Culture of not repaying bank loan in time and then forcing government to write off dues has become the habit of not only small borrowers and farmers, but even mid segment borrowers and large borrowers avoid repayment of loan in time . This culture has been the creation of vote bank politics introduced and propagated by politicians since eighties when Mr. Devi Lal and V P Singh like politicians used loan waiver scheme or compromise scheme to enhance their vote bank.
Mr. Chidambram like Finance Minister built pressure on banks to enter into compromise even with high value borrowers to clean balance sheet. It helped banks in artificially inflating profits and stock value and opened scope for fresh lending. It was none other Persons like Mr. Chidambram who forced banks to focus on bulk lending , avoid priority sector lending to small borrowers and it is they who have pushed the banks into risk of large defaults.
Management of public sector banks used such loan waiver schemes or compromise schemes and ill-motivated advices of politicians to wash out bad loans. In this way they first built pressure on officers for lending and then for writing off of loan. Bank officers in nexus with government officials , Chartered Accountants and middlemen learnt to earn bribe first in lending and then in writing off of loans.
In this way bank officials not only obliged regulators and Ministry of Finance by achieving target fixed for lending but also saved many bad officers from punitive actions who for the sake or earning money through illegal routes like bribe sanctioned loans in wholesale sacrificing ban's norms or by manipulating figures . As a consequence , it is only investors , depositors , bank staff and other stake holders in banks who have to suffer due to reckless lending and ill-motivated writing off of bad loans. Depositors are paid lesser interest , staff are paid lesser wage hike and investors are paid lesser dividend .
I therefore do not hesitate in saying that majority of bank officers in nexus with politicians and seniors are indulged in wilful bad lending. And when loans sanctioned by them turn bad , they will never treat any borrower as wilful defaulters .Bank officer wilfully hide irregularities of loans to keep it standard for two three years and at least they are not transferred or retired. Team of auditors are also obliged to for getting good health certificates from them. Because loan sanctioned in greed of bribe money normally exhibit features of Non Performing assets.
But if lenders strictly follow NPA norms , such loan will be falling in category of NPA within one year of sanctioning of loan and thus will attract staff accountability. It is therefore in the mutual interest of bad officers and bad borrowers that loan default is not treated as wilful default. Somehow or the other bank officers as well as loan defaulters want to pass time so that bank officers is saved from accountability and borrowers is saved from legal action. Bank officers thus get quick promotion and bad borrowers dispose off the asset acquired by loan and pray for compromise settlement or write off on the false plea of economic recession or natural calamities or adverse business market or something else. Not only this , bad borrowers whose evil acts are exposed , approaches other banks to avail fresh credit and to cause further loss to another PS bank.
However I am of the view that even if a loan default is treated as wilful default, legal machinery and administrative set up in the country is such that actual guilty is not punished even after lapse of years and decades. Lacs of cases are pending for disposal in various court of the country for years and decades. Even Debt Recovery Tribunal and the act of SERFACIA have miserably failed to ensure timely and quick recover of loan from wilful defaulters lie Kingfisher or Zoom Developers .There are millions of such wilful defaulters in small loan category , thousands of defaulters in mid segment and hundreds of defaulters in large volume loans. But only microscopically few defaulters are declared by clever bankers as wilful defaulters
Further , many officers do not know what is called as wilful default and what is unwilled default. Even court of law failed to decide whether the default of Kingfisher is wilful or unwilled. I am of the opinion that Government should stop creating confusion in the minds of bankers by using the word wilful or unwilled. They should stick to the principle that all defaults are defaults only and in all cases of defaults, punitive action should be ensured in quickest and fixed time frame of maximum three months. It may be default in repayment of bank loan or tax default or any other default.
Specially for bank loan defaults, there is nothing to prove for court if the intention of magistrate, judges and recovery officers is clear and beyond doubt . Loans are sanctioned and disbursed after execution of certain documents by loan takers and court need not go further deep into intricacies of documents on technical grounds to postpone decisions. If government is able to punish all types of defaulters in fixed timeframe, there is no doubt that unscrupulous bank officers and unscrupulous borrowers will not dare opting for unethical course of action.
If there is a will there is a way to save banks from disaster. Unfortunately neither bankers nor politicians want to keep banks safe. Politicians want to use banks to enhance their winning possibility in election whereas bankers want to do more and more credit and suggest more and more write off of bad loans because it brightens their future as also it enable them to become richer and richer.
It will not be an exaggeration if I say that it is government which is primarily wilful defaulter in recovery of loans from bank loan defaulters and also from tax defaulters. Many times , Ministers speak that they will not interfere in functioning of banks, but the bitter truth is that the cannot survive without interfering in the affairs of banks . Reasons are many and cannot be explained in few lines here. It is government which is likely to build pressure on bankers to clear projects related to infrastructure loans and it is govt which will always put pressure on bankers for loaning for poverty alleviation and for employment creation programmes meant for youth. It is they who cause loss to bank for suggesting opening of accounts under PMJDY or reckless expansion of branches in unviable locations. And similar is the story related to appointment of directors, ED and CMD in a PS bank.
None of Branch Head of any branch of any bank or Regional Head or Bank Chief of a bank will ever like to see rise in bad debts during their tenure. Suppose if a branch manager makes wrong finances for earning bribe, he or she will try to treat loan sanctioned by him as standard as long as he is posted there. And successor branch manager who joins this branch will also hide the bad loan sanctioned by his predecessor because if he declares bad loan as bad loan , it will not only affect his career , but also affect the career of his colleague and also increase his own work load in recovery exercises. Every officer commit mistake and every one tries to save others. There is always a unity among bad persons but there remains always a tug of war or ego problem among good workers in every walk of life including banks.
