Retail topped the loan write-off charts for the first time as banks continued to see significant surge in this segment since the last few years.

In a total loan write-off sized at Rs 1.72 lakh crore by Indian banks in 2024-25, the retail category accounted for Rs 45,404 crore. This was more than that of industries, agriculture, services and micro, small and medium enterprises (MSMEs), indicating a drift away from the previous cycle of bad loans which was dominated by large corporate defaults.

Retail loans are a rising category with corporate demand for credit being muted for the last few years. This segment is moving through a period of stress and the fear is that the next cycle of bad loans could be in retail loans.

According to data provided by the Ministry of Finance to Parliament on Monday, loan write-offs by industries stood below retail at Rs 37,716 crore while the services sector was at Rs 38,438 crore. 

MSME loans written off by public, private, foreign and small finance banks stood at Rs 28,587 crore in the last financial year while for agriculture and allied activities it was at Rs 21,882 crore. 

For the last 11 financial years, Indian banks have written off loans worth Rs 19.05 lakh crore.

The loan write-offs from bad loans by Indian banks are seeing a declining trend, falling from a peak of Rs 2.34 lakh crore in 2019-20. While for the next two financial years there was a decline, it rose again in 2022-23 before taking a dip during the next year. For 2020-21 and 2021-22, the write-offs were at Rs 2.04 lakh crore and Rs 1.75 lakh crore. This increased to Rs 2.16 lakh crore in 2022-23 and then fell to Rs 1.70 lakh crore in 2023-24.

The share of retail loan write-offs peaked to 26.4% in FY24-25 coinciding with rise in consumer credit, after steadily climbing from 6.8% in FY14-15 to 9.5% in the coronavirus pandemic year of 2020-21. The share of retail in written-off loans rose to 16.4% in 2021-22 and then declined to 12% in 2022-23. It climbed again to 20.2% in 2023-24. 

While write-offs in large industries and services peaked at Rs 1.59 lakh crore in FY19-20, the retail segment rose successively in FY24 and FY25 to Rs 36,591 crore and Rs 45,404 crore, respectively, after falling to Rs 28,467 crore in FY23 from Rs 29,475 crore in FY22. In the prior years, retail loan write-offs grew from Rs 8,283 crore in FY18 to Rs 13,188 crore in FY19, Rs 13,607 crore in FY20 and Rs 18,936 crore in FY21.

Banks have put their focus on recovery from written off accounts, which has risen to 19.1% in 2021-22 to 34.8% in 2024-25.

"Banks write off NPAs, including those in respect of which full provisioning has been made on completion of four years, as per RBI guidelines and policy approved by banks' boards. Such a write-off does not result in waiver of liabilities of borrowers, and therefore, it does not benefit the borrower," Minister of State for Finance Pankaj Chaudhary said on Monday.

In a written reply to a question in the Lok Sabha, Minister of State for Finance Pankaj Chaudhary said that write-offs by banks do not mean these loans have been waived. “The borrowers continue to be liable for repayment and banks continue to pursue recovery actions initiated in these accounts. Further, recovery in written-off loans is an ongoing process and banks continue pursuing their recovery actions initiated against borrowers under various recovery mechanisms available to them,” he noted

The borrowers continue to be liable for repayment, and banks continue to pursue recovery actions initiated in these accounts, he added.