Wilful Defaulters On The Rise. Have Borrowers Become Shameless?    Sep 04, 2017

Yes, I owe you. I have money to repay as well. But I don’t want to pay you.

Because I have already greased the palms of those who manipulated banking procedures for me while sanctioning this loan. And this gives me a passport to default here and take refuge abroad.

If you see this as a blatant display of arrogance, don’t assume that the list of wilful defaulters starts and ends with such Page-3 corporate figures.

After all, wilful defaulters of a bellied-up carrier are no more than the poster-boys of India’s great default story.

And mind you, there’s still no light at the end of the tunnel.

Do you know how much money wilful defaulters collectively owe to Indian Public Sector Banks (PSBs)?

Close to 8,915 wilful defaulters owe over Rs 92,000 crore. And, if you think this is an account of past sins, that’s incorrect.

There were 8,167 wilful defaulters at the end of Financial Year (FY) 2015-16. By the end of FY 2016-17, the number reached to 8,915—nearly a 10% rise. Similarly, from the outstanding of Rs 76,685 crore at the end of FY 2015-16, the dues from wilful defaulters jumped to Rs 92,736 crore—a 20.4% rise.

But what’s striking is the abysmally low proportion of FIRs (First Information Reports) logged by banks. They have filed only 1,914 FIRs involving Rs 32,484 crores so far. You would be surprised to know, in FY 2016-17 all PSBs collectively wrote off loans worth Rs 81,683 crore—a five-year high. To make matters worse, it was a 41% rise on a Year-on-Year (Y-o-Y) basis. SBI, the country’s largest lender and its former associates, wrote off Rs 27,574 crore; almost a third of the total write-offs in FY 2016-17.

Gross Non-Performing Assets (GNPAs) of PSBs touched Rs 6.41 lakh crore in FY 2016-17 against the GNPAs of Rs 5.02 lakh crore in FY 2015-16.

RBI has already directed banks to take the following measures against wilful defaulters:

• No banking institution should grant any additional credit facility to a wilful defaulter. Moreover, wherever banks and financial institutions have identified the siphoning/diversion of funds, misrepresentation, falsification of accounts, and fraudulent transactions by the entrepreneurs/promoters, credit facilities shouldn’t be granted to float a new venture for five years from the date their names are removed from the list of wilful defaulters.
   
• Whenever possible, banks and financial institutions must take proactive measures to change the management of a defaulting corporate entity.
   
• If necessary, bankers should also initiate the foreclosure for the speedy recovery of dues or may even start criminal proceedings against the wilful defaulters.
   
• Banks should adopt a policy of not lending to a company that has a wilful defaulter on its board of directors. Moreover, they should include a clause in the loan agreement where companies are deterred to appoint a person who’s been declared as a wilful defaulter on its board even in the future.
   
• Additionally, the RBI has urged banks to establish a transparent system for the recovery process and to ensure that the implemented penal provisions aren’t misused in any way.

In the recent past, RBI’s Internal Advisory Committee (IAC) identified 12 large loan accounts, involving nearly 25% of NPAs of the entire banking system, against whom immediate action must be taken. It has sought immediate resolution of these cases under the insolvency and bankruptcy code. The RBI, Government, and PSBs need to take actions of this magnitude before India writes a concluding remark on the great default story.

As an investor, always be careful while investing in a company fixed deposit. If banks find it tough to recover money from dishonest companies and their promoters, as an individual investor, you are unlikely to have any bargaining power with wilful defaulters.

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