The Supreme Court on Tuesday directed the Reserve Bank of India (RBI) to furnish within six weeks details of all defaulters who have outstanding dues of Rs 500 crore and above. The list should be across public sector (PSU) banks and all financial institutions, the court emphasised.
The order passed by the Bench headed by Chief Justice T S Thakur said the central bank should also include details of restructured assets and names of institutions whose debts have been written off in the past five years. The court has asked for the list to be submitted in a sealed envelope.
According to RBI’s estimates, as of September 2015, the gross plus restructured and written off assets amounted to 14.1 per cent of bank loans. For PSU banks, the share was 17 per cent. If the December quarter numbers are added, this could shoot up further. Most of the stress has come from the medium industries segment, which accounted for 31.5 per cent of bad loans, according to a presentation by RBI Deputy Governor S S Mundra.
However, experts say banks might not be able to recover most of the dues, even if there is a question of wilful default.
In most cases, the personal guarantees of promoters are not adequate.
In fact, the value of projects against which loans have been given have fallen drastically since these were taken.
For example, because of the fall in commodity prices and cheaper imports, steel and power projects are worth far less than the loans raised against these.
Despite RBI not being a party to the case, the judges asked its lawyer H S Parihar, who was present in court, to take notice. This is the second time in recent months the Supreme Court has instructed RBI to take steps against defaulters.
In December last, the court dismissed RBI’s appeal against an order of the Central Information Commission to disclose information about defaulters. The court reproached the bank for trying to “cover up” the “underhand actions” of banks from public gaze. The judgement ruled that RBI was bound by law to give information regarding private and public banks under RTI.
“RBI is supposed to uphold public interest and not the interest of individual banks. We have surmised that many financial institutions have resorted to such acts which are neither clean nor transparent. The RBI in association with them has been trying to cover up their acts from public scrutiny,” the court had stated then.
RBI in recent times has instructed banks to purge their balance sheets of hidden bad debts, disclosing the numbers and providing adequate money against those debts. As a result, third quarter results of all banks have thrown up ugly numbers and big lenders have reported record losses. While State Bank of India’s profit fell more than 60 per cent, Bank of Baroda’s loss was a record Rs 3,342 crore. Banks are now moving decidedly against defaulters, but are far from open about revealing names of big defaulters. On Tuesday, though, Punjab National Bank named Vijay Mallya’s United Breweries (Holdings) Ltd, a wilful defaulter. SBI had also declared Mallya a wilful defaulter in the recent past. Mallya owes banks around Rs 9,000 crore in bad debts.
Gross bad debt of all public sector banks rose 50 per cent year-on-year to about Rs 3.96 lakh crore in the quarter ended December 2015 from Rs 2.64 lakh crore in December 2014.
RBI governor Raghuram Rajan, though, has acknowledged that most of the NPAs could be genuine stress. But, wherever there is a hint of malpractice by a promoter, “it is extremely important that the full force of the law is brought against him, even while banks make every effort to put the project, and workers who depend on it, back on track.”
In Tuesday’s arguments, Prashant Bhushan cited reports by the Central Vigilance Commission and RTI revelations to assail the rampant misuse of loan facilities by HUDCO. Even companies that have been declared wilful defaulters were granted loans, over the heads of some executives, he said. He quoted an instance of a farmer whose five acres were seized for defaulting on a loan of Rs 12,000 and auctioned for Rs 50,000 while the market value was Rs 5 lakh.
Bhushan termed the strategic debt restructuring (SDR) and 5/25 loan schemes a fraud, as loans get repriced and refinanced every five years.