PSBs stepping up recovery of bad loans to meet FinMin's 40% target: Report

Indian public sector banks (PSBs) are expected to step up their one-time settlement (OTS) in written-off loans to meet the finance ministry-set target of recovering up to 40 per cent of the loan amount, The Hindu Businessline (HBL) reported.

This comes after the Reserve Bank of India (RBI) emphasised the importance of improving recovery from these accounts.

Notably, HBL reported that in the five years that ended on March 31, 2022, the PSBs were able to recover only 14 per cent, Rs 1.03 trillion, out of the total written-off loans of Rs 7.34 trillion.

"Many banks have framed separate policies, including OTS, for written-off accounts. So, that will improve the recovery position in these accounts," a senior PSB official was quoted in the report as saying.

Also Read: Private banks more aggressive in writing off bad loans than public banks

In May this year, the finance ministry asked the banks to increase the recovery of these loan accounts to 40 per cent.

Moreover, recently RBI governor Shaktikanta Das had also asked bank chiefs to improve their recovery of bad loans.

What legal procedures can banks use?

Banks can remove bad loans, including those with full provisioning has been made, on completion of four years from their balance sheet using write-offs. This improves the gross non-performing assets ratio.

Banks can initiate legal recovery proceedings against defaulting borrowers via four channels – the National Company Law Tribunal, the Debt Recovery Tribunal, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, and Lok Adalats.