Law enforcement agencies resort to them. The tax authorities find them useful. Now, banks too are looking at them.
‘They' are informers, and the Reserve Bank of India has sought the Indian Banks' Association's views on whether banks can tap such sources about the assets owned by defaulting borrowers and offer rewards for the information.
With more loans going bad — according to RBI data, the growth rate of bad loans in 2011-12 first-half at 25.5 per cent was more than triple the average growth rate of 7.4 per cent in the same period in 2006-12 — informers may prove useful to banks. In absolute terms, bad loans of banks increased to Rs 97,922 crore as on March-end 2011 from Rs 84,968 crore as on March-end 2010.
Informers could prove useful in cases where defaulters conceal their assets, said Mr M. R. Umarji, Chief Legal Adviser, IBA.
In public domain
According to expert legal opinion, once a bank files recovery proceedings, the matter is in public domain and no right to privacy can be claimed by the borrower.
The IBA is banking on a 2007 Madras High Court judgment to buttress the legality of engaging informers. The Court had said that if borrowers can find newer methods of evading repayment of bank loans, banks are justified in devising newer methods for recovery.
The Court also observed that the confidentiality of loan transactions ends as soon as the borrower defaults and the bank moves to recover the loan.
According to bankers, since loans are given out of public deposits, their recovery is in public interest. Hence, they would be justified in seeking information from the public regarding assets owned by defaulters as also reward persons giving such information.
Adopt all legal means
Retired Supreme Court Justice Mr B. N. Srikrishna, in his opinion to the IBA, said that where a borrower not only defaults but also conceals his assets, the bank owes it to its other customers and the public at large to adopt all legal means to ensure that the defaulter's assets are disclosed and made amenable to statutory remedies.
However, Mr Srikrishna also observed that banks should discuss the matter with the defaulting borrower and exhaust all conciliatory methods to recover its dues before it resorts to the extreme step.