INVC NEWS
New Delhi — : India’s leading public sector banks have taken a decisive step toward resolving the growing issue of unpaid loans. State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda (BoB) are among five government-owned banks forming a new joint company to recover small-value loans—particularly those below ₹5 crore from retail and MSME borrowers.
According to a report by The Economic Times, the initiative will be executed through PSB Alliance Private Limited, which will first draft a comprehensive blueprint for the recovery process. The alliance is expected to streamline and centralize small loan recoveries, freeing up core banking operations for more productive activities.
5 Banks to Pioneer Centralized Loan Recovery
Initially, five banks will spearhead the operation, with plans to expand participation across other public sector banks. Officials familiar with the matter revealed that this collective model will enhance the monitoring of NPAs and allow banks to focus more effectively on core operations. Once operational, the strategy is expected to make a significant dent in the country’s mounting retail loan defaults.
A unique aspect of this joint entity is its structure—similar to the National Asset Reconstruction Company Limited (NARCL)—but focused specifically on smaller loans. Banks believe that shared recovery mechanisms will enable faster and more coordinated action against loan defaulters, especially when a single borrower owes money to multiple banks.
Focus Shifts to Old Stuck Loans and Large NPAs
The newly planned entity will not only handle fresh defaulters but will also target long-pending, stuck loans, helping public banks reduce their legacy NPAs. The Finance Ministry has directed 20 public sector banks to accelerate recovery of their largest bad loans via third-party agencies and to review top 20 NPAs regularly.
This move comes amid a broader trend in banking sector digitization and shared infrastructure. Government banks already collaborate on common platforms like Bank Net for auctions, cloud infrastructure, and doorstep banking. The creation of this recovery-focused company is the next logical step.
Public sector banks showed signs of improvement in asset quality. As of March 31, 2025, their gross NPAs fell 17% year-on-year to ₹2.94 lakh crore. However, fresh slippages in Q4 FY25 surged 7.8% to ₹25,000 crore, highlighting the urgent need for efficient recovery tools. An official from PSB Alliance confirmed that the recovery entity is expected to start operations within this financial year.
