PSBs to step up one-time settlement in written-off loans to meet 40% recovery target set by FinMin, RBI
Public sector banks (PSBs) are expected to ramp up one-off settlement (OTS) on written-off loans as MoF and RBI stressed the importance of improving recovery from such accounts.
Since legal action can be taken, state-owned lenders are seen actively seeking OTS to meet the Ministry of Finance’s goal of recovering about 40 percent of written-off loan accounts.
PSBs can recover only 14 per cent (or ₹1.03-lakh crores) of the write-offs which collected ₹7.34-lakh crores in the last five years ending in March 2022.
legal channels
Banks can initiate statutory recovery actions against delinquent borrowers via four channels – National Corporations Law Court, Debt Recovery Tribunal, SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002, and Lok Adalats.
“To reach the 40 per cent recovery target we will have to do more open transfer services. There is no other way. The legal channel will take its own time.
“Many banks have put in place separate policies, including OTS, for written-off accounts. This should improve the recovery situation in these accounts,” said a senior public sector bank official.
Because write-off loans are generally devoid of collateralized assets, ARCs may not be interested in purchasing these loans. Even if ARCs want to buy, the redemption rate may be so low that banks may not be interested.
In May 2023, the Ministry of Finance asked state-owned lenders to increase recovery from written-off accounts to about 40 percent.
Recently, Reserve Bank of India Governor Shaktikanta Das impressed bank chiefs with the need to improve recovery from written-off accounts.
Banks can remove non-performing loans, including those for which a full provision has been made, at the completion of four years from their balance sheet by writing off to improve the key metric related to asset quality – total defaulted. asset ratio.