Reform Banking System to Deal With NPA: SC to Govt
New Delhi: The Supreme Court on Tuesday told the Modi government to overhaul its banking system to prevent bad loans and hasten their recovery from defaulting borrowers, instead of acting as if everything was fine, observing that in such a case the public sector banks would not have had to write off bad loans to the extent of over .₹ 1,14,000 cr.
“Don’t say that the existing system is working fine, carry out reforms. If it had been working, this would not have happened. There would not be such huge (loan) write-offs,” Chief Justice of India TS Thakur, sitting TSTHAKUR alongside Justices R Banumathi and UU Lalit, told Solicitor General Ranjit Kumar. “You may set up a committee which will debate how to improve the system.”
The CJI also took a dig at the Solicitor General who was assisting Attorney General Mukul Rohatgi in the case. “I hope you stand on this will not be like the Kohinoor?” The bench then sought the Finance mInistry, the RBI and the Indian Banks’ Association to respond to issues framed by NGO petitioner Centre for Public interest Litigation (CPIL), through lawyer Prashant Bhushan.
The SG said that the country’s bankruptcy code was being changed and also more amendments in the law were being made to ensure that NPAs stayed under check. He said that a statutory mechanism in the form of the Sarfaesi Act and the DRT also existed to deal with assets recovery. However, the CJI was unhappy with the government stand and insisted that the finance ministry debate ways and means to further improve the system. “Set up a committee, debate how things can be improved. We will help you,” the CJI said.
The CJI led bench, which had earlier sought details from the RBI about all those who had defaulted on loans over .₹ 500 cr and above, has, however, so far not made it public at the insistence of the RBI. The apex regulatory body for banks says this will affect public confidence in banks and stall economic growth as it will deter genuine promoters.
Instead, the court is now debating on referring the entire issue for a bigger debate to a large bench. Among the questions that will be
Chief Justice of India
referred will be whether the RBI can refuse to disclose information about defaulted loans, mechanisms required to ensure that banks obtain adequate security for such loans to corporates.
Whether personal guarantees of the promoters should be required to be taken in loans given to the corporates, what safeguards are necessary for ensuring that loans are not restructured without good reasons
or restructured on fair terms? What safeguards are necessary to ensure that borrowers do not indulge in bank shopping while seeking loans and to ensure that fresh loans are not given without good reasons to those companies which had already defaulted in their repayment of loans?
What safeguards are necessary for ensuring that there is no arbitrary settlement/write off of loans?