Banks Loans and Recovery Agents at what Cost?

  Banks Loans and Recovery Agents at what Cost?

Apropos the editorial “Off the Tough Route to Loan Recovery” (ET, 1 May 2026), the growing reliance on stringent recovery measures points to a deeper malaise—not weak laws, but weak credit culture within the banking system. The saying that one can take a horse to water but twenty cannot make it drink holds true to bankers approach to credit. The problem originates at the appraisal stage. Credit is too often extended without a disciplined assessment of cash flows, viability, and repayment capacity. Lending, in several instances, has become exposure-driven rather than need-based. The outcome is predictable: stressed assets that later demand “tough routes” for recovery. All at a very high cost indeed.

Equally paradoxical is the continued exclusion of genuinely viable small borrowers. Despite decades of nationalisation, financial inclusion initiatives, and advances in technology, the banking system still shows limited sensitivity to the needs of the poor and informal sector. While larger exposures have at times benefited from relaxed discipline, deserving small borrowers struggle for access. The bankers are yet to get the feel of the poor and feel for the poor is a sad story. 

The solution lies not merely in tightening recovery mechanisms, but in reorienting banking practices. Credit must be anchored to cash flows, supported by effective use of technology and artificial intelligence for appraisal and monitoring. Integrating lending with transaction and deposit accounts can align credit with real economic activity and improve repayment behaviour.

Banks must return to basics—mobilising deposits responsibly and deploying credit prudently across all viable sectors. A system that lends with discipline will not have to rely excessively on coercive recovery methods. 

A shift from reactive recovery to proactive credit management is essential to restore both efficiency and credibility in the banking system.

Yours faithfully,
 T V Gopalakrishnan

( This letter sent to ET not found published)