Trading in debts is not “banking”

The Gujarat High Court has given a big jolt to the Indian banking industry by declaring buying and selling of loan portfolios, illegal. In a nutshell, the division bench has ruled that assignment of loans by one bank to another is illegal. It held that such activity is not part of ‘banking activity’ contemplated in the Banking Regulation Act, 1949.

According to the Court, such activity cannot be a policy for sound economic growth. Consequently, it has effectively held that the RBI’s guidelines on buying and selling of NPAs could never be regarded as ‘banking policy’ envisaged in the Act.