SC asks Centre, RBI to explain steps for recovering bad loans

The Supreme Court on Tuesday asked the Centre and the RBI to explain the steps required to be undertaken for recovering outstanding loans of Rs 1.14 lakh crore.

The outstanding loans were given by the state-owned banks to industrial houses.
After going through RBI’s list of loan defaulters of Rs 500 crore and more, a three-judge bench presided over by Chief Justice T S Thakur questioned role of the bank regulator.

“What is happening? There are people who take thousand of crores in loans and they manage to run away. Banks are left to waive the loans or restructure them. On the other hand, farmers getting some thousands in loans are compelled to even sell their lands if they cannot repay,” the bench, also comprising Justices R Banumathi and U U Lalit, said.

The court said it would examine all aspects of bad loans and the procedure for writing-off. It issued notice to the Union Finance Ministry and Indian Banks Association and asked advocates Prashant Bhushan, appearing for NGO CPIL and RBI’s counsel senior advocate Jaydeep Gupta to formulate issues for determination by the court.

After taking cognisance of a news report pointing out that 29 state-owned banks in last three years had written off Rs 1.14 lakh crore loans as non-performing assets, the court had on February 16 directed the RBI to provide the list of defaulters in sealed cover.

The RBI counsel insisted on keeping the names of biggest defaulters secret. He contended that even disclosing an aggregate figure could have an impact on the economy.

The bench, however, asked: “Is not the RBI supposed to maintain information and act on how the public sector banks are advancing loans? These banks are supposed to act prudentially, but if they have been doing it by flouting the norms and without ensuring adequate assets as securities, are you not supposed to take actions against them? RBI is the regulator, you must act as a watchdog.”

The counsel maintained that the RBI does not look into their day-to-day restructuring of loans or NPAs. He suggested seeking response from Indian Banks' Association, a registered body representing PSBs. He also cited the RBI Act and the Credit Information Companies (Regulation) Act to contend that details of defaulters should be kept secret.

Advocate Bhushan sought direction for disclosure of defaulters’ names. He also referred a SC verdict of December 16, last, holding that the RBI is clearly not in fiduciary relationship with any bank, so it cannot hide information solely because of the probable embarrassment to defaulters.