1. DEFINITION

Evergreening = Giving a fresh loan to a borrower who is on the verge of default, to enable repayment of old loan, so that old loan does not become NPA.

As per RBI's original circular post Narasimham Committee (Oct 1998): "Making fresh advances to troubled constituents only with a view to settling interest dues and avoiding classification of loans as NPA".

Supreme Court Definition in Citizens Whistle Blower Forum v. Union of India (Indiabulls Case) SLP(C) 2993/2025:

"Evergreening is a practice in which fresh loans are used to repay existing loans so that stressed assets appear as standard." Justice Bagchi observed: "Evergreening of loans is not a crime by itself, but the manner and intent determines criminality."

2. HOW EVERGREENING THROUGH FRESH DISBURSEMENT WORKS - 7 MODUS OPERANDI

RBI's Annual Report and Governor's speech identified:

Method 1: Direct Fresh Loan
Borrower A has loan due on 31st March. Bank gives new loan to same borrower on 29th March. Borrower uses new loan to pay old loan installment. Old loan remains Standard.

Method 2: Through Related Entities / Round Tripping
Bank gives loan to Borrower B (shell company of Borrower A). B transfers funds to A, A repays bank. This was alleged in Indiabulls Case - Loans of Rs. 1,693 crores to Americorp Group entities allegedly funneled back into shares of Indiabulls companies.

Method 3: Through Internal / Office Accounts
Bank debits its own internal account to adjust borrower's repayment, shows as if borrower paid, then later regularizes with fresh disbursement.

Method 4: Renewal / Additional Limits Close to Due Date
Giving enhancement or ad-hoc limit 2-3 days before due date without fresh appraisal.

Method 5: Through AIF Route - The Latest RBI Crackdown (Dec 2023)

This is now the biggest modus.

• Bank has stressed loan to Company X (NPA about to happen)
• Bank invests in Alternative Investment Fund (AIF)
• AIF invests in Company X or its new bonds
• Company X uses that money to repay bank

RBI Circular Dec 19, 2023: Banks cannot invest in any AIF scheme which has downstream investment in a borrower to whom bank has loan outstanding in last 12 months. Must liquidate within 30 days or provision 100%.

Method 6: Conversion of Overdue Interest into Fresh Loan (Funded Interest Term Loan)

Method 7: Evergreening via Sale to ARC at Inflated Price

3. RBI REGULATORY FRAMEWORK

1. 1998 Narasimham Committee: First advisory to avoid evergreening.
2. Master Direction on Fraud Risk Management 2024: Evergreening classified as fraud if done with malafide intent.
3. Asset Quality Review (AQR) 2015 by Raghuram Rajan: RBI found banks hiding NPAs via evergreening outside formal restructuring. Led to NPA surge from 4% to 11%.
4. Feb 12, 2018 Circular: Mandated resolution plan within 180 days for exposures > Rs. 2000 cr. Eliminated all restructuring schemes (SDR, S4A) that were used for evergreening.
5. Nov 2021 - Prudential Norms on Income Recognition: Interest on fresh disbursement cannot be recognized if funded from same bank's loan.

4. DETAILED CASE LAWS

A. SUPREME COURT - THE LEADING CASE ON EVERGREENING

1. Citizens Whistle Blower Forum v. Union of India & Ors. - Indiabulls Housing Finance Ltd. (Now Sammaan Capital) - SLP(C) No. 2993/2025 - Order Dated 2025

Allegations by ED (6 allegations):

• Suspicious loan transactions
• Diversion of funds
• Share-price manipulation
• Systemic evergreening of loans

Specific allegation: Advancing ~Rs. 1,693 crores to Americorp Group entities, which were funneled back into Indiabulls shares to profit from manipulated stock movements. Fresh loans to repay old loans.

Supreme Court Held (Bench of CJI Surya Kant, Justice Joymalya Bagchi):

• Directed CBI to independently examine all six allegations despite Delhi Police EOW exonerating on 5.
• Observation: Evergreening per se is not criminal, but if done to manipulate accounts, cheat shareholders, or divert public money, it attracts IPC 420, 409, Prevention of Corruption Act, PMLA.

