Concerned over the rising instances of payment defaults, banks have shown willingness to disclose the names of borrowers who have raised money from the public through deposits and securities but failed to pay up.
Responding to a move by the ministry of corporate affairs (MCA) to improve disclosures, banks through industry body Indian Bank’s Association, communicated they were not averse to the proposal of public disclosure of defaulting borrowers’ status.
A senior public sector bank executive said the matter was referred by the finance ministry to the association. However, considering the present customer confidentiality concerns, such disclosures are possible only if enabling legal provisions are put into place.
MCA said availability of correct and reliable information about financials, creditworthiness and default of companies in public domain would help investors to take informed decisions about investment.
MCA has already placed the names of defaulting companies and their directors in the public domain (via its website).
Banking regulator Reserve Bank of India has similar information about defaulting companies categorised as bad, defaulting and non-performing assets. This information is also maintained by the credit information companies. But it is shared only among banks and is not in the public domain.
One senior public sector bank executive said most of the cases depict genuine difficulties in payments due to dip in revenues, increase in input and interest costs. But, some promoters and managements try to take advantage of overall negative business environment. They are reluctant or do not pay despite having the capacity to do so, reflecting willful default.
With economic slowdown, negative business sentiment and stretched payment cycle there is deterioration in the credit profile of corporates, especially mid-size and small enterprises. There is rise in slippages (loans becoming non-performing assets).
The gross NPAs of commercial banks have grown to 3.21 per cent of advances in end of June 2012 from 2.51 per cent in the end of March 2010.
The defaults are not just restricted to paying long-term loans. The trend has spread to short-term finance instruments also. There have been several sharp downgrades in commercial paper (CP) ratings and also some defaults recently. This is a new and a worrying trend, said senior rating agency official. Short-term debt includes funds raised through CPs, non-convertible debentures and bank loans for tenors less than a year.