Nudged by finance ministry, PSBs to develop new framework for NPA recovery; special teams to focus on high-value loans

The plan being pushed by the finance ministry also involves possibly writing down or liquidating cases where the default amount is low but recovery is difficult, and where the transaction cost of pursuing the case and making a recovery is more than value of bad loan, the first person quoted above said.

These banks have also been asked to restructure their legal teams if they have failed to secure resolutions from courts and tribunals for cases being pursued under Insolvency and Bankruptcy Code (IBC) at the National Company Law Tribunal (NCLT).

In addition, each bank has again been asked to identify afresh their top 10 stressed assets and begin the process of resolution of these accounts directly under the supervision of a high-level bank official in the rank of managing director and chief executive officer, the second person quoted above said.

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Queries sent to the ministry of finance remained unanswered till press time.

The fresh move comes in the backdrop of net non-performing assets (NPAs) of PSBs declining to a multi-year low of 0.52% and net profits rising to ₹1.78 trillion during financial year ending 31 March.

While banks have seen big improvements in NPAs, the government wants them to remain alert and not lose focus on the drive to chase bad loans. A fifth of PSBs loan exposure is in sensitive sectors such as capital markets and real estate.

“There is approximately 30% of total outstanding in higher-than- ₹100 crore accounts while the number is significantly low when it comes to count of accounts. By categorizing stressed assets into homogeneous groups, banks can develop standardized processes for resolution and liquidation. This also enables the formation of specialized teams with specific expertise tailored to each category and helps in better forecasting and planning. Also, the appointment of resolution managers with expertise in NPA workout can facilitate effective resolution strategies, potentially leading to faster recovery,” said Gayathri Parthasarathy, leader, financial services, PwC India.

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“While there are no published figures on the share of high-value stressed assets (above ₹250 crore), such a share could be anywhere in the range of a third to a half, which justifies the need for specialized teams or verticals. This also means that lower-value stressed assets could constitute at least half of the total, where faster resolution through means such as one-time settlements, standardized mechanisms, or writeoffs would be financially beneficial. Hence, segregating stressed assets by value should conceptually improve operational focus, speed of decision-making, efficiency of resource allocation and effectiveness of monitoring,” said Vijay Mani, banking and capital markets leader, Deloitte India.

“Practically, however, lenders will also have to ensure that lower-value delinquencies do not become business-as-usual or accepted as a norm due to any level of unintended neglect in governance and risk management,” he said.

According to a CareEdge report, the overall gross NPAs of the banking sector fell by 11.3% year-on-year, to ₹4.16 trillion as of March, compared with ₹4.68 trillion in the previous year. PSBs significantly led this recovery, with their gross NPAs declining 17% on-year to ₹2.94 trillion. The gross NPAs of PSBs stood at ₹3.39 trillion in FY24, although fresh slippages rose slightly by 7.8% during the year.

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