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Supreme Court to Canara Bank: Go after big fish if concerned about NPAs

The Supreme Court remarked on Tuesday that instead of pursuing tiny loans of a few thousand rupees, public sector banks should concentrate their efforts on recovering loans from "big fish" and "big corporate debtors."

“You should concentrate your efforts on catching large fish. If you're really worried about public sector banks' mounting NPAs (non-performing assets), focus on major corporate debtors, not small loanees,” a bench led by Justice Dhananjaya Y Chandrachud told Canara Bank.

When loans are unpaid for more than 90 days after the due date, they are classified as non-performing, and debtors are more likely to default on them.

Canara Bank had filed an appeal against a Madras high court judgement in March, and the Bench, which included justices D.Y. Chandrachud, M.R. Shah and Hima Kohli, was hearing it.

The high court had rejected a public sector bank's attempt to make a social service organisation in Tiruchirapalli, Tamil Nadu, accountable for repaying a loan of Rs 48.8 lakh issued to 1,540 people in 1994-95. Canara Bank cannot recover its outstanding loan from the society's fixed deposit, according to the high court, because there was no formal contract or clear agreement of recovery from the society in the event of the borrowers' inability to repay the loans.

Senior counsel Dhruv Mehta, representing the bank, contended before the Supreme Court that the Tiruchirapalli Multipurpose Social Service Society gave letters of guarantee that they would ensure repayment of loans from the borrowers and that the monies were only given on this assurance.

The Bench did observe, however, that the loan was issued by the bank under the DIR scheme, which assists low-income communities financially. “These funds were distributed to small farmers, poultry farmers, dairy farmers, and tradesmen and artisans. These are underserved communities...some of them can't afford to pay even $10 for their photos on these forms. And, admittedly, society aided you in identifying these individuals. Why are you now going after the society?” the bench asked Mehta.

“Giving loans to certain sections of society is also a social function,” the bench continued. It serves more than just an economic purpose. You should also be held accountable on a moral level.”

Mehta responded that the banks were already dealing with the problem of nonperforming assets (NPAs) and that recoveries were needed to get through it.

“These are not the people to go after,” the court answered. You should focus on catching the large fish. Canara Bank should not intervene in a case involving a community like this.”

The bank has filed an appeal, according to Mehta, because a plea under Article 136 (special leave petition with broad discretionary powers) is a "Brahmastra."

“The Constitution has entrusted us with the Brahmastra only to ensure that we use it appropriately. And this isn't it,” the bench said, dismissing Canara Bank's appeal.

It also maintained the high court judgement, adding that the bank should refrain from pursuing such a case and instead focus its efforts and resources on more important matters.


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