How IBC helped PSU banks cut down on bad loans in FY26

India’s major public sector banks (PSBs) have doubled down on the Insolvency and Bankruptcy Code (IBC) and the National Company Law Tribunal (NCLT) framework to resolve years of accumulated bad debt, with FY 2025-26 annual reports revealing a sweeping and coordinated recovery effort that has materially transformed the asset quality of the country’s banking system. Across PSU banks reviewed — State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank, Bank of India, Indian Bank, and UCO Bank — gross non-performing asset (NPA) ratios have fallen to multi-year lows, bolstered by structured NCLT referrals, Corporate Insolvency Resolution Processes (CIRP), and parallel mechanisms including SARFAESI enforcement, Lok Adalats, One-Time Settlements (OTS), and sales to the National Asset Reconstruction Company Limited (NARCL).

SBI: The Behemoth’s Battle With Bad Loans

State Bank of India, the country’s largest lender, has perhaps the most striking story to tell. A bank that once carried over ₹1,26,389 crore in gross NPAs in FY 2021 has brought that number down to a gross NPA ratio of just 1.49% by March 2026 — an improvement of 33 basis points year-on-year — while net NPA has fallen to a slender 0.39%.
At the heart of this transformation is a dedicated Stressed Assets Resolution Group (SARG), a specialised unit that monitors NCLT proceedings with laser focus. As of 31st March 2026, SBI had referred 1,247 cases (on a whole-bank basis) to the NCLT, of which 1,006 cases were admitted. Of the admitted cases, resolution plans were approved for 293 cases and liquidation was ordered in 549 cases.
Beyond the tribunals, SBI assigned 355 accounts with a principal outstanding of ₹5,204.95 crore to various Asset Reconstruction Companies (ARCs) and Permitted Transferees during FY 2025-26, realising a total sale consideration of ₹2,071.16 crore — comprising ₹1,315.37 crore in cash and ₹755.79 crore in security receipts. A portfolio-basis transfer covered 267 accounts worth ₹688.93 crore, assigned to ARCs at ₹214.70 crore on a 100% cash basis.
SBI’s Provision Coverage Ratio (PCR) stood at a robust 74.36% excluding AUCA and 99.01% including AUCA as of March 2026 — testament to how fully provided-for the remaining stressed book has become.

Punjab National Bank: NCLT Cell and ₹1,868 Crore in CIRP Recoveries

Punjab National Bank (PNB) has institutionalised its approach to insolvency proceedings through a dedicated NCLT and Liquidation Cell, set up specifically to deal with restructuring, resolution, and recovery in NCLT cases. The cell actively engages with liquidators and ensures regular follow-up on cases that have remained stuck for extended periods.

The results are measurable. During FY 2025-26, PNB recovered ₹1,868 crore from NPA accounts under the Corporate Insolvency Resolution Process (CIRP). Total cash recovery for the year stood at ₹11,990 crore, with recovery in written-off accounts and recorded interest adding another ₹7,740 crore. PNB’s gross NPA ratio has tumbled from 8.74% in FY 2023 to 2.95% as of March 2026 — a decline of 100 basis points year-on-year alone — while net NPA has dropped to 0.29%. The Provision Coverage Ratio (including Technical Write-Offs) firmed up to 97.14%.
The bank has also structured its field-level recovery machinery to complement NCLT proceedings: Retail and MSME Branches handle NPAs up to ₹20 lakh, Asset Recovery Management Branches (ARMB) cover accounts up to ₹25 crore, and Stressed Asset Management (SAM) Branches oversee all accounts above ₹25 crore, including all NCLT-admitted accounts.

Canara Bank: 378 Cases, ₹29,584 Crore at Stake
Canara Bank disclosed one of the most granular breakdowns of its IBC exposure among the banks reviewed. As of 31st March 2025, 378 cases had been referred to the NCLT under the IBC, with a book liability exposure of approximately ₹29,584 crore. Of these, 339 cases were admitted by the NCLT with an aggregate admitted claim of ₹27,931 crore.

During FY 2025-26, Canara Bank recovered ₹1,599 crore through NCLT-referred cases (through resolution and liquidation). The bank’s total recovery and upgradation for the year stood at ₹9,161 crore, while recovery specifically from written-off accounts reached ₹7,642 crore.

Canara’s Gross NPA ratio improved by 110 basis points year-on-year to 1.84% and Net NPA declined 27 basis points to 0.43% as of March 2026. The Provision Coverage Ratio improved 151 basis points to 94.21%. The annualised slippage ratio was contained at just 0.69%.

