Reforms help banks recover Rs 5.5 lakh crore of bad debt: Govt

NEW DELHI: The steps taken by the government over the last few years — from enacting Insolvency & Bankruptcy Code (

IBC

)and strengthening other laws to administrative measures — have helped banks recover around Rs 5.5 lakh crore of bad debt, including close to Rs 1 lakh crore from accounts that had been technically written off, top officials said.

And, with indications that the build-up of non-performing assets (NPAs) is lower than anticipated, especially among large companies, the government believes that state-run lenders are well poised to meet the credit requirements, given that they are adequately capitalised.

Besides, government sources argued that with provision coverage ratio of 83.7%, public sector banks were adequately protected against any potential hit.

“Overall, despite the pandemic, the turnaround is remarkable for public sector banks. The recent reforms and the proposed asset reconstruction company will help clean up their balance sheets further and make fresh capital available from the sale of bad assets, which will again push credit growth,” a senior finance ministry officer said.While there has been discussion around “write off” of over Rs 8 lakh crore during the last seven years, the government believes that these are technical in nature and are actually meant to bring about transparency in bank balance sheets. “This is done in accordance with the provisioning norms fixed by RBI that the potential losses are recognised in the books. Even if a loan has been written off, banks make every attempt to recover it,” the high-ranking officer said.

The source added that these efforts have resulted in Rs 99,996 crore being recovered from such written off loan accounts, which included some major recoveries through the IBC process in case of

Bhushan Steel

, Bhushan Power & Steel,

Essar Steel

, among others. Separately, banks have managed to recover money from other write-off cases such as Kingfisher. Since March, 2018, the government-owned lenders have recovered Rs 3.1 lakh crore.

Sources said that banks have used multiple sources —

internal

accruals, fund raising from the market and capital infusion by the government — to comply with the regulatory requirements.

“Internal accruals and market raising account for as much as 70% of the provisioning done during the last few years,” an officer said.

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