Questioning the Reserve Bank of India (RBI) over what it called a “mind-boggling” amount of bad outstanding loans given by state-owned banks, the Supreme Court Tuesday rued that farmers are forced to sell their land for failing to repay agricultural loans of some thousands of rupees, while those defaulting in repayment of thousands of crores manage to run away.
A bench led by Chief Justice T S Thakur told the RBI that the amount of bad loans disclosed in the regulator’s affidavit makes it clear that the “outstanding is very large” and that the court would need to know about the steps being taken to retrieve the money.
RBI was asked to explain the huge amount of loans written off by public sector banks (PSBs) in the last five years after the bench took suo motu cognizance of The Indian Express report dated February 8 that Rs 1.14 lakh crore had been written off as Non-Performing Assets (NPAs) by 29 state-owned banks in the last three years.
“Are you not supposed to keep vigil? Is RBI not supposed to maintain information and act on how public sector banks are advancing loans? These banks are supposed to act prudentially but if they have been doing it by flouting 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 bench told RBI’s counsel Jaideep Gupta.
Underlining that the top court has now enlarged the scope of the matter and that it would examine all aspects of bad loans and their write-offs, the bench added: “What is this happening? There are people who take thousands 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 court also perused the details of defaulters of loans of Rs 500 crore and more, submitted by the RBI in a sealed cover envelope to maintain “confidentiality”, and said that “the information does make out a case for us to examine the matter”.
The bench also issued notices to the Union Finance Ministry and the Indian Banks’ Association, after making them parties in the case. “We have enlarged the scope of this matter and we will decide it. It is quite a substantial amount which is involved. We need to be satisfied what requires to be done,” it observed.
While the RBI pressed for keeping the names of the biggest defaulters secret, the court replied that while the names could remain under wraps for now, the amount involved could be disclosed. At this point, RBI’s counsel said: “Disclosing aggregate figure can also have an impact on the economy.” He added that “a lot of decentralisation” has also happened and the banks have been given discretion to give loans. “RBI does not look into their day-to-day restructuring of loans or NPAs,” said Gupta as he favoured making the Indian Bank’s Association, a registered body representing various PSBs, a party to the case to defend their actions on their own.
Advocate Prashant Bhushan, the counsel for the NGO, CPIL, had filed a PIL in 2003 over alleged irregularities in advancing loans by the Housing and Urban Development Corporation Limited. On the last date, he adduced a copy of the report on bad loans and write-offs published by The Indian Express and the bench took suo motu cognizance and issued a notice to the RBI seeking an explanation and the names of the biggest defaulters.
On Tuesday, Bhushan countered the RBI’s arguments on keeping the names and amount confidential because of their fiduciary relationship with the banks by citing a Supreme Court judgment dated December 16, 2015, in which the court had ruled that the RBI is “clearly not in fiduciary relationship with any bank” and that it cannot hide information solely because of the embarrassment it may cause. On his part, RBI’s counsel cited the RBI Act and the Credit Information Companies (Regulation) Act to contend that details of defaulters should be kept secret.
The bench replied: “The concern here is that lakhs of crore in outstanding has been in default of repayments and we had asked for figures of only those who had outstanding of Rs 500 crore and more. This will certainly be more if we have all the figures. We will formulate the issues and debate it so that we can settle it. The issue of whether a confidentiality clause will apply or not can also be looked into by us.” It fixed the matter for hearing on April 26 and asked Solicitor General Ranjit Kumar to assist the bench in formulating and deciding various issues relating to bad loans and write-offs.