Steps taken by the government such as enacting the Insolvency & Bankruptcy Code (IBC) have helped banks to recover around Rs 5.5 lakh crore of bad debt. Out of this, close to Rs. 1 lakh crore was recovered from accounts that were technically written off. The government also believes that the state-run lenders are well poised to meet credit requirements considering the indications that the build-up of non-performing assets (NPAs) are lower than anticipated.
A senior finance ministry official said that despite the pandemic, the turnaround for public sector banks has been remarkable. 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.
The government believes that the Rs 8 lakh crore of write-offs in the past seven years are technical in nature and are meant to bring transparency to the bank balance sheets. The official said that even if a loan is written off, banks make every attempt to recover it. Rs 99,996 crore has been recovered from such loan accounts, including through the IBC process in cases of Bhushan Steel, Bhushan Power & Steel, and Essar Steel. Banks recovered the money from other write-offs too such as Kingfisher.
Since 2018, the government has recovered Rs 3.1 lakh crore, as mentioned in the daily. With a provision coverage ratio of 83.7 per cent, public sector banks are adequately protected against any potential hit. Banks used multiple sources such as internal accruals, fundraising from the market and capital infusion by the government to comply with the regulatory requirement.
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