PSU banks may need CBI nod for settling bad loans

The Reserve Bank of India (RBI) is likely to issue a new direction, making it mandatory for all public sector banks to seek clearance from the Central Bureau of Investigation (CBI) before allowing one-time settlements of bad loans where criminal proceedings are underway.

According to sources, the RBI is ready with the new directive following a CBI proposal to this effect.

They said there were instances where CBI had been prosecuting a company or an individual and it was found that those involved in bad loans had already made one-time settlements with their banks and got in writing from the lenders that all criminal proceedings against them had been withdrawn.

In one of the cases, CBI had prosecuted a businessman for forgery while procuring loans from a public sector bank. Later, the investigation agency found in the Supreme Court that the bank had made a one-time settlement for Rs 400 crore against Rs 525 crore and also given in writing that all criminal proceedings against him were withdrawn.

The incident prompted CBI to approach the bank through the Central Vigilance Commission (CVC) and a meeting with the Chairman and Managing Directors (CMDs) of the six public sector banks was convened. It was decided during the meeting that the RBI would be approached for issuing such a circular to all the banks, making it mandatory for them to seek CBI clearance wherever a criminal case was pending.

During the meeting, it was highlighted by CBI that its corruption cases were falling in courts after banks reached out-of-court deals with individuals and corporate houses through one-time settlements.

The meeting was attended by Managing Directors of Punjab National Bank (PNB), State Bank of India (SBI), Bank of India (BoI), Bank of Baroda (BoB), Union Bank and Canara Bank.

The bank officials were asked to streamline the one-time settlement mechanism, besides reframing their list of members comprising lawyers and property evaluators.