There is something fundamentally wrong with a banking system where employees are expected to account for every missed target, every delayed loan recovery and every customer complaint, while some of the country’s biggest borrowers walk away after imposing staggering losses on banks.
The latest numbers should disturb anyone who cares about the health of India’s banking system.In just five years, banks admitted claims worth ₹8.49 lakh crore against defaulting borrowers. They recovered only ₹2.42 lakh crore. The remaining ₹6.07 lakh crore was effectively sacrificed through haircuts—an average of 72 percent.
In 2025-26 alone, banks recovered barely ₹42,003 crore against admitted claims of ₹2.10 lakh crore, implying an eye-popping 80 percent haircut. These figures have been highlighted by bank unions.Let’s stop calling this a “haircut” as though it were a routine business adjustment. A haircut of this magnitude is a transfer of value—from public sector banks to failed borrowers.
It is depositors’ money that is being written down. It is taxpayer-backed capital that eventually fills the hole. And it is bank employees who are left explaining why profitability remains under pressure.Yes, insolvency is about resolving stressed assets, not punishing businesses. Nobody expects banks to recover every rupee from a company that has collapsed.
But when banks repeatedly settle for 60, 70 or even 80 percent sacrifices, the question is no longer about commercial wisdom. It is about whether the balance has tilted too far in favour of defaulting promoters and bidders.The irony is impossible to ignore.A small borrower who misses a few EMIs is pursued relentlessly. Recovery notices arrive quickly. Credit scores are damaged.
But when defaults run into thousands of crores, the conversation suddenly shifts to “value maximisation”, “commercial realities” and “timely resolution”. Somewhere along the way, accountability becomes negotiable.For bank employees, these numbers reinforce a long-standing frustration. They are asked to mobilise deposits, cross-sell insurance, recover overdue loans, meet digital targets and improve productivity with shrinking manpower.
Yet the largest destruction of value often happens far above the branch level, through corporate lending decisions and subsequent resolutions over which they have no control.India has rightly celebrated the clean-up of bank balance sheets over the past few years. Gross NPAs have fallen and profitability has improved. But the clean-up cannot become an excuse to ignore the cost at which it was achieved.
If banks routinely recover barely a quarter of what is owed in large insolvency cases, then the system owes the public an honest answer: Is this the best we can do? Or have we simply become comfortable socialising losses while privatising failure?The figures highlighted by bank unions may reflect only one side of the debate. But they raise a question that deserves an answer: How long can India’s banks afford to keep taking haircuts this deep before someone asks who is really paying the bill?
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