PSBs plan common collection firm to recover small retail, MSME loans: Report

Other state-run lenders are expected to join the project at a later stage

Five major public sector banks (PSBs), including State Bank of India, Punjab National Bank, and Bank of Baroda, are jointly working on a plan to establish a common debt collection firm aimed at recovering retail and MSME loans below Rs 5 crore, according to a report by Economic Times.

The initiative is being developed through PSB Alliance Pvt Ltd, which will initially work on a proof of concept, people familiar with the matter told Economic Times. Other state-run lenders are expected to join the project at a later stage, the report added.

“This will help lenders focus on core banking activities while enhancing recoveries in cases of multiple loans to a single borrower from different banks,” a senior bank executive told Economic Times. Once the framework is finalised, all participating banks are expected to take a stake in the new entity, following the model used for the National Asset Reconstruction Company Ltd (NARCL), the person added.

At present, only three to four public sector banks outsource their debt recovery operations, and even then, primarily for retail loans. “This new collection agency can shape up to be a step before banks transfer such accounts to asset reconstruction companies,” another banking executive told Economic Times, adding that it would allow banks to concentrate resources on recovering larger, more complex exposures.

The finance ministry has also directed banks to regularly monitor their top 20 non-performing cases and closely track accounts with resolution plans pending before the committee of creditors for over three months, as part of its broader focus on improving recovery performance.

A PSB Alliance official told Economic Times that the new collection firm is expected to be fully operational within the current fiscal year. “We are also collaborating with banks on other initiatives,” the official said. PSB Alliance was created by state-run banks to serve as a common platform for delivering shared banking services.

Emails sent to the participating banks seeking comments did not receive responses by press time Monday. Moneycontrol has not independently verified the details of the report.

The proposed common collection firm is aligned with the government’s Enhanced Access and Service Excellence (EASE) reforms agenda, which encourages PSBs to enhance internal collaboration, create shared utilities, and boost overall competitiveness and service delivery.