SC Talks Tough on Bad Loans

Wants to know RBI’s role in curb­ing the men­ace; seeks to make NPA de­tails pub­lic

The Economic Times - - Companies - Sa­man­waya.Rau­tray @times­

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

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