Indian Bank: IBC as Pillar of Resolution, ₹1,062 Crore from NCLT

Indian Bank’s annual report positions the IBC as a central pillar of its resolution architecture. Alongside traditional SARFAESI enforcement, Lok Adalats, and compromise settlements, the bank has embraced the Pre-Packaged Insolvency Resolution Process (PIRP) — a faster, less adversarial pathway under the IBC designed especially for MSMEs — and coordinates actively with NARCL for large-ticket stressed assets.
During FY 2025-26, Indian Bank made a recovery of ₹1,062 crore from NCLT-admitted accounts, while an amount of ₹2,508 crore was recovered from Bad Debts Written-Off accounts (AUC). Under SARFAESI, 5,941 properties with a combined reserve price of ₹6,381.16 crore were brought for auction during the year, with 1,292 properties successfully sold for ₹918.83 crore.

Bank of Baroda: Specialised Branches, Digital Monitoring
Bank of Baroda has built a dedicated operational spine to handle its IBC and NCLT caseload. At the apex sits a Stressed Assets Management Vertical at the corporate office, supported by five Stressed Assets Management (SAM) Branches with specialist skill sets catering exclusively to all NCLT accounts. Below them sit 12 Stressed Assets Recovery Branches (SARBs) at the zonal level and 69 Regional Stressed Assets Recovery Branches (ROSARBs) at the region level.
The bank has also digitalised its monitoring infrastructure end-to-end, deploying a 360-degree live monitoring platform that tracks SARFAESI and NCLT status, provisioning levels, and daily recovery figures for every NPA account in its books — all without manual intervention.
BoB’s asset quality improved markedly in FY 2025-26: Gross NPA ratio declined to 1.89% from 2.26% a year earlier, while Net NPA stood at 0.45%. The Provision Coverage Ratio (including technical write-offs) stood at 93.94%. Credit cost remained stable at 0.46%.

Bank of India: Multi-Channel Resolution with NCLT at the Core

Bank of India frames its NPA resolution strategy around a multi-pronged approach: NCLT proceedings, SARFAESI enforcement, sale to ARCs and NARCL, mega e-auctions, and compromise settlements — including proprietary schemes such as Star Sanjeevani and BOI-OTS.

In respect of RBI-referred NCLT accounts (List 1 and List 2), the bank holds 100% provision against the aggregate outstanding of ₹2,905.38 crore as on March 31, 2026. The bank’s gross NPA ratio improved sharply by 129 basis points year-on-year to 1.98%, while net NPA stands at 0.56%, down 26 basis points. The Provision Coverage Ratio improved by 118 basis points to 93.57%. Net NPA in absolute terms declined 20.68% year-on-year to ₹4,250 crore.

UCO Bank: Transformation Complete, IBC as Deterrent Tool
UCO Bank presents perhaps the most dramatic turnaround story in the cohort. The bank’s Gross NPA fell to ₹5,690 crore (2.17%) from ₹5,919 crore (2.69%) a year ago, while Net NPA now stands at a mere ₹702 crore (0.27%) — down from 0.50% the previous year.

The annual report explicitly describes the referral of eligible accounts to the NCLT and the invocation of personal guarantees under the IBC framework as key planks of its recovery and deterrence strategy. Alongside NCLT referrals, UCO Bank launched UCO Adalat — a structured negotiation platform enabling senior head office and zonal office executives to engage one-on-one with defaulting borrowers — and a special OTS scheme called Lakshya-Rin Mukti 2025-26 for NPA accounts with ledger balances up to ₹1 crore.

Total recovery and upgradation during the year stood at ₹2,944.30 crore. The Provision Coverage Ratio is a standout 97.79%, among the highest in the peer group. The slippage ratio remained well-controlled at 0.78%.

The Bigger Picture: A Sector Transformed
The aggregate picture that emerges from these annual reports is of a banking sector that has fundamentally reoriented its approach to stressed assets over the past decade. From a peak of deep double-digit NPA ratios in FY 2018 and FY 2019, the average Gross NPA ratio of India’s PSBs has come down to approximately 2.09% as of March 2026 — with an average Provision Coverage Ratio of 95.41% across the group.

The IBC and NCLT framework — enacted in 2016 — has been the single most powerful institutional tool enabling this transformation. By making insolvency time-bound, creditor-friendly, and professionally mediated, the Code shifted the power dynamic between banks and large defaulters, reduced settlement timelines, and enabled meaningful recoveries from accounts that were previously considered unrecoverable.

That said, practitioners note that challenges remain. A substantial number of cases admitted by the NCLT have ended in liquidation rather than resolution — reflecting that in many instances, the underlying businesses were unviable beyond salvage. Delays in tribunal proceedings and haircuts on admitted claims continue to moderate actual recoveries relative to gross exposures. And the transition to the Expected Credit Loss (ECL) framework in the coming year will test how conservatively banks have provisioned their remaining stressed books.

Also See: Insolvency Tracker