Reforms help banks recover Rs 5.5 lakh crore of bad debt, according to the central government. The government took many steps in the pursuit of recovering the bad debt in the country. These reforms hugely contributed to the active recovery of the money stuck in these bad loans.
The steps taken by the government such as enacting the Insolvency & Bankruptcy Code (IBC) helped in the recovery of around Rs 5.5 lakh crore of bad debt. Out of this, an approximate value of Rs 1 lakh crores was recovered from accounts that were technically written off.
Considering that the build-up of non-performing assets (NPAs) is lower than anticipated. The government is also positive in its beliefs that the state-run lenders are well poised to meet credit requirements. As per the state government sources, a provision coverage ratio of 83.7 percent is protecting the public sector banks against any potential hit.
How pandemic is affecting the recovery?
A senior finance ministry official mentioned that despite the ongoing pandemic, the turnaround for public sector banks has been remarkable. According to the official, the recent reforms and the proposed asset reconstruction company will further clean up their balance sheets. Moreover, it will make fresh capital available from the sale of bad assets, which will again push credit growth.
The government believes that the Rs 8 lakh crore of write-offs in the past seven years are technical in nature. These write-offs will bring adequate transparency to the bank balance sheets.
The official said that the banks put forth every attempt to recover even after writing off a loan. A sum of Rs 99,996 crore is recovered from such loan accounts. Which includes the IBC process in cases of Bhushan Steel, Bhushan Power & Steel, and Essar Steel. Banks also recovered their money from other write-offs as well such as Kingfisher.
Since 2018, the government has reportedly recovered Rs 3.1 lakh crore. However, the process is still ongoing and it will expectedly recover from more such loans. In the process, Banks used multiple sources such as internal accruals, fundraising from the market, and capital infusion by the government, in order to comply with the regulatory requirement.
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