State-run banks push for power to issue look-out circulars against dodgy borrowers: Report

The ruling has frustrated bankers eager to maintain leverage over such borrowers.

State-run banks have teamed up to urge the government to restore their authority to prevent dubious borrowers from fleeing the country, The Economic Times reports.

Several major banks last week decided to collectively appeal to the finance ministry for statutory backing to reissue 'look-out circulars' (LOCs). These LOCs alert immigration authorities and prevent non-compliant, dodgy borrowers from leaving the country and evading local law enforcement.

"We don't want to lose this tool," a senior industry official told ET, confirming the decision. "We believe it helps in loan recovery."

Banks have traditionally issued LOCs to target fraudulent borrowers and willful defaulters suspected of fleeing abroad to obtain residency or citizenship in another country. However, the Bombay High Court recently revoked the authority of public sector bank chairmen, managing directors, and chief executives to issue LOCs, ruling that the 'right to travel abroad' cannot be curtailed by executive action and that the powers granted to bank chiefs were arbitrary and unreasonable.

The ruling has frustrated bankers eager to maintain leverage over such borrowers. The ability to issue LOCs was granted to bank heads by a home ministry circular in October 2018, following the Nirav Modi-Mehul Choksi scam. Requests from the finance ministry and the department of financial services drove this decision.

Public sector bank CEOs were added to a list of officials authorised to request LOCs, which includes officers not below the rank of deputy secretary (GOI), joint secretary (state government), district magistrate, superintendent of police (SP), the SP in the Central Bureau of Investigation, zonal director in the Narcotics Control Bureau, deputy commissioners of apex tax bodies, and assistant director of the Enforcement Directorate, among others.