03/09/2021
Difference Between Write-off And Waive-off
Let us start with an example; your colleague borrows Rs100,000 from you, when shifting to another city, promising you to return the money in a week. You wait for a month, tries to contact him, but there is no reply. Now you have no other way of getting your money back unless he comes back to your city, but that's a long way and near to impossible.
Here you write -OFF the Loan of Rs 100000. But in your mind, you still hope to get your money back once he returns.
Now, after a month, He returns and explains his financial problems and begs you for help. In that case, if you realize the condition of your friend that the repayment of the loan is beyond his control and forgives him for repaying the money, here you deliberately cancel the debt receivable from your friend. This is a waiving -off the loan.
Loan write-off and loan waive -off are two contradictory concepts of dealing with bad loans. Recently, these two terms came into the picture when the Reserve Bank of India claimed that till September 2019, the government has written off the loans worth Rs 6.66 lakh crore. This leads to a nasty argument between the political parties for waiving the huge amount taken by the top defaulters including Nirav Modi and Vijay Mallya amid the COVID-19 crisis. Later it was clarified that banks have written off the faulty loans and are not waiving -off that amount.
Many people use these terms simultaneously because they seem to be similar. But, there is an influential point that differentiates both.
So let us discuss both the terms separately to understand the differences.
What is a Write-Off Loan?
It is a routine practice of banks to clean the balance sheet and achieve tax efficiency. Though banks write-off the unpaid amount, the person remains liable for repayment. There are many situations when the banks write-off the loans and recover the amount after a long delay. Recovery of such accounts, however, happens legally.
Many Indian industrialists have left the country with a tremendous loan amount and not repaying it. In such a case, banks try several ways to collect the loan amount, such as sending a legal notice, calling his family members. If still, banks do not get the amount back, expect to retrieve the amount when a defaulter gets back to their country again.
What is a Waive off Loan?
Sometimes people unable to repay their loan amount taken for a particular time due to financial difficulties. It generally happens when farmers take a loan for the cultivation but suffer losses due to bad weather conditions. Hence, unable to repay the loan. In such a situation, the Government may waive off the loans. The government takes such action after a proper inquiry to avoid any fraud.
Not just farmers, other people can also beg for a loan waiver if they have a logical reason for it. The government examines the situation and decides to waive off the loan under certain terms and conditions.
Hence, the major difference between both terms is that loan waive-off is the concept of releasing a loan-taker from the burden of returning the loan amount. In loan write-off, the officials try to get the loan amount back forcefully or legally.
The government decides the settlement of waive-off while banks and financial institutions execute the loan write-off.
