SBI is going to launch civil proceedings against promoters of defaulting companies, deceiving banks as the largest lender steps up to clean it records.
This step is likely to allow the bank to approach civil courts seeking the arrest of errant borrowers.
The management of SBI has given its green signal to the proposal to initiate proceedings.
The proceedings include seeking civil custody of up to one year, against such promoters. The exercise is to send a clear signal to such borrowers that they need to fall in line.
Under the provisions of the Civil Procedure Code, a bank can look for the arrest and detention of a debtor, if he refuses to pay the money or does not comply with the court order to pay up.
Under criminal proceedings, the lender can sue a willful defaulter under dishonest misappropriation of property, criminal breach of trust, cheating, etc., if it suspects criminal acts such as fund diversion and fraud.
Already, SBI has received a number of recovery certificates from the Debt Recovery Tribunal (DRT) where recovery remained indescribable.
SBI is soon expected to shortlist cases where it wants to go after the promoter gaining from the lengthy system.
A willful defaulter can be subjected to impoundment of passports, further imposing travel restrictions, under the rules.
But, if the bank has a recovery certificate issued by the DRT against a company, it cannot seek arrest of the promoter. Only if the promoter or director has executed a personal guarantee, the bank can file proceedings against him for impounding of passport or arrest before judgment.
Interestingly, already, in the January-March quarter, SBI reported a 66% fall in net profit, the steepest since March 2011. In the quarter gone by, the lender had identified Rs 31,352 crore of risky loans and kept them under ‘special watch’.
The bank expects 70% of these loans to slip into the bad loan category. Slippages for the fourth quarter stood at Rs 30,313 crore and its gross non-performing assets jumped to 6.5% of the total gross advances. In absolute terms, the gross NPAs reached Rs 98,172.80 crore.