Govt Lists 'Comprehensive Reforms' Taken Up To Instill Credit Discipline In Public Sector Banks

The Ministry of Finance, in response to a query raised in the Parliament, listed the "comprehensive reforms" undertaken by the government to instill credit disciple in public sector banks.

The government pointed out that measures like Insolvency & Bankruptcy Code, market-based stressed asset transfer, and EASE (Enhanced Access & Service Excellence) reforms drove recovery in non-performing assets and promoted responsible lending.

The credit discipline has been instilled through "enactment of the IBC, setting up of the Central Repository of Information on Large Credits by the RBI to monitor corporate loans, and systematic checking of high-value accounts for willful default and fraud", the finance ministry said.

To protect financial institutions in case of default or delay in payment by large borrowers, multiple steps have been taken, the government said. These include putting in place a "framework for early recognition and time-bound resolution of stress", along with "automated Early Warning Systems" to detect and reduce slippage of accounts into NPAs using third-party data and workflow for time-bound remedial actions.

The measures also include strengthening market-based mechanisms to better manage the credit risk on the balance sheets through a comprehensive framework for transfer of stressed assets to eligible transferees, the finance ministry said.

The National Asset Reconstruction Co. has also been set up to consolidate and takeover stressed debt, fragmented across various lenders and thereafter manage and dispose it off to buyers for better realisation, it added.

Governance reforms in PSBs have been carried out through reforms like arms length selection of top management through Financial Services Institutions Bureau, introduction of non-executive chairmen in Nationalised Banks, widening talent pool and instituting performance-based extension for managing directors,

"EASE reforms have enabled objective and benchmarked progress on all key areas in PSBs such as governance, prudential lending, risk management, technology- and data-driven banking, and outcome-centric HR," it added.

The government further said that amalgamation of PSBs has led to economies of scale, increase financial capacity, technology adoption and overall efficiency enhancement.

The government reforms in PSBs has also been supported by "massive technology adoption in banking", which has been instrumental in expanding financial inclusion, improving efficiency, and enabling real-time service delivery.

The finance ministry further noted that the Banking Regulation (Amendment) Act, 2020 was brought in to enhance the governance, financial stability, and regulatory oversight of co-operative banks, which serve millions of citizens, particularly in rural and semi-urban areas.

"The Banking Laws (Amendment) Act, 2025 has been notified to enhance governance standards, strengthen protection for depositors and investors, improve audit quality in PSBs, shift statutory reporting by banks to the RBI and streamline nomination processes for customer convenience," it added.