Opinion

Did Arvind Kejriwal Really Clear IRS Exams???

Why we are asking this question is because even a common man in street knows difference between WRITE-OFF and LOAN WAIVER, but as per Arvind Kejriwal’s own statement both are same.

Arvind Kejriwal how u got admission to IIT(K) under corporate quota is already exposed now your claim that Write-off means waiver of loan repayment makes one wonder how you became IRS officer.

In banking and finance, the term “write-off” is just an accounting term. This is needed to cleanse the balance sheet of the bank. Cleaning of the balance sheet means bad assets are replaced. There is no meaning that the borrower is pardoned or got exempted from payment.

His debt will remain and recovery measures against him will continue. But on the balance sheet of the bank, a bad asset should remain bad forever. It should do some corrective action. In India, the major corrective action is provisioning. Once the borrower repays the money, it will be replaced back into profit. Write-off thus does not mean that recovery comes to a stop.

According to the RBI, ‘writing off’ of NPAs is a regular exercise conducted by banks to clean up their balance sheets. Banks write-off advances at Head Office level as part of the balance sheet cleaning exercise and these loans continue to remain outstanding in the branch books. In India, loan write-off as a technical is done within the framework of Income Tax Act, 1961. Similarly, there is the RBI Guidelines regarding provisions for bad loans as per Standard Accounting Practices.

WHAT EXACTLY IS A WRITE-OFF?

Let us assume you have taken a loan of Rs 100,000 from a bank but are unable to repay. From the bank’s point of view, the loan is an ‘asset’ and the interest that would have accrued from you would have been ‘income’. In the bank’s balance sheet the loan amount will be shown as an asset so long as your account is considered normal.

But if you stop repaying the monthly installments, the bank will generate lower revenue due to lack of interest payments. But the loan amount remains as an ‘asset’ in its books since the bank still hopes that you will pay back the money. But beyond a point, as per RBI norms, if there is no income – in this case, interest – coming from an asset, the bank will have to eliminate it from its balance sheet.

This process of declassifying the loan as an ‘asset’ in the books is what is termed as write-off.

WHAT HAPPENS TO THE ‘ASSET’?

But this write-off does not mean that the bank will not try to recover money from you. They might either try to continue to recover the money themselves or sell your loan to a recovery company. Your debt has been written off from a creditor’s book but not from its memory. You continue to owe them money.

HOW DOES IT HELP THE BANK TO REGISTER A LOSS?

One, it gives a true and fair picture of the ‘assets’ that are making money. After all, there is no point in having a huge asset base that doesn’t give any returns. And two, by writing off the loan the bank gets a tax break on the losses incurred.


Anil Matoo

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