India’s banking system raises an uncomfortable question. A small borrower who misses a few instalments can face notices, penalties and even recovery action. But when large corporate borrowers default on thousands of crores, the process often appears far more complicated and forgiving. The issue cannot be reduced to political allegations or official explanations. Bank write-offs, insolvency settlements, haircuts and corporate tax concessions must be examined together to understand who ultimately bears the cost.

First, an important distinction is necessary. A loan write-off is not the same as a loan waiver. When a bank writes off a bad loan, it removes the loan from its active balance sheet after making provisions for the expected loss. The borrower’s legal liability does not automatically disappear, and recovery efforts can continue. Yet the sheer scale of write-offs raises serious questions about lending practices, risk assessment and accountability.

Large corporate defaults do not happen in isolation. Banks approve huge loans after assessing the borrower’s financial strength and business prospects. When such loans turn bad, there must be accountability not only for the borrower but also for the institutions that sanctioned and monitored them. A clean balance sheet is important, but cleaning up bad loans cannot become a substitute for asking why those loans became bad in the first place.

The Insolvency and Bankruptcy Code (IBC), introduced in 2016, was intended to provide a faster mechanism for resolving stressed corporate assets. It has certainly improved the institutional framework for dealing with bad debt. But the recovery numbers also deserve scrutiny. By September 2025, claims involving about ?12 lakh crore had been resolved under the IBC, while creditors recovered roughly ?4 lakh crore.

Such recoveries are better than allowing bad loans to remain unresolved for years. But the gap between the claims and the amount recovered cannot be ignored. This is where the controversial issue of haircuts arises. A haircut may be economically justified when an insolvent company’s assets have genuinely lost value. Delayed proceedings, legal disputes and declining business prospects can also reduce recoverable value. Therefore, every haircut cannot be described as a favour to a corporate group. But repeated and very large haircuts naturally raise the question: who finally absorbs the loss?

The debate also extends beyond bank loans to corporate taxation. In 2019, the corporate tax rate was reduced to 22 per cent for eligible domestic companies, while new manufacturing companies were offered a 15 per cent rate. The stated objective was to encourage investment, production and employment. Such incentives may have a legitimate economic rationale. But they must be judged by outcomes, not intentions. Did lower taxes generate sufficient new investment and jobs? Or did a significant part of the additional cash simply strengthen balance sheets, repay debt or accumulate financial assets?

Manufacturing data provide reason for caution. Its share in Gross Value Added was about 17.1 per cent in 2015-16, but stood at around 13.9 per cent in 2024-25. This does not prove that tax concessions failed. However, it does challenge the simplistic assumption that lower corporate taxes automatically translate into higher manufacturing investment and employment.

Government incentives such as Production Linked Incentives and support for strategic sectors such as semiconductors are not the same as loan waivers. They can be legitimate instruments of industrial policy. But public money must come with measurable public returns: investment, employment, exports, technology and domestic value addition.

The debate, therefore, should avoid two extremes. It is simplistic to claim that every corporate incentive is a favour to big business. It is equally simplistic to assume that every concession automatically serves the public interest.

India needs large businesses, investment and industrial growth. But size cannot mean exemption from responsibility. Banks must recover what can be recovered, promoters must be held accountable where wrongdoing is established, and insolvency processes must remain transparent.

The real question is not merely how much banks have written off. It is who received the loans, why they failed, how much was recovered, who bore the loss, and whether the system learned from the failure.

If profits remain private while losses are ultimately socialised, the cost will eventually reach ordinary citizens through taxes, public expenditure and the wider financial system. That is why banking reform must be measured not merely by cleaner balance sheets, but by greater accountability and fairness.