate write-offs of ₹12,08,828 crore between FY2015-16 and FY2024-25, according to a July 2025 parliamentary reply.
The Reserve Bank of India’s Financial Stability Report showed private banks wrote off 49.7% of their gross non-performing assets (NPAs), compared with 24.3% for public sector banks.
This gap suggests private lenders clean up bad loans faster and more aggressively than public sector banks, which tend to carry stressed accounts on their books for longer. Across the banking sector as a whole, lenders wrote off 33.2% of bad loans worth at least ₹1.28 lakh crore during the year.
The recovery side of the ledger tells a similar story of “written off, not written away.” PSBs wrote off ₹3,57,185 crore in NPAs between FY21-22 and FY25-26 (provisional), recovering ₹1,64,710 crore from written-off accounts over the same period — roughly a 46% cumulative recovery rate. That recovery rate reinforces the point made earlier: a write-off moves a loan off the active balance sheet, but the bank’s claim on the borrower, and its efforts to collect, continue well after the accounting entry is made.
The time period also matters. A cumulative number spread over 10 or 12 years should not be compared directly with a single year’s banking losses or annual credit growth.
Transparency is not the same as leniency
Disclosure of write-offs allows the public, regulators, investors and Parliament to examine how banks have managed stressed assets. Reporting the number openly is preferable to concealing bad loans or delaying recognition of losses.
The fact that a write-off is regulator-sanctioned does not mean every lending decision was prudent or that recoveries have been satisfactory. It means only that the accounting treatment is recognised within the banking framework.
A loan write-off cleans up a bank’s balance sheet; it does not automatically clean up the borrower’s liability.
Also Read: Bank of Baroda Launches UPI Global QR Payments for International Visitors in India
Bottom line: Loan write-offs are a standard tool for recognising stressed assets and presenting a more realistic balance sheet. They are not, by themselves, evidence that borrowers have received a waiver or that banks have stopped pursuing recovery. At the same time, low recovery rates can still raise serious questions about credit appraisal, enforcement efficiency and accountability.
(Source: Financial Stability Report 2026)
