Making process of grant of loan, declaration of NPA cumbersome will result in policy paralysis: SC

NewsDrum Desk
25 Jan 2023

New Delhi, Jan 25 (PTI) The Supreme Court said on Wednesday it needed to balance various aspects related to public money and bank fraud as making the grant of loan and declaration of Non-Performing Assets (NPAs) cumbersome will ultimately result in "policy paralysis".


The top court said making the banking process cumbersome will lead to a situation where officials will fear taking any decision with regard to grant of loan and NPAs.

The top court was hearing a 2003 PIL filed by NGO Centre for Public Interest Litigation (CPIL) seeking directions to curb bank frauds, non-performing assets and prosecution of wilful defaulters.

The NGO has alleged bank fraud of Rs 14,500 crore including by some big corporate firms, which had defaulted in repayment of loans extended by the Housing and Urban Development Corporation (HUDCO).


The Reserve Bank of India (RBI) told the court its efforts to tackle bank frauds and action against wilful defaulters have resulted in reduction of NPAs, and it is taking all the preventive steps against those responsible for NPAs.

A bench of Justices Sanjay Kishan Kaul, Abhay S Oka and BV Nagarathna said, "We cannot unleash CBI for all kinds of bank frauds. If we burden the CBI with too many things, nothing will happen. We have to balance various issues of public money and bank frauds as making the process of grant of loans and declaration of NPAs cumbersome would ultimately result in policy paralysis." It said a "policy paralysis" may grip bank officials and other staff as they will fear taking any decision with regard to grant of loans.

It asked senior advocate Jaideep Gupta, appearing for the RBI, what steps the central bank has taken and what it needed to take, saying someone has to apply their mind as to what can be done to tackle the issue of bank frauds.


Gupta said although various steps have been taken which find mention in detail in the RBI affidavit, he can seek further instruction on measures needed to be undertaken further.

The top court asked Gupta to seek instruction in four weeks and listed the matter thereafter for hearing.

Solicitor General Tushar Mehta, appearing for the Centre, said the bank-customer relationship is fiduciary in nature and that separate regimes are there to deal with the issues of bank frauds like the Insolvency and Bankruptcy Code (IBC) and SARFAESI Act.


The bench said, "Finesse of bank frauds have also increased these days. There is a technological element to it and various other factors also need to be taken into account." Advocate Prashant Bhushan, appearing for the NGO with advocate Pranav Sachdeva, said police are not well equipped to handle economic frauds and it would be appropriate if CBI is strengthened.

He said the NGO has sought direction to all banks to strictly comply with the RBI’s circular dated July 1, 2016 and the CVC’s circular dated May 9, 2018 about reporting fraud cases to local police/state police and CBI.

The RBI in its affidavit said, "It is submitted that the Reserve Bank's resolute efforts have resulted in material decline in the NPAs of the banking system." It said the Reserve Bank continues to monitor the situation and would assure to take prudent measures in discharge of its statutory mandate to ensure a sound and resilient financial system in the interest of all stakeholders.


"Therefore, it is submitted that Reserve Bank has been taking steps towards resolution of stressed assets dovetailed with punitive measures against willful and fraudulent defaulters, which are within the jurisdiction of Reserve Bank, while formulating/ revising its policies, from time to time," it said.

In September last year, the top court had said the role of constitutional courts in PILs is to prod and push the authorities to scrupulously do their duties and not to take over governance.

A CVC report of 2006 had recommended initiation of disciplinary proceedings against HUDCO officials who were found to have availed facilities beyond entitlement and without keeping any record of it. PTI MNL MNL SK SK