Ratio for Banking: This case established judicial test: Intent + Public Money + Deception = Criminal Evergreening. If evergreening done to hide true asset quality from RBI/investors, it becomes fraud.

2. Dharani Sugars and Chemicals Ltd. v. Union of India - (2019) 5 SCC 480 - Supreme Court

Facts: RBI Feb 12, 2018 circular mandated IBC referral for all large defaults > Rs. 2000 cr, eliminating evergreening schemes.

Held: Supreme Court struck down circular as ultra vires Section 35AA Banking Regulation Act - RBI can give directions only for specific defaults by specific debtors, not general direction.

Impact: Though circular struck down, Court accepted that RBI's intent to stop evergreening was legitimate. Led to new June 7, 2019 Prudential Framework which is more flexible but still bans evergreening.

B. HIGH PROFILE EVERGREENING PROSECUTIONS

3. ICICI Bank - Videocon - Chanda Kochhar Case - CBI Case 2019

Modus: ICICI Bank sanctioned Rs. 3,250 crores to Videocon Group in 2012. Within same period, Videocon Group promoter invested Rs. 64 crores in NuPower Renewables owned by Deepak Kochhar (husband of MD & CEO Chanda Kochhar).

CBI FIR: Fresh disbursement was quid pro quo, and subsequent evergreening through renewal despite account being stressed, to avoid NPA. Account later became NPA with loss of Rs. 1,730 crores.

Charge: Section 120B IPC + Section 7 PC Act - Criminal conspiracy and abuse of official position to evergreen.

Lesson: Evergreening through fresh disbursement when conflict of interest exists = criminal breach of trust.

4. IL&FS Financial Services Ltd. v. Gujarat-Dwarka Portwest Ltd. & Ors. - 18 Feb 2020

Borrower took defence: Debt unenforceable because of evergreening practice - bank kept giving fresh loans to pay old interest, making debt perpetual.

Court held: If evergreening proved, debt may be considered legally unenforceable as it violates RBI prudential norms and is against public policy under Section 23 of Contract Act.

5. Kingfisher Airlines - IDBI Bank Case - CBI

IDBI gave fresh disbursement of Rs. 900 crores to Kingfisher despite internal rating showing airline unable to repay existing Rs. 300 crores. Fresh loan used to repay old interest. CBI chargesheet: Evergreening to hide NPA.

C. NCLT / NCLAT Cases

6. Many NCLT cases under IBC: Resolution Professionals challenge fresh disbursements made within look-back period (2 years for related party, 1 year for unrelated) as Preferential Transaction under Section 43 IBC or Fraudulent Transaction under Section 66. If bank gave fresh loan to repay itself (same bank's old dues), it is preferential - to be clawed back.

Example: In many real estate CIRPs, builder took fresh loan from Bank A to repay Bank B's old loan just before IBC - NCLT holds it as fraudulent evergreening.

5. HOW TO DETECT AND PREVENT - AUDITOR'S CHECKLIST

RBI expects Concurrent Auditors to check:

1. Fresh disbursement to borrower who was SMA 1/2 in last 30 days?
2. Fresh disbursement to related party of stressed borrower within 12 months?
3. Investment in AIF which has exposure to bank's borrower?
4. Repayment from same bank's new loan (First In First Out check)?
5. Interest debited and immediately credited from new loan account?

If yes, flag as evergreening and provision 100%.

6. PENALTY

• As per RBI Master Direction on Fraud: Evergreening with malafide = Fraud, must report to RBI Central Fraud Registry within 21 days, provide 100%, ban on further lending, staff accountability, referral to CBI/EOW.
• Under Companies Act 2013 Section 447: If evergreening used to falsify books to deceive investors = Punishment up to 10 years.

In Short: Evergreening through fresh disbursement is like giving blood transfusion from same body's blood to show patient is healthy. SC in Indiabulls case made it clear - practice itself not illegal, but intent to deceive regulator/investor makes it fraud.