**Summary:**
This document summarizes the Indian Ministry of Finance's response to Lok Sabha Unstarred Question No. 3653, addressed on August 11, 2025, regarding the right of banks to set off loans against the assets of customers and related entities.
The Ministry clarifies that banks generally exercise the right to set-off based on contractual arrangements with borrowers or guarantors. Specifically, when promoters or directors of a company provide a guarantee for a loan availed by the company, the bank has the right to recover dues from the guarantor's assets.
However, the Ministry states that no specific legal provision exists to set off loans from the assets of a group of companies belonging to an individual or family, as debts between separate legal entities cannot be set off against each other.
Furthermore, the response references the Reserve Bank of India's (RBI) Guidelines on Fair Practices Code for Lenders, which mandates the release of securities upon loan repayment, subject to any legitimate right or lien the lender may have against the borrower for other claims. The response was provided by Shri Pankaj Chaudhary, Minister of State in the Ministry of Finance.
Key Entities Referenced
MINISTRY OF FINANCE: A department of the Government of India responsible for financial matters.
DEPARTMENT OF FINANCIAL SERVICES: A department under the Ministry of Finance.
LOK SABHA: The lower house of the Parliament of India, where the question was raised.
DR. THIRUMAAVALAVAN THOLKAPPIYAN: The Member of Parliament who raised the unstarred question in the Lok Sabha.
SHRI PANKAJ CHAUDHARY: The Minister of State in the Ministry of Finance who provided the answer.
Reserve Bank of India: The central bank of India, which issues guidelines on fair practices for lenders.
Fair Practices Code for Lenders: Guidelines issued by the Reserve Bank of India regarding ethical lending practices.
Borrower guarantor: Entity that guarantees the bank for loan availed by company, bank has right to recover set off the dues from the assets of the guarantor.
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF FINANCIAL SERVICES
LOK SABHA
UNSTARRED QUESTION NO- 3653
ANSWERED ON MONDAY, AUGUST 11, 2025/SRAVANA 20, 1947 (SAKA)
LOANS SET-OFF FROM ASSETS OF COMPANIES
3653. DR. THIRUMAAVALAVAN THOLKAPPIYAN:
Will the Minister of FINANCE be pleased to state:-
(a) whether the Government is aware that the loan set-off right has been exercised by the
Bankers on the liabilities recovery from any assets of customers under the control of Banker
even though they are not subject to any specific lien, pledge, mortgage etc.;
(b) if so, the details thereof;
(c) whether any such law is there to set-off the loans from the assets of the group of
companies of an individual or a family; and
(d) if so, the details thereof and if not, the reasons therefor?
ANSWER
THE MINISTER OF STATE IN THE MINISTRY OF FINANCE
(SHRI PANKAJ CHAUDHARY)
(a) to (d): As per inputs received from banks, the banker’s right to set-off is generally
exercised by virtue of the contractual arrangement made between the bank and the
borrower/ guarantor, wherein the bank is entitled to exercise the right of set-off against the
Borrower/ guarantor.
Further, in case of guarantee given by promoters/directors of a company in favour of the
Bank for loan availed by such company, bank has right to recover/ set off the dues from the
assets of the guarantor.
There is no specific legal provision to set-off loans from the assets of the group of
companies of an individual or a family as debts between separate legal entities cannot be set-
off against each other.
Furthermore, as per the Reserve Bank of India’s Guidelines on Fair Practices Code for
Lenders, lenders should release all securities on receiving payment of loan or realisation of
loan subject to any legitimate right or lien for any other claim lenders may have against
borrowers.
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