Private lenders sell more bad loans than PSU banks

MUMBAI: RBI's latest Report on Trend and Progress in Banking, released this week, explains how banks sold stressed loans in FY25 and shows that private banks relied far more on market sales than govt-owned peers to clean up balance sheets.

The report, published by the Reserve Bank of India, for the first time breaks down bad-loan sales by banking segment, highlighting sharp differences in how private and govt-owned banks handle stressed assets. Private banks sold 35.9% of their prior-year GNPA to ARCs, nearly 14 times the 2.6%-3% sold by public sector banks, while foreign banks topped the list at 55.5%.

Data in the report show that sales of non-performing assets to ARCs accelerated sharply in FY25. Across scheduled commercial banks, sales to ARCs rose to 12.4% of the previous year's GNPA, up from 5.8% in 2023-24, pointing to a growing preference for market-based exits from stressed loans.

According to bankers, the divergence reflects both the age of bad loans and differences in resolution strategy. "This huge divergence in Public Sector Banks vs others is possibly, amongst others, due to ageing of NPAs. PSBs selling accounts mostly written off and marked down, while foreign banks and private banks offloading early NPAs. For public sector banks, there is a marked preference towards legal mechanism like DRT, SARFAESI & IBC, while private and foreign banks prefer early exit through market mechanism like sale to ARCs," said Hari Hara Mishra, ceo of the Association of ARCs in India.

Recoveries through legal channels improved only marginally during the year. The recovery rate from Lok Adalat, DRT, SARFAESI and IBC rose to 18.0% in 2024-25 from 17.2% a year earlier, with average realisation periods of 3-4 years.



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