SC Talks Tough on Bad Loans
Wants to know RBI’s role in curbing the menace; seeks to make NPA details public
New Delhi: The Supreme Court expressed concern over the “substantial” bad debt burdening the country’s banks and asked the Reserve Bank of India what it was doing as regulator to ensure that dues were being recovered and not piling up. It also pushed the central bank to reveal the total amount of such non-performing assets but relented when its lawyer said such information may lead to loss of confidence in the country’s banks.
RBI has already given the court a report on all those who owe more than .₹ 500 crore in a sealed cover. The bench comprising Chief Justice TS Thakur and Justice R Banumathi said on Tuesday that it would examine whether action had been taken to get back money owed and prevent bad debt from rising further. “The figures show that the outstandings had gone down from June 2014 to September 2014, only to rise again by December,” Thakur said. “It is a substantial figure.” The case will next be heard on April 25.
India’s banks have intensified efforts over the past few months to recover debt besides setting aside money against bad loans under pressure from RBI, which wants their books cleaned up by next year. As part of this effort, banks have been pursuing businessman Vijay Mallya to get back about .₹ 9,000 crore in dues they’re owed by Kingfisher Airlines, which was founded by him.
RBI counsel Jaideep Gupta told the court on Tuesday that banking laws, including the RBI Act and the Credit Information Companies (Regulation) Act of 2005, mandate secrecy with regard to outstanding amounts. It was possible in some instances to reveal details under the Right to Information (RTI) Act, but blanket disclosure was not permissible, he said. The bad debt total runs into lakhs of crores of rupees as per conservative estimates.
“The aggregate figure will have an impact on the economy,” Gupta said, explaining why making revealing it would be detrimental to public confidence. He also said the banking system had been decentralised from time to time and lenders were free to decide on restructuring loans, merely “reporting” these to the central bank. “RBI does not involve itself in the day-to-day functioning of banks,” he said, adding that the Indian Banks’ Association lobby group be asked to speak for the lenders. Thakur wanted to know what RBI was doing as a watchdog. “If a bank is not doing things prudently and is recklessly extending such loans without adequate collateral and hope of recovery, are you not supposed to keep a vigil on this?” he said.
Gupta said action had been taken against erring banks whenever such wrongdoing had come to light. Since 2005, banks are mandated under law to send data to credit information companies and not RBI, which only plays a “supervisory” role, he said.
Activist-lawyer Prashant Bhushan, who had drawn the top court’s attention to the bad-debt issue in a case involving alleged siphoning of money from Hudco, protested against this argument.
“RBI has to reveal such information under RTI,” he said. “I thought the present RBI governor is a good man but I am surprised that this kind of affidavit has been filed by him.” The chief justice immediately interjected: “That does not make him a bad man.” Thakur said big borrowers were being spared while smaller ones were suffering. “People are taking crores of rupees, running their businesses, and then declaring them sick, but properties of the small borrowers are attached,” he said. “Some are even leaving (the country),” Gupta said, without elaborating.
In this context, Bhushan referred to 500 farmers whose land was sold by banks to recover amounts as low as .₹ 20,000 to .₹ 25,000 in Madhya Pradesh.
Thakur explained his decision to enlarge the scope of the court’s jurisdiction to deal with such bad loans. “You are meant to be a watchdog. What are you doing? The information (given to us) involves a substantial amount. We need to be satisfied that all that is required to be done is being done,” he said.
He issued notices to the Indian Banks’ Association and the finance secretary seeking their views on bad debts. He also asked Bhushan to formulate legal issues to facilitate a more focussed debate on the issue.
Indian banks have intensified efforts over the past few months to recover debt besides setting aside money against bad loans