Five major public sector banks, including State Bank of India, Punjab National Bank, and Bank of Baroda, are teaming up to create a shared platform aimed at streamlining debt recovery for retail and MSME loans under ₹5 crore. The initiative promises to boost recoveries and allow banks to focus more on core banking functions.
A New Dawn for Debt Recovery in India’s Banking Sector
Public sector banks (PSBs) have long grappled with the challenge of recovering loans, especially from small and medium borrowers. To address this, five PSBs have now joined hands through PSB Alliance Pvt Ltd, a joint venture designed to establish a common collection agency. This firm will initially focus on recovering retail and MSME loans below ₹5 crore, a segment often overlooked in the wider scheme of asset reconstruction.
This new setup is being viewed as a game-changer by insiders. One senior bank executive explained that the common platform will help banks “focus on core banking activities while enhancing recoveries in cases of multiple loans to a single borrower from different banks.” Essentially, borrowers with multiple dues won’t slip through the cracks anymore.
The project is still in the works with details and workflow being finalized, but once up and running, all participating banks will take stakes in the collection agency, similar to the ownership model seen in the National Asset Reconstruction Company Ltd (NARCL). This ensures a shared responsibility and better coordination.
Tackling Retail and MSME Loans: Why It Matters
Debt recovery is a big headache, especially when it comes to smaller accounts. Most banks currently outsource collection for retail loans, but only a handful of PSBs do so systematically. The launch of a dedicated collection firm could mark a significant shift.
According to another bank executive familiar with the initiative, this agency will act as a bridge—an initial step before banks pass bad loans on to asset reconstruction companies. It’s a move that could save a lot of effort and money. Banks can keep their eyes on larger cases while the new platform tackles the often messy smaller loans.
It’s an important development because retail and MSME loans make up a large chunk of banks’ portfolios, but recovery from these smaller loans can be tricky. Borrowers in this segment sometimes default, but the amounts might not justify the cost of aggressive recovery efforts individually.
This initiative could help:
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Streamline collections from multiple lenders,
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Reduce duplication of recovery efforts,
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Free up bank resources to focus on growing business, not chasing small debts.
Government’s Push for Collaboration and Efficiency
The move comes amid a wider reform agenda for public sector banks, spearheaded by the finance ministry under the Enhanced Access and Service Excellence (EASE) reforms. The government has been nudging PSBs to boost collaboration and set up common utilities to improve efficiency and competitiveness.
The new collection agency is just one example of this effort. Banks are already working together on various fronts such as Banknet (an auction platform), doorstep banking services, and cloud infrastructure shared among PSBs.
This push for cooperation is seen as crucial because, despite improvements, the banking sector still wrestles with non-performing assets (NPAs). According to a Care Ratings report, the gross NPAs of PSBs fell by 17% year-on-year to ₹2.94 lakh crore as of March 31, 2025. However, fresh slippages climbed 7.8% in the last quarter, signaling the need for better debt management.
It’s clear that while banks have made progress, challenges remain. A unified collection platform can provide much-needed muscle to stem the tide of rising bad loans.
What’s Next for PSB Alliance and the Banking Sector?
PSB Alliance Pvt Ltd expects the new collection agency to be fully operational in this fiscal year. The company has indicated it is working on other initiatives as well, continuing the trend of PSBs pooling resources to tackle shared challenges.
Not all banks have commented publicly, but industry watchers are optimistic. The collective approach could reduce operational costs and improve recovery rates — a win-win for lenders and the broader economy.
This initiative highlights a bigger story about the Indian banking sector: moving away from siloed operations toward collaborative frameworks. It’s an acknowledgment that the old ways aren’t enough anymore.
By banding together, PSBs hope to achieve something greater than the sum of their parts. It’s a strategy that might just bring better discipline to debt recovery and free up capital to lend to more businesses and consumers.
The Impact on Borrowers and Businesses
While banks benefit from improved recovery mechanisms, borrowers could see changes too. For one, a common agency means consistent communication and possibly quicker resolutions for loan defaults across multiple banks.
MSME borrowers especially could feel the squeeze if their overdue accounts are chased more effectively. On the other hand, clearer and unified processes might reduce confusion and delays in settling dues.
The shift may encourage borrowers to prioritize repayments more seriously, knowing that all lenders are coordinating efforts. But there’s also a chance of increased pressure on genuine borrowers facing hardship.
In short, the initiative is a double-edged sword — good for cleaning up loan books but demanding more discipline from borrowers.
