However, the court said borrowers must be given access to the forensic audit report on which the classification is based, with banks allowed to redact portions that may affect third-party rights.
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The decision follows submissions by the Reserve Bank of India and State Bank of India, which argued that making personal hearings mandatory in every case would be impractical given the scale of fraud in the banking system.
Appearing for SBI, Solicitor General Tushar Mehta had told the court that the sharp rise in fraud cases makes individual hearings difficult and could slow down the identification process.
Figures presented before the court showed nearly 60,000 bank fraud cases over the past two financial years, involving Rs 48,244 crore. Of these, 36,060 cases were recorded in 2023–24 and 23,953 in 2024–25. The amount involved in 2024–25 rose to Rs 36,014 crore, marking a 194 per cent jump from Rs 12,230 crore the previous year.
Also Read: West Asia conflict may trigger layered stress on margins, liquidity in India’s financial sector: EYA bench of Justices J B Pardiwala and K V Viswanathan had earlier questioned the absence of personal hearings, linking it to principles of natural justice. In response, Mehta maintained that such hearings are not part of the current process and may, in some cases, defeat its purpose.
The ruling came in a case involving SBI, whose appeal has been partly allowed, helping define the procedural safeguards banks must follow before labelling accounts as fraudulent.
