As per Reserve Bank of India (RBI) data on domestic operations, aggregate gross advances of PSBs increased from ₹ 16,96,051 crore as on 31.3.2008 to ₹ 45,90,570 crore as on 31.3.2014. As per RBI inputs, the primary reasons for spurt in stressed assets have been observed to be, inter-alia, aggressive lending practices, wilful default/loan frauds/corruption in some cases, and economic slowdown. Asset Quality Review (AQR) initiated in 2015 for clean and fully provisioned bank balance-sheets revealed high incidence of Non-Performing Assets (NPAs). As a result of AQR and subsequent transparent recognition by banks, stressed accounts were reclassified as NPAs and expected losses on stressed loans, not provided for earlier under flexibility given to restructured loans, were provided for. Primarily as a result of transparent recognition of stressed assets as NPAs, gross NPAs of PSBs, as per RBI data on domestic operations, rose from ₹ 2,67,065 crore as on 31.3.2015, to ₹ 8,45,475 crore as on 31.3.2018, and as a result of Government’s 4R’s strategy of recognition, resolution, recapitalisation and reforms, have since declined by ₹ 1,35,366 crore to ₹ 7,10,109 crore as on 31.3.2019 (provisional data as reported by RBI on 2.7.2019).

Government adopted the comprehensive 4R’s strategy consisting of recognition of NPAs transparently, resolution and recovering value from stressed accounts, recapitalising Public Sector Banks (PSBs), and reforms in PSBs and financial ecosystem to ensure a responsible and clean system. Steps taken under these strategies to expedite and enable resolution of NPAs of PSBs, and to improve the condition of banks include, inter-alia, the following:

1. Change in credit culture was effected, with the Insolvency and Bankruptcy Code (IBC) fundamentally changing the creditor-borrower relationship, taking away control of the defaulting company from promoters/owners and debarring wilful defaulters from the resolution process and debarring them from raising funds from the market.
2. Over the last four financial years, PSBs were recapitalised to the extent of ₹ 3.12 lakh crore, with infusion of ₹ 2.46 lakh crore by the Government and mobilisation of over ₹ 0.66 lakh crore by PSBs themselves.
3. Key reforms were instituted in PSBs as part of PSBs Reforms Agenda, include the following:
4. Board-approved Loan Policies of PSBs now mandate tying up necessary clearances/approvals and linkages before disbursement, scrutiny of group balance-sheet and ring-fencing of cash flows, non-fund and tail risk appraisal in project financing.
5. Use of third-party data sources for comprehensive due diligence across data sources has been instituted, thus mitigating risk on account of misrepresentation and fraud.
6. Monitoring has been strictly segregated from sanctioning roles in high-value loans, and specialised monitoring agencies combining financial and domain knowledge have been deployed for effective monitoring of loans above       ₹ 250 crore.
7. To ensure timely and better realisation in one-time settlements (OTSs), online end-to-end OTS platforms have been set up.

Enabled by the above steps, financial gains from cleaning of the banking system are now amply visible. Gross NPAs of PSBs, as per RBI data on domestic operations, have reduced over the last financial year (provisional data) by ₹ 1,35,366 crore, and as per RBI data on global operations, PSBs have recovered an amount of ₹ 3,09,568 crore over the last four financial years, including a record recovery of ₹ 1,21,076 crore in the last financial year (provisional data).

As per RBI data on domestic operations, the gross NPAs of PSBs, as on 30.6.2014, 31.3.2017, and 31.3.2019 (provisional data) were ₹ 2,24,542 crore, ₹ 6,41,057 crore and ₹ 7,10,109 crore respectively, which amounts to an increase of 10.77% over the last three financial years. RBI has apprised that the details of NPAs of PSBs as on 30.6.2019 are not available. Bank-wise details are at Annex.

Note: Figures cited above for PSBs for 31.3.2019 exclude those for IDBI Bank Limited, which was recategorised as a private sector bank by RBI with effect from 21.1.2019.

This was stated by Shri Anurag Singh Thakur, Minister of State for Finance & Corporate Affairs in a written reply to a question in Lok Sabha.

Recognition and resolution of NPAs via 4R strategy and IBC strengthens recovery and bank asset discipline. The Government's 4R's strategy - recognition, resolution, recapitalisation and reforms - together with the RBI's Asset Quality Review and use of the Insolvency and Bankruptcy Code (IBC), led to transparent reclassification and provisioning of stressed accounts, strengthened loan approval and monitoring procedures, deployment of third party due diligence, specialised monitoring for large exposures, and online one time settlement platforms, measures reported to improve recovery and reduce gross NPAs of public sector banks in provisional RBI data.