Write-off versus Waive-off
So people are messing up things, as far as write-offs and waive-offs are considered. (Talk about bad timing though. Why did the banks have to do this in the midst of the demonetisation hullabaloo?)
I always knew that finance really might not be everyone's cup of tea. A bunch of people, pool money from people who have money, and then make more money out of it, by lending it to other people, who want to make more money, from money they don't have in the first place. Confusing? Yup, it is! Which is why finance is the one subject in MBA school, that you actually have to study for.
So to give you an analogy, let's say you are head over heels in love with a girl, and have invested a lot of time, money and effort on her. You have your expectations from this and are looking forward to happier times together. However, the girl has different plans and leaves you for greener pastures. (Sigh!!)
What you do next, is what we are going to concentrate on.
1) "Wa(i)ve it off" as something that was never meant to happen anyways and let the poor girl live her rest of her life in peace (in London, maybe!).
2) "Write" 'Sonam Gupta Bewafa hai' on 10 rupee notes and send it "off" in to the world. See, you are not getting the girl back again, but you are not letting go either.
That, in a nutshell, is what this write-off and waive-off conundrum is all about.
PS: I am not the guy behind the 'Sonam Gupta bewafa hai' notes
For a more serious version, please continue!
A waive-off is basically when the bank says "You have been a good boy / girl and we'll give you a tiny gift. It's ok if you can't repay us. You don't need to pay the remaining part of the loan anymore. It's on us." That's a waive-off. End of matter. No baggage.
A write-off is a bit more complicated. A bank makes money by lending out money to people or firms that need money. When such a loan is provided, it becomes an asset to the bank, since the bank will be earning interest income from it. However, for any reason, if the borrower stops paying the EMI / interest to the bank, it means that the loan is no more an asset, since the bank is not earning anything from it any more. Further, the original principal that was loaned out, itself needs to be recovered.
The bank waits for a fixed amount of time (generally 90 days) before labelling the loan as a non-performing asset (or NPA). The bank then starts attempts to recover the amount. (this is when the recovery agents (aka hafta vasooli guys) step in. EMI is also called hafta in Hindi) But of course, this is for the smaller customers, like me and you. The bigger ones fly off to exotic lands, never to be seen again.Now the bank has an asset on its books which isn't making money, and it makes sense to mark it's value as zero. Which is what the write-off is all about. Marking an asset's value as zero.
Of course, the bank has only marked it as zero, but will continue trying to recover the monies. But then they did already try to recover it, before writing it off. So chances of a recovery happening after write-off are slim to none. Plus, when you give loans worth crores, with brand value as collateral, what exactly are you hoping to recover. Have you ever got a home loan on the basis of your brand value? Nope, right? So how did these banks readily give crores on the bais of something as flimsy as brand value. Well, those are the questions that need to be asked, but sadly, nobody seems to be asking the banks!
In conclusion, a waive-off is when the bank decides it doesn't need the borrower's money, and a write-off is when the borrower decides the bank doesn't need his money. 😀
For more read this (article fromt he pre-demonetisation days) : http://www.business-standard.com/article/finance/5-things-you-need-to-know-about-bank-write-offs-116021200192_1.html
I always knew that finance really might not be everyone's cup of tea. A bunch of people, pool money from people who have money, and then make more money out of it, by lending it to other people, who want to make more money, from money they don't have in the first place. Confusing? Yup, it is! Which is why finance is the one subject in MBA school, that you actually have to study for.
So to give you an analogy, let's say you are head over heels in love with a girl, and have invested a lot of time, money and effort on her. You have your expectations from this and are looking forward to happier times together. However, the girl has different plans and leaves you for greener pastures. (Sigh!!)
What you do next, is what we are going to concentrate on.
1) "Wa(i)ve it off" as something that was never meant to happen anyways and let the poor girl live her rest of her life in peace (in London, maybe!).
2) "Write" 'Sonam Gupta Bewafa hai' on 10 rupee notes and send it "off" in to the world. See, you are not getting the girl back again, but you are not letting go either.
That, in a nutshell, is what this write-off and waive-off conundrum is all about.
PS: I am not the guy behind the 'Sonam Gupta bewafa hai' notes
For a more serious version, please continue!
A waive-off is basically when the bank says "You have been a good boy / girl and we'll give you a tiny gift. It's ok if you can't repay us. You don't need to pay the remaining part of the loan anymore. It's on us." That's a waive-off. End of matter. No baggage.
A write-off is a bit more complicated. A bank makes money by lending out money to people or firms that need money. When such a loan is provided, it becomes an asset to the bank, since the bank will be earning interest income from it. However, for any reason, if the borrower stops paying the EMI / interest to the bank, it means that the loan is no more an asset, since the bank is not earning anything from it any more. Further, the original principal that was loaned out, itself needs to be recovered.
The bank waits for a fixed amount of time (generally 90 days) before labelling the loan as a non-performing asset (or NPA). The bank then starts attempts to recover the amount. (this is when the recovery agents (aka hafta vasooli guys) step in. EMI is also called hafta in Hindi) But of course, this is for the smaller customers, like me and you. The bigger ones fly off to exotic lands, never to be seen again.Now the bank has an asset on its books which isn't making money, and it makes sense to mark it's value as zero. Which is what the write-off is all about. Marking an asset's value as zero.
Of course, the bank has only marked it as zero, but will continue trying to recover the monies. But then they did already try to recover it, before writing it off. So chances of a recovery happening after write-off are slim to none. Plus, when you give loans worth crores, with brand value as collateral, what exactly are you hoping to recover. Have you ever got a home loan on the basis of your brand value? Nope, right? So how did these banks readily give crores on the bais of something as flimsy as brand value. Well, those are the questions that need to be asked, but sadly, nobody seems to be asking the banks!
In conclusion, a waive-off is when the bank decides it doesn't need the borrower's money, and a write-off is when the borrower decides the bank doesn't need his money. 😀
For more read this (article fromt he pre-demonetisation days) : http://www.business-standard.com/article/finance/5-things-you-need-to-know-about-bank-write-offs-116021200192_1.html
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