In a landmark move aimed at improving loan recovery efficiency, five of India’s largest public sector banks—including State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda (BoB)—are planning to set up a dedicated alliance to recover retail and MSME loans below ₹5 crore.
According to reports, the recovery effort will be handled by an existing entity, PSB Alliance Pvt Ltd, which currently provides shared services for public sector banks. Initially, five banks will join the project, with more expected to participate later.
A Single Entity to Handle Smaller Loans: Concept Inspired by NARCL
Company will prepare proof-of-concept first; aims to streamline small loan collections across banks
Sources said that PSB Alliance will first create a proof-of-concept, and once proven successful, it will onboard more banks. The proposed company will only focus on recovering smaller retail and MSME loans, allowing banks to allocate more resources to core banking activities and large corporate recoveries.
A senior bank official outlined the potential benefits:
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Banks can concentrate on primary lending and deposit services.
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When borrowers have loans from multiple banks, recovery can be coordinated centrally.
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The model resembles the National Asset Reconstruction Company Ltd (NARCL) structure.
A Stepping Stone Towards Larger Structural Reforms in Loan Recovery
Only 3-4 banks currently outsource small loan recoveries; this may be a sector-wide shift
Bank officials termed this initiative a “first step” toward creating more efficient and collaborative recovery ecosystems. While only a few public banks currently outsource collections, this new shared recovery platform could become a standard approach, especially for low-value stressed assets.
If recovery efforts via this entity fail, the accounts could then be escalated to ARC-level entities like NARCL for resolution.
Government Encouraging Greater Inter-Bank Collaboration Through EASE Reforms
Ministry urges banks to review Top-20 NPAs; shared platforms like BankNet and doorstep banking gaining ground
The initiative is in line with the government’s EASE (Enhanced Access and Service Excellence) reforms, which push for inter-bank cooperation, shared infrastructure, and improved banking efficiency. Public banks are already collaborating on:
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BankNet, a digital auction platform
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Doorstep banking services
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A common cloud infrastructure for backend operations
Targeted Launch by FY2026; PSB Alliance at Helm
New recovery firm likely to be operational before March 2026; no official comment yet from banks
An official from PSB Alliance stated that the company intends to operationalise the recovery arm within the current fiscal year. The alliance, already a government-backed entity, is actively engaging with banks to expand its service offerings.
Although public statements from the banks involved are yet to be made, internal approvals and planning are already underway.
NPAs Drop to ₹2.94 Lakh Crore, but Fresh Slippages Still a Concern
Gross NPAs down 17% YoY, but Q4 FY25 saw 7.8% increase in fresh slippages
According to a report by CARE Ratings, public sector banks collectively reduced their gross NPAs by 17%, bringing the total down to ₹2.94 lakh crore as of March 31, 2025. However, the January–March 2025 quarter witnessed fresh NPAs worth ₹25,000 crore, a 7.8% increase compared to the same quarter last year.
