Sandesara Settlement Could Rewire Credit Culture in India

For small borrowers, the rules of Indian banking are brutally straightforward. Miss a few instalments and you get calls, notices and, if you are really unlucky, a man at your gate. If you are a large economic fugitive, the rules now appear to sound different. Miss a few billion, move abroad, and one day you may be invited to pay a negotiated sum into court in exchange for a clean slate. It is presented as restitution of public money.

In the Sandesara-Sterling Biotech case, the Supreme Court has agreed to quash a dense thicket of criminal and regulatory proceedings if a payment of ₹51 billion is made by a specified date. The payment is in addition to amounts already paid under an agreed one-time settlement and recoveries through the insolvency process. In return, cases under the Central Bureau of Investigation, the Enforcement Directorate, the Prevention of Money Laundering Act, the Fugitive Economic Offenders Act, the Serious Fraud Investigation Office, and tax statutes will fall away once the money lands.

The financial ecosystem, however, will watch such incentives more closely than adjectives.

The first risk lies in the arithmetic. The alleged fraud amount, the headline one-time settlement number and the final settlement figure do not align with a simple story of every rupee restored — ₹51 billion is roughly one-third of the dues owed by Nitin and Chetan Sandesara in the bank fraud case. What has emerged instead is a consolidated closure price that key actors are prepared to accept to end a complex saga. From a narrow recovery perspective, this can be defended as realism in a world of slow trials and messy cross-border enforcement. From a broader systemic perspective, it blurs the line between civil compromise over dues and accountability for alleged misconduct. That is where moral hazard begins to creep in.

For banks, especially public sector lenders, the signal is ambiguous. On one hand, they secure a large, court-supervised inflow that improves near-term metrics. On the other, the possibility of a late-stage package that wraps criminal and regulatory closure into a single cheque can weaken the resolve to act early. Boards and credit committees may be tempted to wait for a higher-level solution rather than push for forensic audits, management changes, and timely reference to insolvency. Over time, this delays price discovery and reinforces the old habit of extend and pretend.

The asymmetry in how small borrowers are treated will not go unnoticed. MSMEs and individual promoters operate in a world of SARFAESI Act enforcement, notices, post-dated cheque cases, and very little room for negotiation. When a fugitive can return and fold multiple cases into a single payment, the perception of two parallel credit cultures hardens.

There is also a quieter risk to the credibility of the flagship laws designed to change the game. The Fugitive Economic Offenders Act and the PMLA's confiscation powers were sold as tools to pursue serious offenders with renewed urgency. Attachment orders and the fugitive label start to look less like outcomes and more like bargaining chips on the way to a negotiated peace.

Teams that spent years tracing transactions and building charge sheets now watch a one-page operative order sweep their work into a settlement. The risk is not just hurt pride. It is a drift toward box-ticking in future cases, because everyone now knows the outcome.

Deterrence rarely collapses overnight. It erodes gradually each time a difficult case lands softly.

None of this is an argument against settlements per se. In a system with limited capacity and long timelines, there will always be cases in which a structured resolution delivers more value than a decade of litigation. The question is how to keep that tool exceptional and transparent. That requires clearer guardrails on when criminal proceedings can be folded into financial settlements, fuller disclosure of the logic behind very large deals, and a stricter insistence that similar principles apply across the size spectrum, not only at the top.

Investors and depositors must hold banks accountable. The Reserve Bank of India must ask pointed, relevant questions during audits. They should watch not only the headline recovery number, but also the path by which it is achieved. A system that can secure big cheques yet appears lenient in marquee cases may look fine on capital ratios while quietly weakening credit culture. In the short run, that can even boost valuations. In the long run, if big borrowers treat this as a textbook case, the real cost will emerge as higher risk premia and diminished public trust.