Criminal probe needed on borrower-banker nexus: C H Venkatachalam

Absence of stringent laws to recover bad loans from wilful defaulters one of the main reasons for huge bad loans facing the banking sector, says All India Bank Employees Association general secretary

Public-sector bank unions had threatened strike on December 27 in solidarity with IDBI Bank employees who have not seen a wage revision since 2012. However, on the management’s assurance before the Chief Labour Commissioner (CLC) that the demands would be met in a month, the strike has been deferred. CH Venkatachalam, general secretary, All India Bank Employees Association, which represents about half a million bankers across private and public sectors, speaks to N Sundaresha Subramanian on this other key issues as stressed assets resolution, insolvency framework and bank mergers. Edited Excerpts:

How did the negotiations before the CLC go? Are you hopeful of a resolution for IDBI Bank employees?

We stated that while wage revision had been completed in the entire financial sector, only in IDBI Bank wage settlement had not been finalised. Their wage revision has been due since November 2012 and another wage revision is due from November, 2017. But the management is dragging the issue inordinately. The management stated that it had been holding periodical negotiations with the unions the resolve the issue but was constrained in its offer due the present financial condition of the bank. On our demand to conclude the settlement without further delay, the management has assured that it would take all-out steps to complete the process within a month.

Troubles at IDBI Bank are representative of the problem of the Rs 8-lakh-crore stressed assets facing the Indian banking sector. What do you think brought us here?

The absence of stringent laws to recover bad loans from wilful defaulters is one of the main reasons for huge bad loans facing the sector. The diversion of loans for purposes other than what they had been granted as big corporate advances is another cause. The wilful default or bank loan default for that matter is tried under the Civil Procedure Code. The procedure takes a lot of time to get a verdict in favour of the bank in case of a loan default. The absence of fast-track courts for trying bank loan defaults and the lack of teeth to Debt Recovery Tribunals further complicate the situation. The striking down of the clause related to “depositing the money in the court before going for appeal against the verdict of the Debts Recovery Tribunal” has come handy for wilful defaulters. The connivance between some of the top executives of the bank, politicians and big corporate groups for sanction of huge loans also plays its role.

Is the insolvency framework administered by NCLT more efficient? Will banks be better off?

We feel that the insolvency framework administered by the National Company Law Tribunal will not work since this is being used even by companies to declare themselves insolvent for non-payment of loans to banks.

Secondly, in the case of insolvency administered by NCLT, all the debtors would be put together and the entire amount due to the bank according to the insolvency proceedings would not come back or be recovered. Only a minuscule part of the amount lent to a company or outstanding in the books of the bank could be recovered.

Thirdly, according to the Companies Act, the personal assets and properties of defaulting companies’ directors could not be attached. This is a lacuna since such divergence goes unpunished in case of diversion of the loans.

The banks will never be better off referring the cases of wilful default to the insolvency framework through NCLT.

What is the response of employees as they face difficult steps such as mergers to overcome this issue?

The employees feel that merger is not a solution to overcome the issue with regard to bad loans. Their and our unions’ response is to oppose the merger in the name of bad loans or piling up of corporate default. To quote an example, the problem of bad loans in State Bank of India has aggravated after the merger of associate banks with it. If merger is cited as a panacea for bad loans, why should there be worsening condition with regard to bad loans at State Bank of India. Merger is not a solution. What India needs is expansion of bank branches, not merger and consolidation.

What are the possible solutions to the issue of stressed assets?

The Reserve Bank of India (RBI) should publish the list of defaulters on bank loans of Rs 1 crore and above periodically – maybe once in six months. Wilful default of bank loans should be made a criminal offence and such defaulters should be prohibited from holding public office and contesting general/Assembly elections. Criminal investigation should be ordered to probe nexus and collusion among borrowers and top-level executives of banks.

What about recovery?

Recovery laws should be amended and made stringent to speed up the recovery of bad loans. More teeth should be given to DRTs and fast-track courts should be exclusively set up to recover bad loans. There should be laws to attach the personal properties of the managing directors and their dependents and the directors of companies that are wilfully defaulting, for the purpose of recovery of bad loans. Before appealing against the verdict of DRTs/fast-track courts, the entire amount due to the bank should be deposited in the court by the defaulting companies/borrowers.

Why didn’t the earlier steps taken for recovery succeed?

The efforts taken by the banks have not been fruitful because there have never been sincere attempts to recover huge corporate bad loans; instead, banks have resorted to manage their ‘bad loans portfolio’ by writing off and restructuring through means like Corporate Debt Restructuring (CDR), Strategic Debt Restructuring (SDR), Sustainable Structuring of Stressed Assets (S4A), Prudentially Writing Off the accounts, transferring the loans to Assets Reconstruction Companies (ARCs) at a discount, etc.

For example, as on August 30, 2017, the total cases received for CDR were 656 and the amount involved was Rs 4,74,351 crore. CDR, SDR, S4A are nothing but camouflaging of bad loans by not showing them as non-performing assets. Eventually, they all would be falling into the bad loan category.