There are NPAs on account of the industrial downturn in sectors like steel, infrastructure and power.
As the group of PSU banks moved Supreme Court to restrain Vijay Mallya from traveling abroad, Finance Minister Arun Jaitley threw his weight behind the lenders, saying each penny lent must be recovered.
"Well, I think it's not only a legal but a moral obligation that every banking institution in India has to recover the last pie," Jaitley said.
The government cannot accept a "situation where 15 or 20 people are sitting on so much money of the banks, that the ability of the banks to lend to thousands of others" get severely impacted, he said.
"...whatever steps the banks will take in this matter, the government of India will stand behind them but also actively encourage them to protect their own interest which is also the larger public interest because the public money is involved in the banks.
"After all, I am taxing the people of India to put money into the capital of the banks," he told ET Now. He was asked about banks' efforts to recover dues from Mallya.
The Supreme Court will on Wednesday hear a plea of 13 banks, which had advanced loans of over Rs 9,000 crore (Rs 90 billion) to Mallya's firm, seeking a direction to restrain him from leaving India.
The Debt Recovery Tribunal on Monday barred Mallya from accessing $75 million (Rs 515 crore) exit payment from Diageo till the loan default case with SBI is settled while the ED registered a money laundering case against him in another default case.
Talking about bad loans in the banking system, Jaitley said there are two kinds of NPAs, one is because of economic slowdown while the other emanates from questionable practices.
There are NPAs on account of the industrial downturn in sectors like steel, infrastructure and power.
"In some cases, some companies are taking bonafide steps to sell assets so that companies come back into green. These are cases where we will have to give slightly a longer rope, because (we) don't want crisis situation," the Finance Minister said.
"But there are cases, which border more on questionable practices and there I think the provision of whatever laws exists will come into play," Jaitley said.
Gross Non Performing Assets (NPAs) ratio of the public sector banks increased from 5.43 per cent as on March 2015 to 7.30 per cent as on December 2015.
Gross NPAs of PSBs increased from Rs 2,67,065 lakh crore in March 2015 to Rs 3,61,731 lakh crore in December 2015.
