While lenders harass individual or small borrowers to the point of even releasing the borrowers’ photos to the press for publishing them, it appears that big corporate defaulters are bestowed with immunity from such humiliation. They are a protected species. In fact, Reserve Bank of India (RBI) even declined to reveal to the Lok Sabha the details of loans written off of major corporates.
In a written reply, Dr Bhagwat Karad, minister of state for finance, told the Lok Sabha
on Monday, “With regard to details of major corporates whose loans were written off, RBI has informed that under the provisions of section 45E of the RBI Act, RBI is prohibited from disclosing credit information. Section 45E provides that credit information submitted by a bank shall be treated as confidential and not be published or otherwise disclosed.”
During the first six months of FY21-22, scheduled commercial banks in India have written off loans of Rs46,382 crore, the minister says.
Sushil Kumar Singh, a member of Parliament (MP) from Aurangabad, Bihar, had asked whether it is a fact that loans worth Rs1.5 lakh crore were written off by banks during the first nine months of the current financial year and its details.
In response, Dr Karad, the minister says, “As per RBI guidelines and policy approved by bank boards, non-performing loans (NPLs), including, those in respect of which full provisioning has been made on completion of four years, are removed from the balance-sheet of the bank concerned by way of write-off. Banks evaluate and consider the impact of write-offs as part of their regular exercise to clean up their balance-sheet, avail of tax benefit and optimise capital, in accordance with RBI guidelines and policy approved by their boards.”
“The borrowers of written-off loans continue to be liable for repayment and the process of recovery of dues from the borrower in written-off loan accounts continues. Banks continue to pursue recovery actions initiated in written-off accounts through various recovery mechanisms available, such as filing of a suit in civil courts or in debts recovery tribunals (DRTs), action under the securitisation and reconstruction of financial assets and enforcement of security interest (SARFAESI) act, filing of cases in the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC) through negotiated settlement or compromise, and through sale of non-performing assets,” the minister says.
As reported by Moneylife, there were 1,913 wilful defaulters who owed Rs1.46 lakh crore to banks as of June 2020. Information shared by RBI under the Right to Information (RTI) Act reveals 264 wilful defaulters who defaulted on a loan of Rs100 crore and above.
“There are 23 defaulters with an outstanding of over Rs1,000 crore each and their dues accrue to Rs43,324 crore. Wilful defaulters who owe between Rs500 crore to Rs1,000 crore to banks are 34 and their outstanding is Rs22,105 crore. There are 207 wilful defaulters in the Rs100 crore to Rs500 crore default range and together they owe Rs43,095 crore to PSBs. This also means there are total 264 wilful defaulters with bad loans of Rs100 crore and above and owe Rs1,08,527 crore to banks,” says Pune-based RTI activist Vivek Velankar, who had filed the application. (Read: 264 Big Wilful Defaulters Owe Rs1.08 Lakh Crore to Banks, Reveals RBI
Looking at the reply given in the Lok Sabha, it is no wonder that almost all public sector banks (PSBs), including State Bank of India (SBI), avoid disclosing information about big defaulters. While refusing to reveal names, SBI still accepted that it recovered Rs15,476 crore or a mere 11% of the total loan write-offs amounting to a massive Rs1,41,208 crore over the past nine fiscal years.
This year, SBI refused to give Mr Velankar information both as an RTI applicant and as a shareholder of SBI. Sham K, assistant general manager for compliance and company secretary of SBI, said, “As the Bank is under statutory and regulatory obligations to maintain the confidentiality of customer data, the Bank is not in a position to share the account or customer-specific information.”
On filing an appeal, the first appellate authority (FAA) partly upheld Mr Velankar’s appeal and revealed information on debt written off and recovery made over the past nine years.
Technically speaking, when debts are written off, they are removed as assets from the balance sheet because the bank does not expect to recover payment.
Experts have frowned upon this practice, but banks routinely do it as part of their tax management clean-up process. The beneficiaries are invariably some of our biggest industrialist defaulters.
In contrast, when bad debt is written down, some of its value remains an asset because the bank expects to recover it. However, as SBI has shown, there is negligible recovery for the amounts written off most of the time.
As reported by Moneylife, several banks and financial institutions are using all possible ways and means to keep their records hidden from public view.
In August this year, the Supreme Court rejected a plea to hear a review petition filed by several public and private sector banks seeking exemption from disclosing any information related to their customers, trade secrets, risk ratings or any unpublished price-sensitive information under the RTI Act.
A bench led by justice SA Nazeer also observed that fresh petitions will be heard by the original bench led by justice L Nageswara Rao, which had dismissed a joint plea by the Union government and 10 banks seeking a recall of the judgement in the Jayantilal N Mistry case of 2015. At that time, the apex court had asked RBI to disclose inspection reports of banks as well as details of wilful defaulters on the grounds that the central bank had no fiduciary relationship with the banks. (Read: Central Bank of India Favours Big Defaulters while Writing Off Loans?
Earlier in February 2016, the Supreme Court had directed RBI to furnish a list of the companies, which are in default of loans in excess of Rs500 crore or whose loans have been restructured under corporate debts restructuring (CDR) scheme by banks and financial institutions. (Read: Supreme Court asks RBI to submit list of big defaulters
Even in December 2015, the apex court, in a landmark judgement, had told RBI that the banking regulator cannot withhold information citing 'fiduciary relations' under the RTI Act.
Hearing a set of transferred cases, a division bench of justice MY Eqbal and justice C Nagappan had said, "From the past, we have also come across financial institutions which have tried to defraud the public. These acts are neither in the best interests of the country nor in the interests of citizens. To our surprise, the RBI as a Watch Dog should have been more dedicated towards disclosing information to the general public under the Right to Information Act. We also understand that the RBI cannot be put in a fix, by making it accountable to every action taken by it. However, in the instant case the RBI is accountable and as such it has to provide information to the information seekers under section 10(1) of the RTI Act." (Read: RBI cannot withhold information under RTI citing ‘fiduciary relations’: SC