A willful default would be deemed to have occurred if any of following event have taken place
The unit has defaulted in making it payment /repayment obligation to the lender even if it has the capacity to honour the repayment obligation.
The unit has not utilized the finance from the lender for the specific purpose for which availed finance from the lender but diverted it for other purposes.
The unit has siphoned off the fund so that the fund has not been utilized for the specific purpose for which the fund was availed of and neither there is fund available with the unit in form of other assets.
The unit has disposed off or removed the movable fixed asset or the immovable property given by him or it to lender for the purpose of securing the term loan without the knowledge of the bank / lender.
What is Guidelines issued By RBI:
In line with RBI guidelines issued in May 2002, PSU bank issued a circular to all its branches and offices to ensure that all bad accounts with exposure of Rs.25 lac and more outstanding which are willful defaulters as per RBI norms are reported to central office in a prescribed format and such report had to be submitted on quarterly basis .
Consolidated report of each bank is then submitted to RBI for suitable action and advice. But in fact, majority of branches ignored the circular or submitted one or two accounts in the report just to appear as if they have examined all accounts and found all other bad accounts as victim of natural failure or economic recession etc. Only a few accounts like Kingfisher appeared as willful defaulters. RBI never took pain to verify correctness of such reports.
Level Of Compliance :
And it is astonishing that RBI also remains silent spectator on all such quarterly reports. They simply receive the report as a ritual and file it. Normally it is the culture in majority of offices. Perhaps this is the reason that during last 14 years ,not even 1400
And most unfortunate and painful part of the story is that concerned banks have failed to satisfy the court or RBI that their act of treating the accounts of Kingfisher is genuine and as per norms. Till date , all concerned banks have failed to recover the money from Kingfisher though every banker know it very well that promoter of Kingfisher is having sufficient means to repay the bank’s dues.
This is because RBI or bank management or administrative offices or legal machineries, all are victim of bribery and flattery and hence they all are mostly very casual in discharging their duty. They act as government servant and want safe exit from bank. They do not want to invite additional work burden and do not want to face the torture in court of law or face indirect slap in the hands of bosses. This is why money could not be recovered from majority of willful defaulters even though their name have been reported on quarterly basis to all concerned.
Real test of bank officers should be based on quality of lending but unfortunately it is usually done based on volume of lending, even if voluminous lending by a Brach head or Regional head or bank head causes huge loss to bank in the long run.. This is why thing do not move in right direction all the time.
RBI issues guidelines for recognition of willful defaulters out of list of bad borrowers or NPA borrowers, but do not take pain to suggest practical remedial steps in consultation with appropriate government departments to ensure that banks do not face any difficulty in recovering money from such willful defaulters.
RBI and Government of India as a matter of fact do not control on their own officials and courts of law as they appear to control on bankers. This is why lacs of cases pertaining to bank recovery related to various banks remain pending in courts of law in various parts of the country for years and decades. Even office of Debt Recovery Tribunals called as DRT failed to act as per their established and defined motto in recovery.
It is first time and first PNB bank which has at least courageously declared that there are 904 willful defaulters involving a sum of Rs.11000 crore. I term the act of PNB as courageous because in the past, none of public sector bank including State Bank of India even took it necessary to declare a really willful defaulter as willful defaulter.
Though RBI has issued several guidelines in the past for loan account to be treated as willful defaulter, it is bitter truth that neither bank management nor RBI really want that they speak spade a spade. This is why each PSU bank has declared only a few accounts in the category of willful defaults just to show RBI that they have complied with RBI instruction.
And RBI also never take trouble to verify the veracity of such reports which are submitted by each PSU bank periodically as per need of RBI. Window dressing in banks is very commmon and RBI knows it very well. RBI completes it duty by issuing guidelines on every matter and Bank management in turn issues circular to all branches and gives a certificate of compliance to RBI. In this way both become safe .
