Indian banks must hear loan defaulters before declaring accounts as fraud

Indian banks must give defaulters an opportunity to be heard before they classify a loan account as fraud, the Supreme Court ruled on Monday.

Banks cannot unilaterally declare an account as fraud without providing the defaulter the right to be heard, a top court bench led by Chief Justice DY Chandrachud said.

However, there is no such requirement before registering a first information report (FIR) to declare a loan account as fraud, the bench observed, reports Reuters.

The apex court was examining judgements by the Telangana High Court and Gujarat High Court on the Reserve Bank of India (Frauds Classification and Reporting by Commercial Banks and Select Fls Directions 2016) master circular.