PSU banks write-offs to multi-year lows in FY26

Loan write-offs by public sector banks declined to multi-year lows in the fiscal year 2025-26 on the back of lower slippages and better recoveries.

As per an analysis of bank earnings by PTI, most banks, including Bank of Baroda, Union Bank of India, Punjab National Bank, Central Bank of India, Indian Overseas Bank, and Indian Bank had write-offs which were the lowest in up to eight years.

Bank of Baroda reported Rs 6,330 crore write-offs in FY26, lowest since FY18, Bank of India reported Rs 5,735 crore write-off lowest since FY16, and Indian Bank reported Rs 6,695 crore write-off lowest since FY19. While Indian Overseas Bank’s write-off stood at Rs 1,189 crore in FY26, which was also a multi-year low, the data compiled from banks’ investor presentations showed.

Central Bank of India reported a regular and technical write-off of Rs 1,718 crore in FY26, lowest since FY22.

Banks typically write off loans when there is little chance of recovery through usual channels, and need to make 100 per cent provisions on such debt.

Loan write-offs help banks clean up their balance sheets and show lower non-performing assets (NPA) on their books. However, lenders insist that recovery efforts continue even after a write-off, which leads to a write-back of the provisions made earlier and bolsters profits.

Sachin Sachdeva, vice president, sector head — financial sector ratings at ICRA said write-offs in the PSBs have been declining over the past few years and the same can be attributed primarily to lower incremental slippages and healthy recoveries.

“Fresh non-performing advances (NPA) formation has declined steadily, and the existing pool of legacy stressed assets continues to shrink. Besides, PSBs have also strengthened their provision coverage ratios (PCR)

significantly, thereby reducing the need for write-offs. Recoveries have also improved and the banks are looking at more resolution led asset quality management over balance sheet clean-up through write-offs,” Sachdeva added. 

Meanwhile, asset quality of public sector banks improved significantly during the financial year 2025-26, with gross NPA ratio declining to 1.93 per cent and net NPA ratio to 0.39 per cent as on March 31, 2026, reflecting historically low levels of stressed assets, according to the Ministry of Finance release published on Tuesday. 

Further, each state-owned lender maintained provisioning coverage ratio of above 90 per cent, indicating prudent provisioning practices, improved underwriting standards, effective risk management mechanisms and strengthened balance sheet resilience, release added.

Fresh slippages continued to decline during the financial year 2025-26, with slippage ratio reducing to 0.7 per cent. Total recoveries, including recoveries from written-off accounts, stood at Rs 86,971 crore, reflecting improved recovery mechanisms and better credit discipline across PSBs, the Ministry of Finance said.

Improved asset quality, healthy credit expansion and higher income contributed to improved profitability of PSBs during FY 2025-26.

Aggregate operating profit reached Rs 3.21 lakh crore, while aggregate net profit increased by 11.1 per cent year-on-year to a historic high of Rs 1.98 lakh crore, marking the fourth consecutive year of aggregate profitability for state-owned banks.

Going ahead, Sachdeva said that the prevailing macro environment poses risk of higher slippages in certain segments, but the overall asset quality indicators are not expected to deteriorate materially.

The aggregate business of PSBs increased to Rs 283.3 lakh crore as on March 31, 2026, registering growth of 12.8 per cent compared to previous year.