The Supreme Court has decided to act tough with those who have defaulted in repaying loans of over £50 million to public sector banks and financial institutions, and asked RBI to submit a list of such defaulters.
A bench of Chief Justice T S Thakur and Justices R Banumathi and U U Lalit took strong exception to the prevailing banking atmosphere where “big corporate house owners have defaulted repaying billions of rupees taken as loan, yet enjoying their lives personally.” It wondered how public sector banks and financial institutions could advance such huge loans without clauses in the contract to ensure that the loan amount could be recovered easily in case of default.
When the RBI counsel said information about defaulters was classified, the bench asked the central bank to submit the list in the form of an affidavit in sealed cover. The court's attention to big defaulters was drawn by advocate Prashant Bhushan, who had filed a petition more than a decade ago highlighting the scam in Housing and Urban Development Corporation (Hudco) when the BJP-led NDA was in power.
He said a similar approach continued as bad debts to public sector banks running into billions of rupees were written off every now and then. A newspaper had recently obtained data through RTI Act to report that 29 state owned banks had written of £11.40 billion of bad debt between financial years 2013 and 2015. The bad debts written off between 2004 and 2015 was £21.1 billion, the daily had reported.
Bhushan also quoted from RBI governor Raghuram Rajan's recent speech in Anand, Gujarat, where he said, “The sanctity of the debt contract has been continuously eroded in India in recent years, not by small borrowers but by the large borrowers. And this has to change if we are to get banks to finance the enormous infrastructure needs and industrial growth that this country aims to attain.”
The court appeared to share Rajan's concern when he said, “The public believes the large promoter makes merry because of sweet deals between him and the banker. While these views have gained currency because of recent revelations of possible corruption in banks. Who pays for this (writing off debts)? Clearly, the hard working savers and taxpayers of this country. As just one measure, the total write offs of loans made by the commercial banks in the last five years is £16.10 billion, which is 1.27% of GDP. Of course, some of this amount will be recovered, but given the size of the stressed assets in the system, there will be more write-offs to come.”
Bhushan too agreed with Rajan's view and said the Centre for Public Interest Litigation (CPIL) had in 2003 filed a petition seeking an independent probe into the affairs of Hudco in granting loans, making investments and providing credit facilities without adhering to the established procedure of law and without taking into account viability of projects and track record of borrowing organizations.
