Key Facts
The Supreme Court has strongly criticised the State Bank of India (SBI) and other banks for what it termed as 'borderline harassment' of ordinary borrowers while being 'casual' in sanctioning large loans to corporate entities. The observations were made by a bench of Justices Ahsanuddin Amanullah and R Mahadevan while dismissing a petition from a Haryana-based company that defaulted on an ₹8.09 crore loan from SBI.
Details of the Case
The bench noted that the borrower company obtained the loan in 2019 but failed to repay even a single instalment, leading to the account being classified as a non-performing asset (NPA) within months. The court found the borrower's conduct indefensible and declined to interfere with SBI's recovery proceedings under the SARFAESI Act. However, it granted the company two weeks' protection to approach the Debt Recovery Tribunal.
Court's Observations on Banking Practices
The Supreme Court expressed displeasure over the disparity in how banks treat different categories of borrowers. The bench stated: 'We indicate that it is coming to the notice of the Court that the banks in general, including respondent no.1-SBI, are casual in granting loans of huge amounts to bigger entities but at the same time very demanding apropos small loans where ordinary people come for personal requirements, yet subjecting them to more stringent conditions and a tedious process, which may amount to, in certain cases, borderline harassment.'
The court emphasised that while it was not suggesting easing of norms, the procedure should be made easier and fairer for loan seekers, especially those from weaker economic sections. It also urged SBI to revisit its policies to ensure that concessions and incentives are graded to benefit the lowest rung of the social and financial strata.
Negligence in Sanctioning Large Loans
The bench specifically pointed out negligence on the part of SBI and its officials in sanctioning the ₹8.09 crore loan to the petitioner company. It noted that the borrower's immediate default was a clear indicator that proper assessment of repayment capacity may not have been undertaken. The court said: 'We find that there has been negligence on the part of the SBI and its officials in granting/sanctioning a huge loan of ₹8,09,00,000 to the petitioner-company.'
Broader Context of Banking Defaults
The observations come against the backdrop of major banking defaults in India, including Kingfisher Airlines (₹9,000 crore dues), the Punjab National Bank fraud (₹13,000 crore), and the IL&FS collapse (₹90,000 crore). These cases have exposed weaknesses in credit appraisal and risk assessment within the financial system.
What Readers Should Know
- The Supreme Court has not issued specific directions in this case but has left the door open for a more appropriate case to address broader banking practices.
- The court requested Additional Solicitor General Archana Pathak Dave to convey its concerns to SBI at the appropriate level.
- SBI defended its actions by highlighting the borrower's conduct, arguing that the company failed to pay any instalment after availing the loan on commercial terms.
Frequently Asked Questions
What did the Supreme Court say about banks' loan practices?
The Supreme Court observed that banks are casual in granting huge loans to big entities but subject ordinary borrowers to stringent conditions and tedious processes, amounting to borderline harassment.
Which bank was specifically criticised by the Supreme Court?
The State Bank of India (SBI) was specifically criticised for negligence in sanctioning a ₹8.09 crore loan to a Haryana-based company that defaulted immediately.
What did the Supreme Court suggest for loan policies?
The court suggested that loan processes should be made easier and fairer for ordinary citizens, and policies should be graded to give maximum benefit to those at the lowest rung of the economic spectrum.