NDA led government may accuse Congress party for economic problems of the country or vice versa, but bank officers will never like to accuse other colleague for any irregularities because , if he does so ,he may also face the same music by his successor.
Finance Ministry Seeks List of Wilful Bank Loan Defaulters by Month-End-NDTV-20t April 2015
New Delhi: Concerned over the rising incidences of wilful loan defaults, the Finance Ministry has asked all public sector banks to submit comprehensive data on instances of such lending by the end of this month.
"We have asked banks to provide list of wilful defaulters which is expected in the last week of this month," Financial Services Secretary Hasmukh Adhia told PTI.
The Reserve Bank of India (RBI) has come down heavily on wilful defaulters, he said, adding that the consolidated data will give an idea about what actions have been taken by banks in this regard and what more was needed to be done to check this menace.
In order to check such incidences, the RBI is in the process of redefining the term "wilful defaulters" to bring directors of defaulting companies under its ambit.
"The (Calcutta High) Court had some questions about whether all directors could be declared wilful defaulters and we have looked at that," RBI Governor Raghuram Rajan had said.
"We are in the process of modifying the definition so that the directors, if seen, as culpable in actively participating or being grossly negligent of wilful default (are dealt with)," he had said.
According to the current definition, a wilful defaulter is somebody who has essentially not used the fund for the purpose it has been borrowed or when he has not repaid when he can do so; when he has siphoned off the funds or when he disposed of the assets pledged for availing of loan without the bank's knowledge.
As per the present norms, whole-time directors or executive directors of a company indulging in wilful default are liable for legal action including criminal proceedings as per the law.
Cases of wilful default among other reasons have pushed Gross non-performing assets (NPAs) of the PSU banks over Rs 2.5 lakh crore as on December, 2014.
The top-30 defaulters are sitting on bad loans of Rs 95,122 crore, which is more than one-third of the gross NPAs of PSU banks at Rs 2,60,531 crore as on December 2014. Gross NPAs of public sector banks rose sharply to 5.33 per cent in September 2014 as compared to 4.72 per cent of total advances at the end of March 2014.
To check the rising number of wilful defaults both the government and the RBI has asked banks to take strict action against wilful loan defaulters. If warranted, they can initiate criminal proceedings including filing of FIR.
There has been an increase in incidence of suits filed against defaulters and cases of wilful defaults.
Finance Ministry calls meeting of bank heads on April 28-
New Delhi: The Finance Ministry has called a meeting of public sector bank chiefs on April 28 for planning implementation of large projects, a release said here on Sunday.
The meeting has been called in view of the upward trend in the level of non-performing assets (NPAs) and the stressed infrastructure projects of public sector banks, particularly in the last fiscal.
"The objective of this meeting is to understand the problems faced by the project promoters and the banks in retrieving them and to find out a solution to such problems," the finance ministry said in the release
The load on the system can be gauged from the fact that NPAs, or bad loans, of public sector banks rose to 5.33 percent of total advances in September 2014, from 4.72 percent in March 2014.
Stalled projects have been adding to banks' NPAs and the finance ministry's latest economic survey says that, as in December-end, these amounted to Rs.880,000 crores
Govt set to nudge banks: Loosen purse strings for stalled projects-Hindustan Times
The government is looking at ways to convince reluctant banks — hit by mounting bad loans — to lend more to the cash-starved infrastructure sector and kick-start roads, ports and power projects, critical to create jobs and catalyse growth across farms and factories.
Next week, the financial services secretary Hasmukh Adhia will meet top Reserve Bank officials and state-owned bank chiefs to undertake a case-by-case review of several stalled road, power, steel and shipping projects.
“We will review the situation and see what further steps can be taken to improve the situation,” Adhia told HT.
Officials from several ministries across road, power and others will attend the meeting that will be held in the RBI’s Mumbai headquarters on April 28.
“The objective of this meeting is to understand the problems faced by the project promoters and the banks in retrieving them and to find-out a solution to such problems,” a finance ministry statement said. “This meeting would help the department to crystalise the actions required by banks, the finance ministry and other concerned central ministries as well as support required from RBI.”
India would require about $1 trillion (Rs 62 lakh crore) — half the value of the national GDP — over the next five years to overhaul its collapsing infrastructure.
The Narendra Modi-led government aims to build 30 km of highways every day, thrice more than the previous UPA government’s target, which it had failed to achieve.
According to the road ministry, an additional Rs 1.76 lakh crore — nearly six times the annual budget of rural job guarantee scheme NREGA — will be required in the next three years to build 15,000 kms of highways.
The road and other infrastructure projects can spur economic activity, boost construction and create jobs.
According to credit rating and research firm Crisil, the construction sector is the most labour-dependent among all non-agricultural sectors, requiring more than 12 people to produce Rs 10 lakh of real output.
In the last few years, non-performing assets (NPAs), or loans that have turned bad of banks, particularly those in the public sector, have been rising mainly due to stalled projects and sluggish domestic growth.
NPAs of banks topped Rs 3 lakh crore as on December 2014, of which Rs 2.62 lakh crore belonged to the nationalised banks alone, Jayant Sinha, minister of state for finance, said in the Lok Sabha recently. This had made banks reluctant to lend to projects that are prone to delays because of variety of reasons ranging from environmental concerns to procedural bottlenecks at the states.
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