Wilful Default Growing challenge before Indian Banks

Riyaz Ahmed Bhat
On 14th Sept 2017 the Gen Secretary of one of biggest Bank staff trade union, All India Bank Employees Association (AIBEA), in a press conference demanded that willful default of Bank credit be made a criminal offence. This demand signifies the severity of problem of willful default in repayment of Bank loans in Indian Banking sector. Most of the time the authorities at various levels of the Government have brushed aside this demand declaring the phenomenon of normal risk mitigation in their business dealings.
However in late nineties the Associations received their first success when Reserve Bank of India (RBI) vide its circular came out its definition of willful default which has been updated from time to time and as on date explains that a willful default is deemed to have happened when a borrower defaults in timely payment of dues to his lender Bank while having ability to pay or the funds which were meant to establish a business venture have not been utilized for the purpose mentioned or have been siphoned off from it or the assets created out of finance have been moved out of business venture without the consent of lender Bank. When such things are observed by a bank in case of any account the bank is supposed to take a decision on the status of the borrower and initiate the process of declaring him as willful defaulter. This declaration has far reaching consequences for any person or entity debarring him or it from availment of bank finance for his future business ventures. This drying up of the channels of finance for him is considered to be deterrence against willful default planned by any defaulter of Bank loan. But such a stringent instructions and punitive action has not deterred various borrowers to commit a willful default and the figures as released by CIBIL are evident that the menace is growing day by day. The data reveals that banks had reported a willful default of `25410 crores in 2013, `74694 crores in 2016 and `109594 crores in 2017 spread 9500 borrowers. The major contributor to this figure has been from Public Sector Banks (PSB) which have willful default of `92376 crore spread around 9000 accounts. These PSBs have lodged FIRs in 1914 cases involving `32484 crores. A case to case study in various banks has revealed that most of the identified willful defaulters have managed to get their finance proposals cleared by the banks without a hitch pointing to collision of some insider black sheep with the identified willful defaulters. It has been further opined by the experts that forensic audit of the NPA accounts may reveal more Kingfisher Airlines (KFA) like exposures for which now have been declared willful defaulters. It has been commented that only identifying of collaborators will not suffice but fixing their responsibility and putting in motion the process of accountability will pave the way for deterrence in the system and insulating it in future.
On the other side the banks are in the process of devising an effective strategy to deal with the identified willful defaulters and RBI has committed to extend a helping hand to Banks in tackling the issue. One such step has been compiling the list of willful defaulters and putting it on its website for public viewing while as it has also allowed the banks to proceed with naming and shaming of the willful defaulters by publishing their names in newspapers. The banks are also proceeding with action against these willful defaulters under various sections of criminal law like cheating and criminal breach of trust. To recover their dues banks have been expediting the recovery process invoking Securitisation And Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act enabling them to take possession of assets held as security to credit exposures. This action has helped in quickening the recovery of dues for Banks outside judicial processes.
The data made available by the Finance Ministry GOI, as on 31.03.2017, reveals that State Bank of India (SBI) has largest number of willful defaulters, numbering 1444 involving `20943 crores, against which action under SARFAESI Act has been initiated. In remaining 20 PSBs action has been initiated against 4510 willful defaulters involving `48496 crores. Though the Banks may be able to recover the part of their exposures or full from these willful defaulters yet it remains an open challenge for the Banks to make these willful defaulters to face the music of law for the crime they have committed by delaying the repayments to their lender banks. This is due to a long process undertaken by the Banks in declaration as willful defaulter and long slow moving process of criminal justice system, prevalent in India. To clean up the system from this mess the Government needs to initiate the legislative and executive action so that lending institutions are not made hostage to slow moving judicial or administrative process because if the banks are supposed to be efficient in credit delivery mechanism the ecosystem needs also be created for an efficient repayment culture by singling out the willful defaulters for criminal judicial action which only will pave the way for deterrence.
(The author is General Secretary
Jammu and Kashmir Bank
Officers Forum)
feedbackexcelsior@gmail.com

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