Thomas Franco

Wilful defaulters and companies involved in fraud can go for a compromise settlement or technical write offs by banks and Non -Banking Finance Companies, as per the new RBI circular.

“A wilful defaulter is a borrower who refuses to repay loans despite having capacity to pay up” as per the definition. And “A fraudster is one who intentionally cheats the bank with false documents/information and misappropriates the money.” Both are criminal offenses.

Till 2019, the RBI had clearly instructed the Banks vide its circular notification RBI/2018-19/203, DBR No.BP.BC 45/21.04.048/2018-19 dated 7.6.2019 vide para 34 as “Borrowers who have committed frauds/malfeasance/wilful default will remain ineligible for restructuring.

This was reiteration of earlier instructions which existed for long and were in force till 8.6.2023. Shockingly, RBI/2023-24/40 DOR.STR.REC.20/21.04.048/2023-24 dated 8.06.2023 has modified the instructions to help wilful defaulters and fraudsters who are criminals. It says in para 6(ii) ‘Proposals for compromise settlements in respect of debtors classified as fraud or wilful defaulter, as permitted in terms of clause 13 of this annex shall require approval of the Board in all cases.’

Para 13 (Annex) Regulated Entities may undertake compromise settlements or technical write offs in respect of accounts categorised as wilful defaulters or fraud without prejudice to the criminal proceedings underway against such debtors.

Since 2014, the GOI has not appointed Officer Directors and Employee Directors in public owned banks and the Boards have political supporters of the ruling party. The RBI has not questioned the non- appointment of the Officer and Employee Directors.

One of the Deputy Governor of RBI recently lamented about the functioning of the boards while addressing the board of Directors of Public owned Banks.

So it’s anybody’s guess how boards will approve compromise settlements. They don’t have any accountability unlike the officers and employees. Without the watchdogs from Associations and Unions, the Boards have become opaque and their decisions are not even available under RTI.

We also know what happens to the cases once compromise settlement is arrived at.

This is going to have serious impact on the banking system. It is the depositors from the middle class whose deposits will be used for writing off loans with a small recovery. And the criminal can once again avail loan! His CIBIL rating will improve as his data will be cleansed.  Naturally the good borrowers who are promptly repaying will start defaulting. This will affect the banks. Except the borrowers who have given strong collaterals others will tend to default and expect write off.

Who are the people who are going to be benefited? In 2018, it was reported that out of 5600 wilful defaulters 15% were from Gujarat.

Here is the RBI data on top 50 wilful defaulters in 2022:

ABG Shipyard (Rishi Agarwal) Winsome diamonds (Jatin Mehta) and many of the other wilful defaulters are close to the corridors of power. Some are already abroad. ABG Shipyard’s Rishi Agarwal who cheated 28 banks to the tune of Rs.23000 crores can now pay some pittance and have a compromise settlement.

Similarly, Jatin Mehta who is a close relative of Adani who ran away, can now return. Along with Vijay Mallaya, Meher Chokshi, Nirav Modi and others! They will fund the election campaigns.

The National Company Law Tribunals are already helping the looters and the Neo rich. Read my article from June 26, 2021 titled Mallya, Choksi & Nirav Modi should have gone the NCLT Route. Even the Parliament Standing Committee has strongly criticised NCLTs.  In last 10 years NPA reduction due to write off is Rs.1322309 Crore.

There is going to be another bigger political gain. In the last 9 years the banks have given Mudra Loans worth Rs. 2405753 crores to over 42 crore borrowers (420997763 Crore) upto 9/6/2023. See year wise sanctions given below:

The Finance Minister has been giving targets to government owned Banks which are also forced to lend to Non- Banking Finance Companies for on lending and co-lending. In many places the ruling party cadres tell the borrowers that this is gift and not to be repaid. So NPAs are increasing and banks are writing off 25% and claiming 75% from the Credit Guarantee Fund. But the borrower’s CIBIL score is affected. Most of them are wilful defaulters. Now they can pay a little, clear the CIBIL score and borrow again.

Please also read Mudra Loans and dangers of Micro Finance, April 28,2023.

Let’s look at frauds. In 2023 alone, 13,530 frauds were reported by banks to RBI. In 2021 & 2022 Public owned Banks reported Rs.97,245 Cr frauds in accounts outstanding above Rs.100 crores alone. See Bank wise list below:

In the last 5 years banks have reported 983 frauds above Rs.100 crores to the tune of Rs.376400 crores. Is it correct to go for compromise with these criminals?

This is a clear loot!

Through the NCLTs established under the Insolvency and Bankruptcy codes lakhs of crores of public money has been written off in the name of haircut. Banks are given some capital to carry out this siphoning off of money to few rich corporates. They in turn support the political party through electoral bonds and other ways.

The write off of smaller loans provides dividend in the elections as the number is huge. Please read How Banks helped BJP win UP elections, Mar11, 2022.

The Bank’s balance sheets are shown as clean with high profits at the cost of depositors who get less interest, pay more bank charges and small borrowers who pay high interest.

Now it will be easy to sell them in the name of privatisation!

RBI is being used as a tool for political gain, which is a violation of law.

Section 21 of the Banking Regulation Act reads as “Power of Reserve Bank to control advances by banking companies (1) where the Reserve Bank is satisfied that it is necessary or expedient in public interest or in the interests of depositors or banking policy so to do, it may determine the policy in relation to advances to be followed by banking companies generally”.

This compromise settlement of wilful defaulters loans and fraudsters loans is neither in public interest nor in the interest of depositors. It is a violation of law. This has to be withdrawn.

All India Bank Officers Confederation and All India Bank Employees Association have strongly condemned RBI and demanded withdrawal of instructions failing which the depositors will be affected and defaults will increase and there will be no faith in the system. This may lead to a collapse! Political parties and public will have to raise to the occasion.  Banks can’t be used for political gains at the cost of more than 100 crore small depositors!

Thomas Franco is the former General Secretary of All India Bank Officers’ Confederation and a Steering Committee Member at the Global Labour University.

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