Diverse recovery mechanisms SBI uses to deal with stressed loans

The State Bank of India (SBI), India’s largest lender, has demonstrated remarkable success in its concerted efforts to recover Non-Performing Assets (NPAs), commonly known as bad loans. Through a multi-pronged strategy encompassing legal frameworks, technological innovation, and dedicated operational units, SBI has significantly improved its asset quality, bolstering its financial health and contributing to the stability of the Indian banking sector.

A Declining Trend in Bad Loans

As of March 31, 2025, the bank’s Gross NPA has fallen to ₹76,880 Crore, representing a healthy 1.82% of its total advances. This marks a notable improvement from FY2020, when Gross NPA stood at ₹1,49,092 Crore (6.15%). Similarly, Net NPA has declined to ₹19,667 Crore (0.47%) in FY2025 from ₹51,871 Crore (2.23%) in FY2020. This positive trajectory underscores the effectiveness of the bank’s comprehensive recovery mechanisms.

The Stressed Assets Resolution Group (SARG): At the Forefront of Recovery

Central to SBI’s recovery drive is the Stressed Assets Resolution Group (SARG). This specialized vertical is designed to maximize cash recovery from NPAs and technically written-off accounts (AUCA), reduce loan loss provisions, and ultimately free up capital for fresh lending. SARG employs a sector-specific targeted approach, recognizing that different industries require tailored strategies for effective resolution.

To ensure broad geographical coverage and efficient monitoring, SBI has established four SAM Regional Offices (SAMROs) in key metropolitan areas: Hyderabad, Kolkata, Mumbai, and New Delhi. These are further supported by a network of 15 Stressed Assets Management Branches (SAMBs) and 46 Stressed Assets Recovery Branches (SARBs) spread across the country, collectively managing a significant portion of the bank’s stressed assets.

Diverse Arsenal of Recovery Mechanisms

SBI utilizes a robust array of tools and legal frameworks to tackle bad loans:

• Insolvency and Bankruptcy Code (IBC) 2016: The IBC has proven to be a pivotal mechanism, offering a time-bound and transparent legal route for resolving stressed assets. SBI actively refers eligible high-value NPA accounts to the National Company Law Tribunal (NCLT). As of March 31, 2025, out of 1,208 cases referred to NCLT, 983 have been admitted. Resolution plans have been approved in 272 cases, while liquidation was ordered in 524 cases, demonstrating the code’s impact.
• One-Time Compromise Settlement (OTS): For suitable cases, particularly smaller loan amounts, SBI offers Board-approved OTS schemes. These non-discretionary and non-discriminatory settlements provide borrowers an opportunity to clear their dues through a reduced, mutually agreed-upon payment, facilitating quicker resolutions.
• Prudential Framework for Resolution of Stressed Assets (RBI): Beyond the NCLT, SBI also leverages the Reserve Bank of India’s framework for time-bound resolution of high-value stressed assets outside the formal NCLT process, often involving direct negotiations and restructuring.
• Sale of Assets to NARCL/ARCs: The bank strategically sells stressed assets to the National Asset Reconstruction Company Limited (NARCL) and other Asset Reconstruction Companies (ARCs) on a cash and/or Security Receipts (SR) basis, transferring the recovery burden to specialized entities. A dedicated SARG team oversees these transactions.
• SARFAESI Act and Debt Recovery Tribunals (DRTs): For cases not under NCLT, SBI initiates actions under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, which allows for enforcement of security interests without court intervention in certain scenarios. Suit filings are also pursued in DRTs and other courts. The bank utilizes a common e-Auction platform, https://baanknet.com, for transparent sale of mortgaged properties.
• Rinn Samadhan Scheme and Lok-Adalats: For smaller ticket loans, SBI focuses on amicable resolutions through schemes like ‘Rinn Samadhan’ and mediation via ‘Lok-Adalats’, providing accessible and swift settlement options.

Leveraging Technology for Enhanced Recovery

Technology plays a crucial role in SBI’s recovery efforts:

• LITMAS (Litigation Management System): This IT initiative provides comprehensive monitoring of all legal recourse taken in stressed accounts, aiming to expedite resolutions and improve transparency.
• Wilful Defaulter Management System (WDMS): This application digitalizes the process of identifying and managing wilful defaulters, enhancing operational excellence.
• Digitalization of Loan Journeys: While primarily focused on new loans, the bank’s broader digital transformation initiatives, such as the Retail Loan Management System (RLMS) and the Business Rule Engine (BRE) for MSME loans, contribute to better underwriting and monitoring, thereby preventing future NPAs. The instant sanction of Pre-Approved Business Loans (PABL) based on analytics is another example of proactive risk management.

Impact on Financial Performance

The diligent efforts have translated into significant improvements in SBI’s financial performance. The Provision Coverage Ratio (PCR), a key indicator of a bank’s ability to cover bad loans, has steadily improved, reaching 92.08% (including AUCA) by March 2025. This robust PCR provides a strong buffer against potential losses.

In FY2025, the bank’s standalone net profit increased by 16.08% to ₹70,901 Crore, and its operating profit crossed the ₹1 Lakh Crore mark, reaching ₹1,10,579 Crore. This enhanced profitability and strong capital position, driven by effective NPA management, enable SBI to reinvest in growth opportunities and continue its vital role in supporting India’s economic development.

SBI’s journey in tackling bad loans serves as a compelling case study in strategic financial management, demonstrating how a combination of dedicated resources, diverse recovery mechanisms, and technological innovation can lead to a significant turnaround in asset quality and overall banking health.

Also See: IBC helped recovery of 14% bad loans in FY24: SBI Annual Report