SC raps RBI on the knuckles and with reason for being secretive about NPAs

The Supreme Court has reprimanded the banking regulator, the Reserve Bank of India (RBI), for being lax in its naming and shaming drive against bank and financial institutions defaulters. Banks, ever since the Right to Information Act, 2005 (RTI) came into vogue, have been taking shelter under a fig leaf of protection against disclosure afforded by the RTI Act—damage to the economy. Nor can the fiduciary relationship that exists between a lender and the borrower come in the way of disclosure to the public under the RTI when substantial public funds are involved in the public sector banks.[caption id=“attachment_2544460” align=“alignleft” width=“380”]  The RBI logo. Reuters[/caption] RTI serves a larger purpose—public interest which is paramount vis-à-vis the secretive rights of the defaulting borrowers. Had banks bared their breasts about the extent of loans at stake to the now grounded Kingfisher Airlines Ltd (KAL) and the action taken to recover the dues, the public would have offered insights in its possession about KAL and its profligate promoter. One cannot assert his fiduciary rights when he is remiss in his duties. Both the banks and borrowers which have brought the nation to such a pass in the matter of bad debts cannot hide behind the façade of fiduciary relationship. The debate whether a bad debt is genuine or contrived is as old as the hills. Sick company rich promoter syndrome that has bedeviled the banking and financial system of the country is just not a flippant expression. Nor are the bank specific jokes such as you borrow in lakhs, you are in trouble with the bank but if you borrow in crores, the bank is in trouble with you. To be sure, many of the borrowers may be really struggling due to endogenous and exogenous economic factors but that does not mean the public should get no wind of it. Naming indeed may not be with a sadistic motive to shame but only to put the spotlight on the defaulters before the public who not only may have access to knowledge about the shenanigans of, and the difficulties experienced by, the borrowers not in the possession of the lending banks but also might be curious to know how their taxes are being used by the government. Nobody has done a greater harm to banks and financial institutions than the BIFR under the Sick Industrial companies (Special Provisions) Act, 1985 and the managements of indulgent banks by their limitless extensions and rescheduling. The bankruptcy code in the anvil promises to usher in a better regime—180 days to shape up or ship out. Liquidation proceedings against the company and misappropriation proceedings against the promoters must go hand in hand so that they complement and supplement each other all to the good of all the stakeholders. To wit, if the liquidator finds input-output ratio suspiciously high he can end up unearthing black money generated by the management through over invoicing and its concomitant kickbacks. Strategic debt restructuring (SDR) the recent fad of RBI is fraught as it can leave the banks holding the can with no clue as to how to run the business wherein it has swapped debt for equity nor as to how to dispose of the shares to the right person who would carry on the business better than hitherto. Its predecessor CDR or corporate debt restructuring saw bank managements consummating deals behind closed doors with the defaulting borrowers. At 11 percent, bad debts – or its euphemism NPA – has assumed alarming proportions. It is time we wielded the stick as well. In so doing, we must beef up our economic intelligence gathering. RTI is a godsend in this regard. A defaulter would shake in his boots if his shenanigans are exposed. He cannot be heard to say I have small secrets to keep when he is remiss in his responsibilities.