SBI Negligent In Granting Large Loans Without Assessing Repayment Capacity; Harsh On Small Borrowers: Supreme Court

"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, " Supreme Court, in a notable order dated May 19, 2026, observed that banking institutions often exhibit a "casual" approach while sanctioning massive loans to large entities but remain excessively demanding and stringent toward common citizens seeking smaller loans.

A bench of Justice Ahsanuddin Amanullah and Justice R. Mahadevan expressed its strong "displeasure" at these banking practices, noting that such disparity in treatment can sometimes escalate to "borderline harassment" for ordinary borrowers.

Petitioner Challenged High Court Order Directing Physical Possession Of Property

The matter reached the Apex Court via a Special Leave Petition filed by M/S Bhaskar International Private Limited, challenging a Punjab and Haryana High Court order. The High Court had directed the District Magistrate to implement a Section 14 SARFAESI Act order to enable the State Bank of India (SBI) to take physical possession of the petitioners' properties within two months.

Primary Legal Issue Before The Court

The primary question before the court was whether the High Court’s direction for the execution of the Section 14 order was legally sound given the petitioners' claims of arbitrary NPA classification. The court also examined whether the bank’s conduct in sanctioning a large loan, followed by an immediate default, indicated a failure in the initial credit assessment process.

Court Criticises Petitioners For Defaulting On Very First Loan Instalment

The Supreme Court began its analysis by scrutinizing the conduct of the petitioners, who had availed a loan of Rs. 8.09 Crores in 2019 but defaulted on the very first instalment. The bench noted that the account was declared a Non-Performing Asset (NPA) within just six months of the loan being sanctioned, as the petitioners failed to pay even a "single farthing" to the bank.

"Too Little Too Late": Court On Petitioner's Settlement Offer

The bench found the petitioners' conduct to be "wanting on many fronts," particularly their offer to repay only the principal amount in the year 2025—six years after the loan was granted. The court remarked that this proposal was "frankly, too little too late" and refused to gloss over the fact that the borrower had failed to meet any commercial terms of the loan agreement.

Court Points To Negligence In Bank's Loan Sanctioning Process

While dismissing the petition, the court turned its attention to the conduct of the SBI officials. The bench observed that the immediate default suggested a clear lack of proper assessment regarding the borrowers' repayment capacity at the time of sanctioning. It noted that there appeared to be "negligence on the part of the SBI and its officials in granting/sanctioning a huge loan" to an entity that could not even begin repayment.

"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."

Supreme Court Flags Disparity In Treatment Of Big vs Small Borrowers

In a significant observation, the court highlighted a systemic issue where banks are lenient with large-scale borrowers but subject common people to tedious processes. The bench noted that while it was not suggesting an easing of norms, the procedures adopted by banks could "certainly be made easier and fairer" for ordinary loan-seekers and should be suitably graded to benefit those at the lowest financial strata.

Court Refuses To Interfere But Grants Temporary Status Quo To Approach DRT

Despite its criticism of the bank's lending "negligence," the court declined to interfere with the High Court's order due to the petitioners' poor repayment record. However, as an "extraordinary indulgence," the court ordered that status quo be maintained on the properties for two weeks to allow the petitioners to press for interim relief before the Debts Recovery Tribunal (DRT).

"Whilst recording our displeasure at such workings, we leave it for a more fit case where specific orders may be called for against such practices of the banks in general."

The Supreme Court dismissed the Special Leave Petition, affirming the High Court's decision to allow the bank to take possession of the secured assets. However, the ruling serves as a stern warning to financial institutions regarding the need for rigorous pre-sanction assessments for large loans and the necessity of maintaining a fair and non-harassing environment for small-scale borrowers.

Date of Decision: 19 May 2026