The division bench order about Milind Patel, director of IFIN versus Union Bank of India, also asked the bank to provide the petitioner full access to the relevant documents and material on record. This is yet another contentious issue between lenders and the borrower. The Union Bank had argued that it is not obliged to provide evidence to the borrower as per the RBI guidelines. Lenders will seek RBI’s guidance on this issue, too, the bankers cited above said.
The bank management lobby, the Indian Banks Association (IBA), will soon seek advice on ways to address this issue.
The RBI has issued draft guidelines on the process that banks must follow in tagging a borrower as a wilful defaulter, and final guidelines have yet to be issued.
The RBI draft norms stress the need to give the borrower an in-person hearing and put in place an identification and review committee. However, the draft guidelines do not mention naming the employees on the committee. Banks are concerned mainly because High Court and apex court orders would supersede a banking regulator’s guidelines.
“The lender teams that take the decisions consist of salaried staff members. The borrowers being questioned are almost always well-to-do businessmen, who have, on a personal basis, significant access to financial and other resources,” said Sanjay Agarwal, senior director at CareEdge Ratings. He also felt that it is likely to adversely impact the lenders, as the officials involved risk being personally named and possibly targeted by the borrowers.“The process integrity can be questioned by the regulators. But exposing the process itself weakens it,” he added.Union Bank of India, the respondent in this case, is unlikely to appeal against the order, one of the persons cited above said. Thus, it could set a precedent for other defaulting borrowers, the same person said. At the heart of the matter is an apprehension that the order could result in litigant borrowers making direct allegations against the employees, claiming that they are biased and dragging them to the courts.
“In India, such cases can go on for years, they cause undue harassment, and in the meanwhile, the employee may even retire,” said a senior banker.
The High Court order said: “Banks and financial institutions that seek to invoke the Master Circular to declare the occurrence of wilful default must identify the members of the Identification Committee and the members of the Review Committee and share the reasoned orders passed by such committees.”