Finance Ministry Urges Public Sector Banks To Increase Recovery Rate From Written-off Accounts To 40%

The Finance Ministry of India has recently urged Public Sector Banks (PSBs) to enhance their recovery rate from written-off accounts to 40%. This move is part of the government's efforts to improve the financial health of the banking sector and to reduce the burden of Non-Performing Assets (NPAs).

The recovery rate of written-off accounts at present is less than 15%, with public sector banks recovering only 14% of loans worth Rs 7.34 lakh crore in the five years leading up to March 2022, PTI reported

State-owned lenders have recovered only Rs 1.03 lakh crore of the total written-off loans, leaving the net written-off amount at Rs 6.31 lakh crore by the end of March 2022. The sources suggest that banks may become complacent about recovering non-performing assets after the write-off, but this level of recovery is deemed unacceptable.

Additionally, the banks stated that a higher recovery rate from written-off accounts can contribute to their profit margin and boost their capital. In order to address this issue, sources have reported that the Department of Financial Services will soon convene a meeting with senior officials from public sector banks (PSBs).

The objective of the meeting is to evaluate the status of pending cases related to such accounts across various courts, including the Debt Recovery Tribunal and Debt Recovery Appellate Tribunal. Banks have been instructed to take a more proactive approach towards dealing with large written-off accounts. Over the past six financial years until 2021-22, banks have written off a total of Rs 11.17 lakh crore in bad loans, with public sector banks and private sector banks writing off Rs 8,16,421 crore and Rs 3,01,462 crore, respectively, according to data from the Reserve Bank of India.

Banks often remove Non-Performing Assets (NPAs) from their balance sheets through write-offs, even for those where full provisioning has been completed after four years. This regular exercise helps banks to clean up their balance sheets, optimize their capital, and take advantage of tax benefits. The write-off procedure is conducted in adherence to RBI guidelines and policies approved by the banks' boards.