The Supreme Court on Tuesday ordered the Reserve Bank of India (RBI) to furnish details of loans written off by public sector banks in the last five years along with the particulars of alleged defaulters who owe Rs 500 crore or more, terming such practices a fraud on the public.
“Thousands of crores are owed to public financial institutions, including state-owned banks while the promoters are enjoying,” a bench headed by Chief Justice TS Thakur said, strongly disapproving of the banks’ policy to write off such debt. “These are government banks. Isn’t it a fraud on the people that you keep writing it off?” the bench observed.
Granting six weeks’ time to file an affidavit, the bench said the RBI must provide information of instances where banks have restructured loans since 2011 by waiving interest or extending the tenure in case of lent amounts of Rs 500 crore and above. It allowed the RBI to submit a sealed-cover report containing names of alleged defaulters after the counsel for the banking regulator said the particulars sought were confidential.
The direction from the bench came after advocate Prashant Bhushan drew the court’s attention to a vigilance report pointing out how banks lent money to companies the RBI had declared ineligible.
“We direct the RBI to accept notice,” the bench ordered when Bhushan requested it to make the regulator a party in the PIL pending since 2003 in which non-profit organisation CPIL accused state-owned Housing and Urban Development Corporation (HUDCO) of advancing loans to ineligible borrowers. The alleged scam led to irreparable loss to the corporation.
The banking sector has been beset with non-performing assets (NPAs) that have risen due to slow growth and delays in project implementation. For 39 listed banks, gross NPAs rose to Rs 4.43 lakh crore for the quarter-ended December from Rs 3.4 lakh crore in the previous quarter.
Most banks have reported a sharp slide in profits, pummelled by higher “provisioning” for NPAs.
NPAs, shorthand for loans that have turned bad, have jumped sharply, forcing lenders to set aside or “provision” a greater amount to account for these advances that have stopped yielding earnings.
Bhushan told the court that about Rs 40,000 crore of corporate debt was written off in 2015. “These are big people running big empires. Why shouldn’t the RBI disclose this information to the public?” the CJI said, responding to the advocate’s allegations the RBI was not tough with defaulters.
Justice Thakur sought to know what writing off entailed. “Does it mean that you write off and let the company go scot-free,” he wondered. Solicitor general Ranjit Kumar explained under the procedure the assets of a company are first sold off and loans are recovered to the extent possible. “What cannot be is placed in a separate head to ensure the bank’s books don’t look bad as it affects their share valuation,” he told the bench.
Last week, RBI governor Raghuram Rajan said the central bank and the government were determined to tidy up India’s problem of mounting bad loans by the next year but cautioned the solution might involve “deep surgery”.