Supreme Court Flags Bank-ARC Nexus
The Supreme Court has expressed concern over an alleged nexus between banks, asset reconstruction companies and borrowers while hearing a plea linked to the settlement of large loan defaults involving public sector banks.
Supreme Court On Bank Loan Defaults
A bench comprising Chief Justice Surya Kant and Justice V. Mohan questioned the manner in which stressed assets are being settled by banks and asset reconstruction companies. The court observed that public money collected through taxpayers is lent through banks, but effective recovery efforts are often not pursued.
The bench said such cases raise concerns over the misuse of public money, which should otherwise be available for public welfare and development.
Asset Reconstruction Companies Under Lens
The court issued notices to the Centre, the Reserve Bank of India and other concerned parties on a petition alleging irregularities in loan settlements. The plea claimed that loans worth ₹1,537 crore owed to public sector banks were settled through two asset reconstruction companies for only ₹73.5 crore.
The bench noted that the functioning of asset reconstruction companies needs closer examination, especially in cases where large bad loans are settled at steep discounts.
Banking Fraud Investigation Plea
The matter relates to a plea seeking an investigation into an alleged banking fraud involving borrowers, banks and asset reconstruction companies. The petition raised questions over whether the settlement process was being used to benefit defaulters at the cost of public sector banks.
The Supreme Court’s observations have brought renewed attention to the recovery of bad loans, accountability in the banking system and the regulatory oversight of asset reconstruction companies.
