In a sealed cover, the Reserve Bank of India (RBI) handed over the names of India’s top bank loan defaulters (those with loan outstanding above Rs 500 crore) to the Supreme Court on Wednesday, but with a rider.
The RBI insisted secrecy with respect to these names citing the commercial sensitivity of the issue. The apex bank’s contention was that if the name of a company, which is in genuine stress and thus a defaulter, is disclosed, it can damage the firm’s health further and ‘may accentuate the failure of business rather than nursing it back to health.’ RBI was certainly making a valid point here.
But, surely, that isn’t the case with wilful defaulters. No mercy should be shown to those corporate defaulters, who have the ability to pay back their dues to banks but wouldn’t do so deliberately (called as wilful defaulters). Once a company is a wilful defaulter, such institutions and their promoters cannot access funds from any other banks or financial institution.
Also, such promoters cannot take up leadership positions in any other listed companies for a specific period. A bank classifies a company as a wilful defaulter if there is evidence of fund diversion and absence of intent to pay back, and virtually ostracizes him from the financial world.
In February, Firstpost had published a list of the bad loan accounts with different Indian banks as per the data provided by All India Bank Employees Association. Now we are publishing the list of the country’s top wilful defaulters (in terms of loan value). This information is sourced from the Credit Information Bureau (India) Ltd, or CIBIL, which collects the data on defaulters.
Here is the picture: As on 31 December 2015 when the data was last updated, there are a total of 7,129 loan accounts that have been classified as wilful defaulters by different banks across the country, with total loans amounting to Rs 70,540.34 crore. These wilful defaulters include that of individuals and institutions.
Since it is not feasible to publish all 7000 names, Firstpost has shortlisted 18 top borrower accounts, who owe at least Rs 500 crore and above to different banks and who have been tagged as wilful defaulters (see the table for details). These 18 companies together owe Rs 17,448 crore to banks as on December, 2015.
Zoom Developers tops this list with Rs 2,411 crore loans, followed by Winsome Diamonds and Jewellery with Rs 2,266 crore loans and Forever Precious Jewellery with Rs 1,315 crore loans.
Vijay Mallya-owned Kingfisher Airlines too show up in the list but only for loans worth Rs 1,201 crore (to SBI). This is because only two banks SBI and Punjab National Bank (PNB) have tagged Kingfisher as wilful defaulters.
PNB’s loan is not reflecting in this list since the bank classified the account as wilful default in February, while this list is till December, 2015.
Kingfisher owes a total of Rs 9,000 crore to a consortium of 17 banks, which are battling in various courts to get back money from the liquor-baron. Other names in the top list include Deccan Chronicle Holdings.
Of the whole lot of NPAs, there is an urgent need to deal with wilful defaulters first, since these are accounts where the intent from the borrower to pay back is absent. Thus, banks’ challenge to get back money is even greater in such accounts compared with a typical bad loan account.
What is more worrying is the fact that the lion's share of the loans classified as wilful defaulter accounts are on the balance sheet of public sector banks (PSBs) — Rs 57,795 crore from 6,251 accounts.
State Bank of India tops the list of lenders with largest share of wilful defaulter loans — Rs 12,091 crore loans from 1,034 accounts, followed by Punjab National Bank which has wilful defaulter loans worth Rs 9,445 crore loans and Central Bank of India with Rs 3,574 crore loans from 639 accounts.
Wilful defaulter loans constitute 16 percent of the total bad loans (Rs 4,00,000 crore) of Indian banks and about 1 percent of the total bank loans given by banks.
Pressure on state exchequer
In the recent years, banks have turned aggressive in tagging habitual borrowers as wilful defaulters in a bid to recover their long pending dues and after the RBI pushed banks hard to speed up recovery.
Recently, RBI governor Raghuram Rajan had set a deadline of March 2017 for banks to clean up their balance sheets. Ever since Rajan took over at RBI, the central bank has been gradually tightening grip on banks to cut down bad loans and stop the practice of hiding bad loans in the form of restructured loans by lifting the special regulatory dispensation on loans recast by banks.
This meant that banks now need to set aside the same amount of money as provisions as they do for bad loans.
But the bad loan hunt of RBI also imply that the capital requirement of state-run banks, which control 70 percent of the Indian banking system, has gone up tremendously, in turn, putting the burden on the state exchequer. In the fiscal year 2017, the government has budgeted a capital infusion of Rs 25,000 crore for state-run banks.
But, this might not suffice given the high NPAs on the books of banks resulting in huge provisioning burden. Banks also need to find capital to meet the Basel-III norms and credit expansion when economy picks up momentum.
Will NDA walk the talk?
The Narendra Modi government has reiterated its intent to clamp down on wilful defaulters. Coordinated action by the government, RBI and other sector regulators is critical to tackle wilful defaulters as seen in the Kingfisher case.
In most cases, banks haven’t managed to make any meaningful progress in the recovery from deep-pocketed promoters, who typically drag lenders for years to courts to delay the repayment. In the process, the value of underlying asset deteriorates such as in the Kingfisher case and recovery turns difficult.
The government’s intervention to aid banks speed up the recovery process is equally critical since each penny that the government feeds to state-run banks from state-exchequer is taxpayers’ money. The question is will the government and RBI walk the talk and clamp down on wilful defaulters?