If you are stuck in such a situation, here is what to do.

Mr. Alok Sharma, a businessman from Chandigarh, is facing a perplexing issue with his Overdraft (OD) account at Himalayan National Bank. He holds an OD limit of ₹75 lakhs, which includes ₹30 lakhs against security deposits and ₹45 lakhs for working capital, all secured against a property. Recently, the bank initiated a review and informed him that he needed to submit a new CMA (Credit Monitoring Arrangement) data report prepared by a Chartered Accountant.

During this process, the bank manager raised several concerns that were never mentioned when the loan was initially sanctioned. The manager stated that Mr. Sharma was not eligible for a loan exceeding ₹20 lakhs against security deposits. Furthermore, he pointed out that Mr. Sharma’s net worth to liability ratio was 5.0, whereas the bank’s policy required it to be below 4.0. This is particularly troubling for Mr. Sharma because the original financials, including these ratios, were prepared and vetted by a CA appointed by the bank itself at the time of sanctioning the OD facility.

Mr. Sharma is now concerned about whether the bank can unilaterally reduce or revoke his OD limit based on these new objections, especially when the loan is secured and was approved based on financials verified by their own appointed professional.

Advice in such cases

If you find yourself in a similar situation with a bank, it is crucial to act strategically and not out of panic. Here are the steps you should consider:

• Review Your Loan Agreement: The loan sanction letter and the detailed agreement are your primary documents. Carefully read the terms and conditions related to periodic reviews, renewal of limits, and the bank’s right to alter the terms.
• Maintain a Written Record: Ensure all communication with the bank is in writing. If you have a verbal conversation with the manager, follow it up with an email summarizing the discussion. This creates a paper trail that can be used as evidence.
• Gather All Documentation: Collect all relevant documents, including the original sanction letter, loan agreement, property documents provided as security, and all past and present financial statements (CMA data).
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

Applicable Sections of Law

Such disputes are primarily governed by civil and banking laws rather than criminal statutes. The key legal frameworks include:

• Indian Contract Act, 1872: The loan agreement between you and the bank is a legally binding contract. The bank cannot arbitrarily change the terms unless the contract itself provides for such a revision. The principle of estoppel may also apply, which means the bank cannot go back on a promise or assurance (like sanctioning the loan based on previously accepted financials) if you have acted upon it.
• Banking Regulation Act, 1949 & RBI Guidelines: These laws and regulations govern the functioning of banks in India. Banks are expected to act fairly and transparently in their dealings with customers. Any arbitrary action can be challenged as a violation of these guidelines.
• Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002: Since the loan is secured by property, this Act comes into play if the bank tries to classify the account as a Non-Performing Asset (NPA) and enforce the security. However, they must follow the due process laid down in the Act.

If you are the complainant

As the borrower facing these issues, you are the complainant. Here is how you should proceed:

• Send a Formal Reply: Draft a detailed letter or email to the bank’s higher authorities (e.g., the Regional or Zonal Manager), marking a copy to the Branch Manager. In the letter, clearly state the facts, refer to the initial sanction, and question the basis of the new objections. Highlight that the original financials were verified by their own appointed CA.
• Approach the Banking Ombudsman: If you do not receive a satisfactory response from the bank within 30 days, you can file a complaint with the Banking Ombudsman. This is a quasi-judicial authority established by the RBI to resolve customer complaints against banks in a cost-effective and efficient manner.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.
• Seek Legal Recourse: If the Ombudsman’s decision is not favorable or the matter is complex, your lawyer may advise you to approach a civil court or the Debt Recovery Tribunal (DRT) to seek an injunction against the bank’s arbitrary action.

If you are the victim

In this scenario, the bank could perceive itself as a victim if it believes the risk profile of the loan has changed. If you are a bank official in such a situation, the correct procedure is:

• Adhere to Due Process: The bank must follow its internal policies and RBI guidelines for loan reviews. Any deviation from the sanctioned terms must be based on concrete reasons, such as a significant downturn in the borrower’s business or a breach of loan covenants.
• Issue a Formal Notice: The bank should issue a formal written notice to the borrower, clearly explaining the reasons for the proposed reduction or change in terms. It should give the borrower a reasonable opportunity to present their case.
• Maintain Documentation: All findings of the review, internal notes, and communications with the borrower must be meticulously documented to justify the bank’s actions if challenged legally.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think. A legal team can ensure that all steps taken are compliant with the law and the loan agreement, minimizing legal risks for the bank.

How the police behave in such cases

Police intervention in such matters is highly unlikely and generally inappropriate. This is a civil dispute arising from a contractual agreement between a borrower and a lender. The police do not have jurisdiction over contractual disagreements. Police would only get involved if there are allegations of a criminal offense, such as forgery of documents, cheating, or criminal breach of trust. In a standard loan review dispute, approaching the police would not be the correct course of action.

FAQs people normally have

Can a bank change the terms of a sanctioned loan during a review?
A bank cannot arbitrarily change the fundamental terms of a loan. However, loan agreements for facilities like overdrafts often contain clauses allowing for periodic review and reassessment of limits based on the borrower’s financial health. Any change must be reasonable, transparent, and in accordance with the contract.

What is the significance of the bank’s appointed CA verifying the financials?
It is highly significant. The fact that the bank’s own appointed professional vetted and approved the financials at the time of sanction can be used to argue that the bank is now “estopped” (prevented) from questioning the same data without a valid new reason, such as evidence of fraud or misrepresentation discovered later.

Can the bank declare my account as NPA for this reason?
Declaring an account as a Non-Performing Asset (NPA) is linked to default in repayment of principal or interest for 90 days or more. A dispute over a review of the limit does not automatically make the account an NPA, as long as you continue to service the interest on the amount you have utilized.

What evidence is required?

To build a strong case, you will need the following evidence:

• The original loan sanction letter and the complete loan agreement.
• A copy of all property documents mortgaged with the bank.
• The initial CMA data and financial statements that were accepted by the bank.
• All written correspondence with the bank, including emails and letters related to the current review.
• Proof of timely interest payments and account statements to show the account has been operated properly.

How long will the investigation take?

The timeline for resolution can vary significantly:

• Internal Escalation: Resolving the issue with the bank’s higher authorities could take a few weeks.
• Banking Ombudsman: The Ombudsman process typically takes 2 to 3 months to reach a decision after a complaint is filed.
• Court/Tribunal: If the matter goes to a civil court or the DRT, it can be a lengthy process, potentially taking several months to years for a final resolution, although interim relief might be available sooner.

Advocate Sudhir Rao, Supreme Court of India