Where's the will to act against wilful defaulters?

This is the season of the RBI being looked at and studied threadbare as the central bank hits the headlines like never before.  The one good thing about the current crisis is that there is an attempt to understand this complex animal and how its working impacts common citizens. But not everything is or need be as complex. One such example is the case of wilful defaulters – defaulters who by the very English definition of the words and the term ought to be seen and judged in harsher light. 

Therefore the questions that are being asked on why the RBI, the government and the banks – the entire financial system and its set of regulators – have not got together to release the list of wilful defaulters is a very important part of the conversation on bad loans and the crisis in the banking system. We do not have a definitive list of these worthies available at any single place, except perhaps in the vaults of the RBI.  With the money gone, protecting these lists is an ironic way of upholding the law of the land. Some banks put out these lists but not all do so.

List of wilful defaulters

When the RBI is asked to release the list of wilful defaulters, this is the position the central bank takes, “Requested information is confidential in nature and is exempt from disclosure under Section 45E of the Reserve Bank of India Act, 1934. Moreover, in a pending case… (RBI) has submitted to the Hon’ble Supreme Court a list of defaulters above Rs. 500 crores in a sealed cover claiming that the said information is confidential and requesting that it may not be revealed to the public. The matter is still under the consideration of the Supreme Court. We are therefore unable to provide the requested information.”

According to data reported by Public Sector Banks (PSBs), as on March 31, 2018, the total number of wilful defaulters was 9,331, accounting for Rs 1,22,018 crore, which is 13.62 per cent of Gross Non-Performing Assets (GNPA) as on that date. So we have it that a significant part of NPAs is on account of those that can pay back but won’t or have diverted the money for use other than which the loan was first issued. This is nothing short of criminal. 

“Further,” the RBI notes, “the banks /Financial Institutions have been advised to submit the data regarding defaulting borrowers to Credit Information Companies (CICs) and not to RBI from December 2014 onwards.”

In short, we have stopped collecting the data and even if we have it, the law of the land does not allow us to give it to you, says the RBI.

In the case of wilful defaulters, we have a lot of contemplation but little action. It should not be difficult to set out conditions such that the passports of these defaulters are impounded, their assets are seized and they are prosecuted on priority. If this requires a change of law or even an ordinance, then that would be a good ordinance to pass. 

In the Lok Sabha, the Minister of State for Finance Shiv Pratap Shukla earlier this year was a little more forthcoming. According to data reported by Public Sector Banks (PSBs), as on March 31, 2018, the total number of wilful defaulters was 9,331, accounting for Rs 1,22,018 crore, which is 13.62 per cent of Gross Non-Performing Assets (GNPA) as on that date. So we have it that a significant part of NPAs is on account of those that can pay back but won’t or have diverted the money for use other than which the loan was first issued. This is nothing short of criminal. The actual number can only be higher as time goes by and those who are on the list realise that no one is really in hot pursuit. The released numbers of course cannot account for all those who might still fall in the category of wilful defaulters (in part, if not in full) because they will have enough material to take shelter under the guise of a business decision or a business cycle gone bad.  

It is not that nothing has been done to ask the wilful defaulters to cough up the money. As on March 31, 2018, data released in the Lok Sabha shows that 2,323 FIRs were registered against wilful defaulters, 8,835 suits were filed for recovery from them, and action has been initiated under the SARFAESI in respect of 7,300 cases. Further, SEBI regulations have been amended to debar wilful defaulters and companies with wilful defaulters as promoters/directors from accessing capital markets to raise funds.  Under the Insolvency and Bankruptcy Code, wilful defaulters can’t participate in the insolvency resolution process.

But even the government adds this bumper argument to its answers: “RBI has informed that as per the provisions of Section 45E of the Reserve Bank of India Act, 1934, RBI is prohibited from disclosing credit information, which shall be treated as confidential and not be published or otherwise disclosed.”

What does the section say?

Section 45E of the RBI Act is subtitled, “Disclosure of information prohibited” and its subsection (1) reads as follows: “Any credit information contained in any statement submitted by a bank…or furnished by the (RBI) to any bank…shall be treated as confidential and shall not, except for the purposes of this Chapter, be published or otherwise disclosed.” Sub-section (3) of the Act further adds, “Notwithstanding anything contained in any law for the time being in force, no court, tribunal or other authority shall compel the (RBI) or any banking company to produce or to give inspection of any statement submitted by that banking company…or to disclose any credit information furnished by the RBI to that banking company…”

It is not a secret that not many wilful defaulters have felt the heat. The nation is in turmoil over NPAs. Yet, the one sub-section of NPAs on which there need be no doubts on the road ahead, the requisite strong action is missing. It is not that the establishment cannot find a way. When the abuse is gross, the strong arm of the State usually comes in to correct the waywardness.

Extreme challenges of the State

It may not be out of place to compare the situation of wilful defaulters to other extreme challenges that the State has faced in the recent past. Take the cases of matrimonial cruelty and bride burning, a horrendous crime that was not checked until came the Section 498A of the Penal Code. The section has its downsides but sends out a clean and clear message on how allegations by young brides must be handled by law enforcement. Similarly, the law that prohibits prenatal sex selection has been turned into a potent weapon against the doctors who otherwise made it their business to offer sex selection services, which often led to aborting of female foetuses.

The Central Information Commissioner Sridhar Acharyulu was quoted as saying, "The commission finds no merit in hiding the names of, details and action against wilful defaulters of big bad loans worth hundreds of crores of rupees."

In the case of wilful defaulters, we have a lot of contemplation but little action. It should not be difficult to set out conditions such that the passports of these defaulters are impounded, their assets are seized and they are prosecuted on priority. If this requires a change of law or even an ordinance, then that would be a good ordinance to pass.  

In the end, what we need is the collective will to act against this lot. The Central Information Commissioner (CIC) is the only authority that has come out clearly and strongly on the subject. PTI quoted the Commissioner Sridhar Acharyulu as saying, "The commission finds no merit in hiding the names of, details and action against wilful defaulters of big bad loans worth hundreds of crores of rupees.”

PTI quoted Acharyulu as having asked the RBI governor to remember, at least once, one of the three lakh farmers who died in the field as he failed to sustain his crop or sell his produce for an appropriate price and hence, could not pay off the debt before defying the transparency law and directions, and discontinue the non-disclosure policy which will seriously harm the economy of the nation. That truly should be the spirit in which the names must be disclosed, which is only the first step in launching a full-fledged strike against wilful defaulters.