Lender’s Liability In Stressed Asset Resolution: Can Banks And Financial Institutions Be Held Accountable?
- IJLLR Journal
- Feb 23
- 1 min read
Mathew Jacob, LLM Candidate, LLM-IBL, NALSAR University of Law & Indian Institute of Corporate Affairs
ABSTRACT
When companies struggle with debt, most of the blame falls on borrowers, while the role of banks and financial institutions often goes unquestioned. But what happens when reckless lending, favouritism, or poor risk assessment by lenders fuels financial distress? This paper explores lender liability, the idea that banks should also be held accountable when their decisions contribute to financial crises. Looking at real cases like Yes Bank and IL&FS, we examine how risky lending and governance failures have deepened financial instability in India. While laws like the Insolvency and Bankruptcy Code, 2016 and the SARFAESI Act, 2002 focus on recovering bad loans, they don’t do enough to prevent careless lending in the first place. To build a more responsible financial system, this paper calls for stricter due diligence, independent audits for large loans, and a dedicated Lender Accountability Unit within the RBI. By ensuring that both borrowers and lenders share responsibility, we can create a fairer, more stable banking environment, one that prioritizes financial discipline without discouraging growth.
Keywords: Lender Liability, financial distress, risk assessment, reckless lending.
