Taking suo motu cognizance of The Indian Express report that Rs 1.14 lakh crore of bad loans had been written off by state-owned banks between 2013 and 2015, the Supreme Court Tuesday ordered the Reserve Bank of India (RBI) to share with it names of all defaulters who owe over Rs 500 crore and continue to lead “lavish lifestyle”.
“People are owing thousands of crore to the public banks… it is a big fraud. Top ten public sector banks have written off Rs 40,000 crore alone in 2015. It is all there in this Indian Express report. Public financial institutions are lending money despite knowing no returns. RBI is supposed to keep a watch on these banks. What are you doing about it?” a bench headed by Chief Justice
T S Thakur asked Solicitor General Ranjit Kumar.
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On February 9, The Indian Express reported that a RTI response from the RBI revealed that while bad loans stood at Rs 15,551 crore for the financial year ending March 2012, they shot up over three times to Rs 52,542 crore by the end of March 2015.
The government has been trying to shore up public sector banks through equity capital and other measures even as bad loans written off between 2004 and 2015 amounted to more than Rs 2.11 lakh crore. More than half such loans (Rs 1,14,182 crore) were waived between 2013 and 2015.
Responding to the RTI application which had sought details of the biggest defaulters, whether individuals or business entities, whose bad debts to the tune of Rs 100 crore or more had been written off, the RBI said: “The required information is not available with us.” Banks are required to report the bad loans on a consolidated basis, it said.
On Tuesday, the Supreme Court bench, also comprising Justices R Banumathi and Uday U Lalit, directed the RBI to submit details of defaulters with debts over Rs 500 crore, rejecting the banking regulator’s argument that it will have to first check the policy on such disclosures.
The court was hearing a PIL filed in 2003 by NGO CPIL regarding alleged irregularities in advancing loans by the Housing and Urban Development Corporation Limited (HUDCO) when its counsel Prashant Bhushan handed over The Indian Express report, pointing out that the problem of bad loans has assumed dangerous proportions.
After going through the report, the bench questioned the Solicitor General: “This report is based on RTI… it is not based on the reporter’s assumptions. NPA (non-performing assets) declaration is not unknown to any economy but one has to be prudent in advancing loans, and cautious and vigilant in recovering it. Are you happy in keep funding these companies who declare themselves as sick companies and they have lavish lifestyle?”
Ranjit Kumar said the government is taking steps under the SARFAESI Act (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act) whereby banks can recover loans in cases where NPAs are backed by securities charged to the bank by way of hypothecation or mortgage or assignment.
But the bench said: “Thousands of crore have been written off as bad debts on one day. You must recover that money. From this news report, it looks like a regular phenomenon. Thousands of crores are being written off every year and then you spend more money to recover money. Issue of bad debts is a general issue faced by public sector banks. This is plaguing all financial institutions, especially PSU banks.”
It made RBI a party and issued notice, seeking details of defaulters where loans of Rs 500 crore and more have been restructured.
When the RBI counsel said it would be difficult to adduce the list, the bench said: “You are supposed to keep a watch on these banks. What are you doing about keeping a watch if you don’t even have this information? You have a list of major defaulters who run empires and yet default. You file an affidavit showing extent of bad debts written off in last five years within six weeks.”
It accepted the RBI counsel’s plea to let it submit the details in a sealed cover initially.