Banking News

SC seeks Reserve Bank of India’s response on bank loans

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The Supreme Court on Monday asked the Reserve Bank of India to file an affidavit indicating whether its circulars mandate banks to furnish/supply documents that are signed at the time of granting of loans and if the lenders are under obligation to inform the borrowers in writing about any interest rate fluctuations and also give yearly statement of their loan accounts to them.

A Bench led by Justice Sanjiv Khanna while seeking RBI’s response in four weeks observed that “there has to be a complete transparency.”

The apex court was hearing a Punjab National Bank’s appeal against the Punjab and Haryana High Court’s judgment that quashed the PNB’s demand notice issued to Guru Nanak Engineering Works under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi Act) and asked the lender to classify its NPA account as standard and also refund interest.

The SC Bench while staying the HC order allowed Sarfaesi and DRT proceedings to continue in accordance with law.
“The impugned judgment is wholly unjustified. It will paralyze the entire debt recovery system because such kinds of judgments lead to uncertainty in the entire banking industry,” the lender argued.The PNB argued that overcharging of interest was a pure question of fact. “The HC without even properly considering the terms and conditions of the private contract with the borrower rendered the impugned judgment on a perverse premise that petitioners over-charged the respondent in terms of interest, which is apparently against the record,” the appeal stated.Stating that the HC judgment was “clearly counter-productive and against larger public interest,” the PNB in its appeal stated that interest was charged strictly as per RBI circulars issued from time to time and the borrower’s account was classified NPA for about five times since sanction. Later credit facilities were recalled and borrower was directed to pay its dues. The bank also filed a recovery suit before Debt Recover Tribunal, Chandigarh.However, the company moved the HC which held that the lender had wrongly and excessively charged the borrower and asked PNB to adjust the sum against the outstanding amount and also imposed a cost of Rs 1 lakh on it.

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