NEWS & ADVICE : CAR LOANS
RBI to direct banks to seek CBI before allowing one-time settlement of bad loans
By Vaibhav Aggarwal
Mar 20, 2009
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The Reserve Bank of India (RBI) is planning to announce an order whereby all PSU banks will be required to seek permission from the Central Bureau of Investigation (CBI) before allowing one-time settlement of bad loans of customers who have criminal proceedings.

Earlier there had been cases when companies and individuals prosecuted by the CBI and involved in bad loans had made one-time settlements with their banks and taken a written approval from their lenders stating that all criminal proceedings against them had been withdrawn.

In one of such cases, a businessman had been prosecuted by CBI for a fraud while obtaining credit from a PSU bank. It was later found that the individual had made one-time settlement for Rs 400 crore against Rs 525 crore and also obtained in writing from the bank that all his criminal proceedings had been withdrawn.

Following this incident, CBI approached the bank through the Central Vigilance Commission (CVC). Thereby a meeting was held between CBI and chiefs of six PSU banks where a decision to approach the RBI for issuing a circular to all the banks was taken. The banks along with CBI decided to ask RBI to issue a notice making it compulsory for banks to seek CBI approval for cases where criminal proceedings were underway.

The six banks that were represented by their respective chiefs included State Bank of India (SBI), Bank of India (BoI), Punjab National Bank (PNB), Bank of Baroda (BoB), Union Bank and Canara Bank.

The banks were also directed to restructure the one-time settlement mechanism and reframe their list of members comprising lawyers and property evaluators during the meeting.

CBI also said that the corruption cases with it had been reducing ever since banks agreed on out-of-court deals through one-time settlements with the individuals and corporates.

Meanwhile industry sources informed that RBI has approved the CBI proposal regarding the matter and will soon come out with the directive.

 


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