A committee will be set up soon to draw up the framework, said the people cited above. It will detail the process of approaching borrowers, the documents to be submitted and reports to be given to them, along with timelines and the course of action.
“Banks will share this common framework with the Reserve Bank of India (RBI) before finalising the guidelines to be followed by all lenders in such cases,” said a senior executive aware of the matter.
Lenders had asked the RBI for clarity on the matter through the Indian Banks’ Association (IBA). In its response, the RBI said lenders should follow existing guidelines while taking into account the Supreme Court order, said the executive cited above. While this meant each bank was free to develop its own template, lenders have decided on a common framework.
“Individual frameworks could have led to unnecessary confusion,” said the banker.
Making a Case
The Supreme Court had said that classifying a loan account as a fraud results in civil consequences for borrowers and hence an opportunity for a hearing must be given to such persons.”The committee will take all that into account, and if needed, modifications will be made after judgement in these cases,” said the executive cited above.
Banks can also look at standard operating procedures (SOPs) that can later be codified by the RBI, he said.
Earlier this month, the country’s largest bank, the State Bank of India, asked the court for clarification about the nature of the hearing and whether the ruling will apply prospectively.
The Supreme Court clarified that borrowers should be heard by banks before their accounts are labelled fraud as per the RBI July 2016 circular but this did not mean they should be “personally heard.”
“Personal hearing meant that a defaulter should be given adequate notice and an opportunity to make a representation. Our law has never been that opportunity of hearing means a personal hearing,” the bench led by chief justice DY Chandrachud said.
SBI was asked to file a separate review petition on whether the ruling will apply prospectively.
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