The Supreme Court (SC) in a recent order has asked the banks
to strictly verify the title of the mortgaged properties before sanctioning
loans as often many of these properties have been found to be disputed. If
implemented in true letter and spirit, the said directive will hugely help the
Indian banking sector to regain its lost health. The apex court has rightly
observed that sanctioning loans without proper verifications of mortgaged
properties should be treated as criminal offence and in case of such lapses
accountability will be fixed as non-performing assets (NPA) are one of the
major reasons responsible for the falling health of the country’s banking
sector. Furthermore, SC has asked the banking regulatory authority to establish
effective procedures of high standard to prevent any further lapse in
sanctioning loans by mortgaging disputed properties. More importantly, the
Supreme Court without mincing words has asked the banks to show diligence in
checking the loan applications which according to its opinion will help to
prevent frauds and to protect public interest.
It’s a known fact that the once stable Indian banking sector
is now reeling under huge NPA burden, which has considerably dented the
confidence of the people towards the banking system. On its part, the banking
sector has taken several steps to lower NPAs, but many feel that these steps
are too cosmetic to effect a real change as still it takes a long time to
recover money from the defaulters, which in fact works in their favour. Such a
perception is not unsubstantiated as there is a long list of defaulters who
have either fled from the country or used various means to evade arrests. To
prevent any new inclusion to this list, the need is to check all loan related
documents with proper caution before sanctioning it, along with making
necessary changes in the existing laws so that the offenders can be punished
without wasting any time.
The most significant aspect of the top court’s order is the
directive to the banking authorities to fix accountabilities in case of NPAs.
It is an open secret that there exists collusion between some unscrupulous bank
officials and offenders; otherwise getting loans from the banks by mortgaging
disputed properties wouldn’t have been possible. This particular directive will
definitely help to end the collusion as from now onwards no bank officials will
not be able to avoid prosecution if proven guilty of colluding with the
defaulters. It must be remembered that a healthy banking system is a must for
any economy to flourish. In this context, it may be mentioned that the main
reason behind the 2007-08 recession in the United States (US) was non-payment
of loans which the banks had distributed without properly examining the loan
repayment capacity of their customers. Various Indian banks have recently faced
a similar crisis when top industrialists, businessmen, even traders dodged the
bank at the time of paying back. As the nation is trying earnestly to make
steady economic progress, SC’s latest order will certainly provide much needed
fillip to prevent accumulation of NPA.
