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Reform the banking system to prevent huge write-offs of bad loans: SC

27 Apr 2016 Evaluate

A Supreme Court bench led by Chief Justice T S Thakur, hearing on a 2003 public interest litigation (PIL) petition filed by non-profit Centre for Public Interest Litigation related to loans advanced to a few companies by state-owned Housing and Urban Development Corp. Ltd turning bad, said the banking mechanism of granting and recovering big loans appeared flawed and told the Centre that an expert panel could be set up to suggest remedial measures. The Supreme Court had taken a suo motu cognizance of the report that Rs 1.14 lakh had been written-off by PSBs in last three years.

The court asked the government to “reform” the banking system to prevent huge write-offs of bad loans and also to ensure people are not allowed to run away after default in repaying the loans. The bench further said that we are not aware of the technical issues relating to dealing with defaulters. The government must consider doing something. The court asked the Centre, Reserve Bank of India (RBI) and the Indian Banks Association to reply.

Earlier, the bench headed by chief justice T.S. Thakur directed Reserve Bank of India to provide a list of companies that have defaulted on bank loans in excess of Rs 500 crore and expressed serious concern over rising bad loans. The RBI, on the direction of the court, had submitted a list of big defaulters, each of whom had failed to repay loans worth Rs 500 crore but had put in a caveat by saying disclosure of names may have an impact on the livelihood of scores of employees employed in such entities and could have an adverse impact on the country's economy. But if the court desires, we are not standing in the way of disclosure.

The bench said that something is not working in the system, leading to accumulation of such huge loan defaults. The Centre should not take these proceedings as adversarial. If you (the government) propose, we can set up a committee of financial experts to go into all areas of loan and recovery and the committee can suggest remedial measures.

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