An RTI response from State Bank of India (SBI) showed that between FY18 and FY26, the lender took 309 loan accounts with combined claims of Rs 1.5 lakh crore to the National Company Law Tribunal (NCLT) and similar forums. It recovered Rs 49,727 crore through resolution plans, implying a haircut of about Rs 1 lakh crore, or 67% of claims.
Separately, SBI said it prudentially wrote off Rs 1.52 lakh crore of loans involving borrowers with outstanding dues of more than Rs 100 crore between FY17 and FY26. Recoveries from these accounts stood at Rs 20,838 crore, or around 14%.
Bank of Baroda (BoB), meanwhile, technically wrote off Rs 35,715 crore of loans involving borrowers with outstanding dues of Rs 100 crore and above between FY21 and FY26. Cumulative recoveries stood at Rs 9,946 crore, or less than 28%. The bank also reported haircuts of Rs 7,817 crore on settlements involving such borrowers during the period.
Across the banking system, lenders wrote off Rs 9.95 lakh crore of loans to large industries and the services sector between FY15 and FY26, according to RBI data presented in Parliament in August.
That could mean more frequent reviews of the borrower’s business, reassessment of credit limits and recalibration of exposure as circumstances change. A company that appeared creditworthy at sanction can face a vastly different environment a few years later because of shifts in demand, costs, regulation, climate events or geopolitical shocks.
For Lakhani, a key weakness is whether lenders adequately test a borrower’s ability to generate cash to service debt, rather than lean excessively on collateral or promoter standing.
“The biggest gap remains cash flow underwriting,” he said, adding that banks can rely heavily on sponsor projections and base-case assumptions without sufficiently testing whether a business can continue servicing debt under adverse conditions.
Leverage across a corporate group and interconnected cash flows between entities can further obscure risks. Collateral and promoter guarantees, Lakhani said, should remain secondary sources of repayment, not substitutes for sustainable cash generation.
The issue becomes particularly important during periods of rapid credit expansion, when competition for good borrowers can put pressure on lenders to loosen pricing or underwriting standards.
ECL to the rescue?
That makes the introduction of the expected credit loss (ECL) framework an important test.
“The next 18 months will be the real litmus test. With the introduction of the Expected Credit Loss (ECL) framework, new project and acquisition finance norms, changing Basel credit risk requirements and a revival of private sector capex, banks have to prove that they can identify and price risk upfront and not just deal with it when loans go bad,” Lakhani said.
The RBI has also cautioned that faster credit growth can bring greater asset-quality risks.
Source: Financial Express
