Banks initiate crackdown on wilful defaulters

To recover dues from 50 top defaulters; finance ministry wants proceedings fast-tracked

Government-owned banks have started cracking the whip on wilful defaulters, with the finance ministry asking them to recover dues from the top 50 defaulters as the first step. Banks have been asked to furnish the information of the top-50 immediately.

Wilful defaulters are those borrowers who have defaulted on loan repayment to banks despite having adequate cash flows and a healthy net worth. The ones who have not utilised the funds borrowed for specific purposes and diverted those for other purposes have also been categorised as wilful defaulters by the Reserve Bank of India (RBI).

The finance ministry has asked chief executives of public-sector banks to take approval of their boards and begin proceedings for penal measures. The ministry has also asked banks to lodge formal complaints against the auditors of the borrowers with the Institute of Chartered Accountants of India, if they find the auditors were negligent or deficient in conducting the duty. (UNDER STRESS)

The ministry’s directions have come against the backdrop of a rise in “compromises” made by banks in writing off loans. According to data compiled by the ministry, the reduction in banks’ non-performing assets (NPA) due to compromises made during write-offs was 33 per cent of the total reduction as of December-end, compared with 31 per cent as of March-end. The total NPA reduction by public-sector banks as of December-end was Rs 41,672 crore.

The ministry has also mandated banks not to provide any additional facility to these companies and to bar their promoters for five years from availing of institutional financing for floating new ventures.

Following the ministry’s directive, banks have formed committees — comprising chairmen, executive directors and government nominees — to update their respective boards on the matter.

“The finance ministry has also directed us to obtain all necessary powers to recover dues from such defaulters,” said a senior executive of a public-sector bank.

The move has come within days of Finance Minister P Chidambaram’s comments on the corporate sector’s wilful defaulters. He had said after a meeting with chiefs of public-sector banks last week: “We cannot have an affluent promoter and a sick company.”

The government – the owner of public-sector banks – has been pushing for recovery of non-performing loans. Banks have also been asked to have a board-approved policy on loan recovery and to conduct a review of NPA accounts — of Rs 1 crore and more by the board of directors, and top-300 by the board’s management committee.

<sup>* Wilful defaulters are those borrowers whoh defaulted on loan payment to banks despite having adequate cash flows and healthy networth
* No additional loans facilities to defaulters
* Banks to bar promoters of defaulting companies from institutional finance for floating new ventures for a period of 5 years
* About a third of NPA reduction is due to comprise while writing off a loan
* Banks to form board level committee to monitor recovery process of willful defaulter</sup>