This is not confined to PSU banks, but even private banks, including the new private banks, are resorting to this method to project a strong balance sheet.

With the exception of Bank of India (BoI), nine major banks have showed improved performance and reduction in the level of bad debts in their account books. For instance, Dena bank has written off a whopping Rs 67 crore bad debts to bring down its mounting NPA level. As a result, the bank's net NPA came down from 9.38 per cent to 8.28 per cent during the year. However, in absolute terms, the net NPA has actually gone up from Rs 392 crore to Rs 439 crore. Last year the bank had written off another Rs 59 crore to reduce the NPA level.

Similarly, Central Bank of India has written off Rs 70 crore as against Rs 49 crore written offlast year to reduce the net NPA level. State Bank of India (SBI) has written off Rs 600 crore NPA during 1997-98 as against Rs 100 crore written off last year. Some private banks which incurred huge losses in CRB group and MS Shoes case have written off their losses. In the case of BoI, the steep hike in NPA affected the profit level as the provision for fresh bad loans alone required Rs 332.67 crore.

The write-off of bad loans is not a new phenomenon in the Indian banking industry. ``Internationally the best accounting policy is to write off bad loans so that the bank balance sheet is strong. In the US, banks don't carry their NPA for many years, but write it off after making full provisioning,'' said the chairman of a private sector bank, adding, ``Banks resort to write off because recovery is almost impossible in certain cases and banks will be carrying abnormal level of NPA if they don't write off a portion of it especially when the new additions are there.''

While bankers insist that there is nodirection either from the Reserve Bank of India (RBI) or the finance ministry to write off bad loans, the common method resorted by almost all the PSU banks indicate that there is a concerted move to reduce the NPA level of the banking sector. ``We have been able to reduce our NPA level by encouraging our defaulting creditors to come forward and settle the cases on the basis of one time settlement,'' added another senior banker.

However, in the case of write off (which is supposed to be the last resort for any wise banker), there are no proper guidelines from the RBI regulating the process. ``There are a few cases where the bank senior officials colluded with the creditors for signing compromise settlements and write off of bad loans. The RBI should have proper guidelines for banks while going for bad loan write off,'' said a high level source in the banking sector.

The poor performance of the corporate sector and the crisis in South-east Asian countries affected the bottomline of some banks. ``Bankswhich were hiding their bad debts last year could not do it this year due to stringent RBI guidelines about NPA accounting. Therefore they have published their real NPA level this year,'' sources said.

SBI, the largest bank, has been able to recover Rs 1,000 crore of bad loans during the year but the new addition to NPA stock due to poor performance of the corporate sector amounted to Rs 2000 crore. While it has written off Rs 600 crore, upgradation of substandard to standard asset was to the tune of Rs 750 crore. In the case of Central Bank also, the upgradation of substandard to standard asset was high.

Banks are now making increased exposure to the corporate sector in the form of investment in their shares, debentures, commercial papers and other debt instruments based on the rating assigned by various rating agencies. While the banks are showing this increased level of credit offtake, the level of default on this front is also high. Many of these instruments have been downgraded to default category byrating agencies. Banks are still showing these investments as strong investment portfolio. Fortunately, banks don't have to make provision for bad investments in such instruments. It is high time that the RBI came forward with prudential norms for the bank's investment in the corporate debt instruments too so that the problem haunting bankers in Asia is not repeated in the Indian banking sector.