RBI has submitted a Bank defaulters’ list to the SC and requested it not to reveal the names to the public, citing confidentiality.
Bank Defaulter’s list | How to deal with the issue
A SC bench is examining
- whether the identities of those involved in trillions of rupees of default could be disclosed
- issues that had led to the defaults be debated.
Bank Defaulter’s list | Origin of the case
- PIL filed by the Centre for Public Interest Litigation raising issues of loans given to companies by state-owned Housing and Urban Development Corp.
Bank Defaulter’s list I Traversing the events
- bench expanded the scope of the PIL & brought in RBI, ministry of finance and the Indian Bank’s Association in the proceedings.
- directed RBI to provide with list of companies which have defaulted in repaying bank loans of at least Rs.500 crore each as well those whose loans have been restructured.
Supreme Court’s Stand
- making public the names of bank defaulters but the RBI does not support the idea.
Statistics of NPA in India
What is NPA?
A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
- The gross NPAs of the state-run banks rose about Rs.1.3 trillion in the December quarter to Rs.3.93 trillion and those of all publicly traded banks were to the tune of Rs.4.38 trillion.
- This will rise in March, following the asset quality review carried out by RBI which has asked banks to make provisions for three types of assets—new NPAs that were earlier not recognized by them; loans given to various projects where dates of commencement of commercial operations have passed but the projects have not yet taken off; and loans that have been restructured.
WHAT HAS RBI DONE?
The RBI has set a March 2017 deadline for cleaning up bad loans in the Indian banking system.
REASONS BEHIND A BANK LOAN GOING BAD
- slump in the economy
- domestic or global
- delay in getting regulatory clearances for projects
- lenders’ lack of expertise
- skill in project appraisal
- risk management and monitoring
- political interference
Bank Defaulter’s list | Should it be made public?
- If the idea is to recover money, making the list public will not serve the purpose.; rather the banking community must know the defaulters.
- Tarring all defaulters and bankers with the same brush will choke the flow of funds to business, scare bankers and kill entrepreneurship
How was it handled in the past?
- In mid-1990s ;banks were not technologically equipped and rogue borrowers were taking advantage of that by not paying up to one bank and approaching another for fresh loans. Hence , RBI started circulating the list of defaulters among banks.
- Vijay Mallya has been declared a willful defaulter.
Who Is A Willful Defaulter?
A willful defaulter is one who has the ability to pay up but doesn’t pay or diverts funds. Their names are in any case in the public domain because the banks have filed suits against them.
IN PRESENT TIMES ; WHAT SHOULD BE THE COURSE OF ACTION?
- At the first hint of weakness in the repayment capacity of borrower, the banks need to help them with advice and even fresh funds to tide over the situation
- If not successful the regulator needs to pull up the management and even the board of banks.
- However, when a company sinks with no chance of its revival, Refer the case to debt recover tribunal.
What Is Debt Recover Tribunal:
The debt recovery tribunal is a fast-track route to dispose of such cases but the borrower can appeal against a tribunal judgement in a high court and even Supreme Court.
- Strengthening the legal system
- More importance on the core mechanism to recover the loans than on “ whether making the list public or not” ?
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