Bad loans: Reform the banking system, Supreme Court tells govt

A bench led by Chief Justice T S Thakur said that a “sensible and sensitive” approach is required to overhaul the entire system, which today has scores of people and entities with outstanding to the tunes of crore of rupees.

Written by Utkarsh Anand | New Delhi | Published: April 27, 2016 3:14 am
RBI, Bank loans, India, Banking, SBI, ministry of fianance, Supreme court, raghuram rajan, bank loan, Express 1.4 lakh crore, bad debts Supreme Court of India

The Supreme Court Tuesday asked the government to “reform” the banking system to prevent huge write-offs of bad loans and also to ensure people are not allowed to run away after default in repaying the loans.

A bench led by Chief Justice T S Thakur said that a “sensible and sensitive” approach is required to overhaul the entire system, which today has scores of people and entities with outstanding to the tunes of crore of rupees. Referring to The Indian Express report in which the RBI, responding to a RTI application, had said Rs 1.14 lakh crore was written-off by public sector banks (PSBs) in the last three years, the bench remarked: “This newspaper has been asking for the information on its own…you today have lakh of crore as outstanding…people have run away. You have to reform the system.”

The bench added: “Don’t say your system is perfect because had that been the case you, you would not have such huge outstanding and write-offs … something is certainly missing in the system … something is not working and so you must reform it.”

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In February, this newspaper has reported that Rs 1.14 lakh had been written-off by PSBs in last three years, following which the Supreme Court had taken a suo motu cognizance of the report. It had questioned the RBI whether the write-offs were a “big fraud” and also sought explanations from the Union finance ministry and an association of PSBs as parties to the case.

On Tuesday, as the hearing began, advocate Prashant Bhushan, who appeared for PIL petitioner NGO CPIL in the matter, read out from his note, urging the bench to issue directives for a mechanism to prevent massive bad loans and put in place a sound system for recovering the amount. He also handed over to the bench, also comprising Justices R Banumathi and Uday U Lalit, The Indian Express report published on Tuesday wherein the discrepancies between statistics maintained by the RBI and data supplied by individual banks on write-offs and Non-Performing Assets (NPAs) was highlighted.

The bench responded: “You must also ask for steps being taken by the banks for recovery of these loans…as per this report, it is Rs 1.14 lakh crore in three years only. There can be mechanisms for future but for the loans taken earlier, there have to be steps for recovery.” It asked Solicitor General Ranjit Kumar to apprise the bench of the steps being undertaken to recover the money. “There may be areas where we cannot simply pass orders since we are not the experts but you are.. .don’t take this as adversarial…you have to safeguard against arbitrary distribution of loans and also take steps for recovery,” the bench told the SG.

Kumar replied that the government acknowledges the problem and that some amendments are already in the offing.

“Bankruptcy Code will soon be in place too. We are working on it,” he added.

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