RBI offers waivers for wilful defaulters
A recent RBI rule tweak would allow banks to write-off the loans of big wilful defaulters. It as drawn the ire of banking associations like All India Bank Officers’ Confederation and the All India Bank Employees Association, and Opposition leaders. They say that not only will it lead to erosion of public trust in the banking sector but also goes against the RBI’s own wisdom, which two years ago, had banned banks from doing business against wilful defaulters, leading to allegations of the Modi government forcing the hand of the RBI.
The Reserve Bank of India (RBI) recently tweaked rules that would allow banks to write-off loans by wilful defaulters, thus allowing banks to do a compromise with notorious fugitive economic offenders like Vijay Mallya, Nirav Modi, Mehul Choksi and several others.
The All India Bank Officers’ Confederation and the All India Bank Employees Association, which represent 6 lakh bank employees, have strongly opposed this policy, saying it will lead to erosion of public trust in the banking sector and undermine the confidence of depositors. Such leniency will perpetuate a culture of non-compliance and moral hazard, they said.
This move would lead to huge pressure on the banking system and weaken the banking sector. The EMI burden of ordinary people are not lightened, yet big-time defaulters are let off easily.
On June 8, the RBI released a framework, titled ‘Framework for Compromise Settlements and Technical Write-offs’, for lenders to undertake technical write-offs and compromise settlements in the case of accounts categorised as ‘fraud’ or ‘wilful’ defaulters. An arrangement is reached between the banks and borrowers, which may or may not include complete recovery of dues. After a 12-month cooling period, borrowers of non-farm credit can be lent money again, according to the RBI’s instructions.
But this runs against the RBI’s own opinion, which, two years ago, had clearly stated that wilful defaulters would not be allowed to access capital markets or fresh loans. On May 29, RBI Governor Shaktikanta Das warned about the many ways in which defaulters as fraudsters conceal the true status of their distressed loans.
The top 50 wilful defaulters in India owe a substantial Rs 7,92,570 crore, as of March 31, 2022. To add to the banking sector’s woes, available data shows that banking frauds have risen 17-fold under the Modi government, from Rs 3,34,993 crore in 2005-14 to Rs 75.89 lakh crore in 2015-23.
Since the new rule of the RBI puts at risk the health of the banking sector, many have alleged the invisible hand of the Modi government forcing the hand of the RBI.
Talking of rule tweaks, another rule tweak by the Securities and Exchange Board of India (SEBI), also allegedly at the behest of the Modi government, had allowed Adani Group—led by Gautam Adani, a billionaire very close to Narendra Modi—to bring in investment into its companies through foreign funds of highly questionable provenance.
