SC tells govt to set up bad loans panel

Centre, RBI to file replies; matter adjourned to July

The Supreme Court on Tuesday asked the government to come up with a proposal for appointment of a committee to look into the issues raised regarding bad loans and huge write-offs by public sector banks.

A Bench of Chief Justice of India T S Thakur asked the Centre and Reserve Bank of India to respond to various issues raised by senior advocate Prashant Bhushan of the Centre for Public Interest Litigation in the matter.

The court also allowed Indian Banks’ Association, another respondent, to file a response.

The court was hearing a public interest litigation petition filed in 2003 by the CPIL against Hudco, which has since been widened to include RBI, banks and other financial institutions.

The matter was adjourned to July 19.

After going through the various issues raised by Bhushan, including adequacy of promoter guarantee, safeguards against bank-shopping and evergreening of loans, Thakur said, “We are not financial experts,” adding, “You propose a committee to look into it. We will accept the proposal.”

The Bench asked the government not to treat the suggestions “adversarial.”

Thakur added, “Something is missing (in the present system).

That is why it is not working. We are looking at suggestions to reform the system and prevent huge write-offs.”

Solicitor-General Ranjit Kumar sought some time since Parliament was in session and said amendments were in the offing. He also referred to the new bankruptcy law, which will be implemented soon, as one measure that could speed up recovery.

The RBI counsel said systems are already in place for most issues raised by Bhushan.

Among the issues raised by Bhushan was whether the banking regulator can “refuse to disclose information about defaulted loans, suits filed for recovery of loans, restructured loans, debts written off, wilful defaulters, one-time settlement, sales of assets of companies to asset reconstruction companies etc,” keeping in view the court’s December order.  

The Supreme Court had held in December that RBI cannot withhold information under the “guise” of confidence or trust with financial institutions and is accountable to provide information sought by the general public.

The court’s judgment came on a batch of pleas transferred from various high courts where the Central Information Commission had directed RBI to furnish the information sought by applicants under the Right to Information Act.

Following this, in an RTI response to The Indian Express in February, RBI had said Rs 1.14 lakh crore (Rs 1.14 trillion) was written-off by public sector banks in the last three years.

Earlier, Bhushan had referred to the significant variance in the write-offs reported by individual banks and those given by RBI under Right to Information. Bhushan said while RBI said Punjab National Bank wrote off over Rs 8,500 crore (Rs 85 billion) in last two years, PNB said it did not write-off a single paisa during this period.

Similarly, the Bank Of India claimed its write-off in the last two years was more than Rs 17,700 crore (Rs 177 billion), but RBI put the figure at Rs 2,567 crore.

“The difference is so huge that it is alarming,” Bhushan said, wondering if the banks are reporting all their write-offs to RBI or not.

Bhushan alleged that despite the December order, RBI continues to refuse information citing the sub-judice nature of this (Hudco) case.