Crackdown on defaulters: SC and RBI should move on from the 'naming' debate and work on the recovery of public money

The good news is that finally the issues of bad loans and behavior of big corporate defaulters have taken the central stage, evident with the Supreme Court paying unprecedented attention on the matter. On Tuesday, the apex court noted that the amount of loans defaulted by individuals and companies are ‘mind-boggling’. The court also expanded the scope of the case by making finance ministry and the Indian banks’ association party to the case. But, the central part of the debate between the Reserve Bank of India (RBI) and the Supreme Court still seems to be whether to name the defaulters in public or not. The SC wants the details to be made public while the RBI is opposing citing the business confidentiality and the repercussions of the action on those who defaulted on account of genuine difficulties. The Supreme Court is missing the woods for trees for a few reasons:  First, the RBI had recently submitted the list of top defaulters above Rs 500 crore exposure to the SC along with their details. With the available information, the Court could, even now, ask concerned banks and the banking regulator to initiate stringent recovery measures with the help of the finance ministry. Merely making the defaulter names public wouldn’t alone suffice to speed up recovery if that is the idea. Already, most banks are aware of who are the major defaulters in the banking system since the information is already shared among lenders and is available with credit bureaus such as CIBIL. What is more worrying is that by each passing day the recovery process is getting delayed, the value of the outstanding defaulted loan goes up while the value of the underlying assets pledged against the loan deteriorates. Take the Kingfisher-Vijay Mallya case. The outstanding amount Mallya owes to banks grew from about Rs 7,000 crore to currently about Rs 9,000 crore mainly on account of the delay by banks in taking action against Mallya (it took four years for banks to tag Mallya as a wilful defaulter after they classified KFA as bad loan in 2012 and go for an all-out attack on Mallya). There is very little that banks can recover now from Kingfisher.  Second, the names of the wilful defaulters (companies identified by banks as parties who wouldn’t pay back even if they have the ability to do and where cases of fund diversion and financial irregularities are involved) are already public. Here is where the SC and the RBI should act fast since these are borrowers who have been investigated by banks and identified that their intent to pay back is absent. This information is available with CIBIL. On 1 April, Firstpost had collated and published the names of these wilful defaulters (those with above Rs 500 crore exposure). 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. 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. The RBI’s argument on secrecy for bad loan accounts in public deserves merit since if the name of a company, which is in genuine stress, is disclosed, it can hamper the process of recovery process and ‘may accentuate the failure of business rather than nursing it back to health.’ But this doesn’t apply to wilful defaulters. Of the whole lot of NPAs, there is an urgent need to talk with wilful defaulters, since these are accounts where the intent from the borrower to pay back is absent. Banks’ challenge to get back money is even greater in such accounts compared to a normal loan-defaulter account. The point here is this: Merely naming big defaulters in public would hardly help in terms of actual recovery. It’s time the SC move on from the ‘naming’ debate and focus on recovery process by banks. What is urgently needed is pushing the banking sector, the RBI and the government to speed up recovery of bad loans, which is ultimately public money before the value of underlying assets erodes fully. Data from Kishor Kadam