Reserve Bank of India tells Supreme Court there has been material decline in NPAs due to its efforts

The Reserve Bank of India (RBI) has told the Supreme Court on affidavit that its efforts to tackle bank frauds and take action against wilful defaulters have resulted in a material reduction of Non-Performing Assets (NPAs) [Centre for Public Interest Litigation vs HUDCO and ors]..The affidavit filed by the RBI through advocate HS Parihar said that the regulatory authority has been taking preventive as well as punitive steps against those responsible for NPAs. The RBI has also been revising its policies from time to time, it was submitted. "Reserve Bank's resolute efforts have resulted in material decline in the NPAs of the banking system," the affidavit added. The affidavit was filed in reply to a 2003 public interest litigation (PIL) petition seeking directions to curb bank frauds, non-performing assets, and the prosecution of wilful defaulters.Through earlier orders, the Supreme Court had directed the constitution of a committee to look into the matter. Thereafter, the petitioner (NGO Centre for Public Interest Litigation) had urged the top Court to direct the Central government and the RBI to follow the recommendations of the committee. Directions were also sought so that banks comply with stringent circulars issued by the RBI and the Central Vigilance Commission on such matters. In December, the bench had asked the Centre and the RBI to file their response to these prayers. .The matter was heard on Wednesday by a bench of Justices Sanjay Kishan Kaul, Abhay S Oka, and BV Nagarathna. During the hearing, the counsel for the petitioner pressed for the implementation of all of the Committee's recommendations since the matter was listed for directions. In particular, he highlighted the recommendation for probe by the Central Bureau of Investigation (CBI) into defaults/ frauds greater than ₹ 50 crore. Justice Kaul, in turn, orally observed,"We have to balance issue of public money and see that ending procedure is not too cumbersome." The RBI's counsel pointed out that some of the recommendations, such as setting up of fast-track courts, was beyond its domain. "To the extent that the RBI is a regulator, it has to take a stand. Someone has to apply their mind as to what can be done," Justice Kaul, said in response. Solicitor General Tushar Mehta, appearing for the Central government, said that, ultimately, bank-customer relationships are fiduciary, and that separate regimes currently exist to tackle the issue, through statutes like the Insolvency and Bankruptcy Code (IBC).When the bench highlighted the increasing use and role of technology in banks and bank scams, advocate Prashant Bhushan, appearing for the petitioner, said that a solution could be to equip the CBI with personnel trained on these aspects. The bench then directed the RBI to file a further affidavit on steps it can take, specifically as a regulator, to implement the Committee's recommendations, within four weeks. The matter will be heard again after six weeks..More on the RBI affidavit.The RBI reply focused on the existing legal framework to prevent borrowers who have committed frauds or wilfully defaulted from restructuring. It has been submitted that lenders are free to evaluate and allow restructuring if the promoters have changed, without prejudice to criminal proceedings against any erstwhile promoter. "This effectively disincentivizes any form of mala fide intent by the borrowers by preventing any sort of accomodation by the banks", the RBI submitted. On the petitioner's allegations of lack of action against bank defaults by the Anil Dhirubhai Ambani Group, the document says that matter is currently sub judice as the group has challenged the classification of their accounts as fraud. Circulars and directives issued by the RBI on the issue are binding on banks, being statutory in nature, even as a challenge to their validity is pending before the top court, the affidavit added.