It is in common interest of all, bank management, RBI and defaulting borrowers that bank officials consider it safe and comfortable to hide bad accounts as much as possible. Because as soon as a loan account is treated is put in NPA category bank officials have to initiate steps for recovery of the same. And if the account is declared as willful default, bank has to take immediate and stringent legal action for recovery of defaulted amount, even if it needed sale of hypothecated or mortgaged properties. Such painful steps annoy borrowers and the chain of gifts distribution gets broken causing loss to many officers involved. Similarly RBI remains in deep slumber as long as bank management say that they are healthy, their assets are standard and they are earning profit.
Not only this , bank management use to conceal willful defaults under the umbrella of economic recession or global recession or natural constraints to avoid carrying out exercise of staff accountability to fix responsibility on erring officials .
In fact bank management in general (birds of same flock together in offices ) to protect erring bank officials who in greed of gifts sanctioned loan to bad borrowers or who failed to properly monitor their advance portfolio or who failed to take necessary steps to contain willful default or who protected willful defaulters to earn some more bribe in lieu of it or who concealed it willfully so that he or she may get safe retirement or his friends at top may be bid farewell without any punitive action for committing fault of omission or commission.
In most of cases it is top officials or VIP s from important offices who use to build pressure on juniors for making finance to big borrowers and hence as soon as the lower officials declare as bad loan as bad loan, all guilty have a possibility of getting exposed.
It is also true that there may be still thousands of other bad accounts which should also have come category of willful defaulter as per RBI norms and action should have been initiated long ago against erring borrowers. I do not agree to information that there are only 904 accounts in PNB which are coming under category of willful category.
In fact they might have decided a cut-off point that they will in the beginning declare only those accounts as willful defaulters where default is more than, say Rs. 5 crore or Rs.10 crore or Rs.100 crore. At least , top officers of PNB has thought it fit to declare 904 accounts as willful defaulters and now they will initiate legal action against 904 borrowers and it will have definitely a positive impact on other willful defaulters.
I therefore praise this act of PNB management that at least they have initiated the process and I hope other banks will also now follow the suit. It is in the larger interest of bank as well as in the interest of bank staff, bank investors and bank borrowers that timely action is taken for detecting bad borrowers and for recovery of dues from bad borrowers.
I praise Chief of Bank of Baroda that they declared all hidden bad accounts in their quarterly result ending December 2015 even if the bank incurred a loss of about Rs.3500 crore. I have also seen news in newspaper that other banks including SBI Chairman has promised to declare all bad debts in quarterly and final result for the year ending March 16.
Though I doubt that top management of PSU bank and SBI will have so much courage to keep their promise and abide by RBI in true spirit. And if they do so honestly, I think it will have devastating effect on bank’s financials and bank’s health as also on entire stock market and then on Government of India.
Lastly I appreciate that SBI Chairman informed a few days ago that they will now sanction loan for a project only after strict scrutiny of the project from all required angle of consideration.
As a matter of fact , real transformation of bank does not lie in declaration of hidden bad debts as Non-performing assets and then recovery of money from defaulters , but it lies on improvement of quality of lending , it depends on quality of manpower, quality of recruitment and promotion and it depends on quality of support it receives from administrative offices as well as from judiciary.
And the most important is that fate of banks depends largely on politicians who rule this country or who oppose a ruling party. Because it is politicians in general, who have exploited banks for their self- interest and for their vote bank. It is they who are responsible for polluting work culture in bank, for spoiling recovery culture by forcing loan waiver or compromise policy on banks and damaging loan processing processes by building undue pressure on banks for achieving an unachievable target fixed by them for each banks.
It is these politicians who appoint ED and CMD based on bribery and flattery. It is they who promote false and manipulation in balance sheet and false certification form team of Chartered Accountants.
Root cause of all bad lending emanates from fabricated and concocted financial statement cooked up by greedy Chartered Accountants. It is these CAs in our country who teaches improper lending and ways for tax evasion to all business men.
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