Banks 'Casual' In Granting Big Loans, Small Borrowers Face 'Borderline Harassment': Supreme Court

The Supreme Court on Tuesday criticised banks for what it described as a casual approach in sanctioning large loans to bigger entities while subjecting ordinary borrowers seeking small personal loans to stringent conditions and tedious procedures that may, in some cases, amount to “borderline harassment."

A Bench of Justices Ahsanuddin Amanullah and R. Mahadevan clarified that it was not advocating any easing of lending norms, saying those matters were best left to the Reserve Bank of India and banks themselves, but added that procedures for loan applicants and recoveries could be made easier and fairer.

Recording its broader concern about banking practices, the Court observed, “We indicate that it is coming to the notice of the Court that the banks in general, including respondent no.1-SBI is casual in granting loans of huge amounts to bigger entities but at the same time, very demanding apropos small loans where ordinary people come for personal requirement(s), yet subjecting them to more stringent conditions and a tedious process, which may amount to, in certain cases, borderline harassment.”

To avoid any misunderstanding, the bench added that it was not calling for easier lending standards. “Lest we be misunderstood, be it noted that we are in no way suggesting easing of norms and requirements for loan facilities, which is best left to the Reserve Bank of India and the bank(s) concerned, but the procedure so adopted can certainly be made easier and fairer for loan-seekers/applicants and thereafter at the stage of recovery also,” it said.

The observations came while the Court declined to interfere with recovery proceedings initiated by State Bank of India against Bhaskar International Pvt Ltd over a defaulted ₹8.09 crore loan.

Bhaskar International had availed the loan from SBI in 2019. According to the Court, the company defaulted at the very first instalment and did not repay anything thereafter. Its account was declared a non-performing asset on July 29, 2019.

SBI later initiated proceedings to take possession of the secured properties, and the Punjab and Haryana High Court earlier this year directed authorities to assist the bank in taking physical possession.

For the borrowers, senior counsel argued that declaring the account an NPA within five to six months was arbitrary and contrary to SBI's own policy. The company also argued that it had offered to repay the entire principal amount and could restart operations if given some assistance, making the bank's recovery action premature.

SBI opposed the plea, arguing that the company had taken a commercial loan with full knowledge of its obligations but failed to pay even a single instalment. The bank also pointed out that the borrowers had already approached the Debt Recovery Tribunal and sought interim relief there.

Rejecting the borrowers' case, the Supreme Court said their conduct could not be ignored. On the default, the bench observed: “Firstly, immediately or soon thereafter, after availing a loan of ₹8.09 crore, defaulting on the very first instalment and ever since, not repaying even a single farthing to the respondent no.1-SBI, cannot be glossed over.”

The Court was equally unconvinced by the company's later offer to settle by repaying only the principal amount. It said the proposal, made in 2025 nearly six years after the loan was availed, was “frankly, too little too late.”

At the same time, the bench found fault with SBI's handling of the loan sanction itself. Explaining why, the court observed, "In the present case, we find that there has been negligence on the part of the SBI and its officials in granting/sanctioning a huge loan of Rs.8,09,00,000/- to the petitioner no.1-Company for the reason that the petitioners could not even start repaying and defaulted at the very first instance. Tentatively, this is a clear indicator that a proper assessment was not made of the capacity of the borrower(s)-petitioners to repay the loan by the concerned officials of SBI.”

The court also noted that Bhaskar International had already invoked its statutory remedy before the Debt Recovery Tribunal, where its plea for interim relief had not been pressed or granted till then. It observed that the company “may be trying to take advantage of the present proceedings herein” despite having already chosen that route.

Even so, the Bench granted the borrowers a final opportunity to pursue interim relief before the tribunal. It directed the status quo over the secured properties until June 2 and asked SBI not to precipitate the matter during that period.