In order to address the situation of non-performing assets of public sector banks, the Central government in accordance with the Reserve Bank of India (RBI) suggestion is likely to provide a final one-time settlement offer to the top 50 defaulters. If the government doesn’t find the response satisfactory, it will initiate the earlier strategy of ‘naming and shaming’ along with criminal action against willful defaulters.

Senior officials in the finance ministry said, “The strategy will help the banks to recover majority of the dues with the one-time settlement option ~ where the bank will take a cut in the total dues but will be able to recover most of the funds which was earlier completely out of question and would have been marked as absolute ‘dead asset’.”

On other loans like for the small and medium enterprise segment and educational loans, banks are conducting these strategies of one-time settlement without getting into the hassle of any legal proceedings. A senior banking official said, ”The rationale is these loans in any case are hard core NPAs and recovering them through legal process is a very tedious process. Since people are also willing to get their credit history clear and they want to pay and that is why what we find that the settlement schemes are a good source for improving the recovery performance.”

According to recent RBI data, the total stressed assets (Gross Non Performing Assets and Restructured Standard Advances) of Scheduled Commercial Banks (SCBs) was Rs 9.64 lakh crore as on 31 December 2016 and reduction in NPAs due to actual recoveries (April to Dec) for SCBs are Rs 46,245 crore at the end of 31 December 2016 for global operations.

While the government is unlikely to set up a state-owned ‘Bad Bank’ to take over NPAs from state-owned banks in the near term, the Department of Financial Services has been asked to review the existing framework of private asset reconstruction companies (ARC) over the next few months and submit its report.