EXCLUSIVE: Defaulters beware: Unpaid loans of Rs 50,000 crore under watch

Banking industry sources said that the government has collated details on bad loans worth nearly Rs 50,000 crore that need immediate action against promoters and directors of chronic defaulters.

This list will likely come up for discussion on Friday in a special meeting on bank toxic assets that Finance Minister Arun Jaitley will hold, through video conference, with Reserve Bank of India (RBI) Governor Urjit Patel, finance ministry officials and top central bank officials including deputy governor Viral Acharya.

The top wilful defaulters' list prepared by the government and banks includes a string of diamond traders, two now-grounded airlines, a central government commodity trading agency, an erstwhile state government-promoted communication undertaking, a regional industry association, a media house with operations across the country, a multi-state agricultural cooperative, mining companies, realty developers, garment brands, and several individual proprietors.

These "wilful defaulters" have not repaid bank loans despite having the capacity to do so. Some of these have been found to have diverted funds to projects other than those for which the loan was availed, while some others have been found to have sold off assets that were pledged to get loans without knowledge of the banks.

They have borrowed funds ranging from a few lakhs to several hundreds of crores of rupees from more than 20 state-owned and private banks.

Wilful defaults are the worst kind of bad loans that empowers banks to get after the promoters and directors by even naming and shaming them through public notices and advertisements for not paying up on loans that banks believe that they have the ability to honour.

In September last year, the RBI told banks to formulate a policy on publishing wilful defaulters' photographs, without being discriminatory.

“A lending institution can consider publication of the photographs of only those borrowers, including proprietors/ partners /directors / guarantors of borrower firms/ companies, who have been declared as wilful defaulters following the mechanism set out in the RBI instructions,” the central bank said in a September 29, 2016 circular to banks.

“The lending institutions shall formulate a policy with the approval of their Board of Directors which clearly sets out the criteria based on which the decision to publish the photographs of a person…so that the approach is neither discriminatory nor inconsistent,” it said.

India’s banks have been beset with non-performing assets (NPAs), loans that have turned bad. Total NPAs at the end of December 31, 2016 are estimated to have crossed Rs 7 lakh crore.

The RBI and the government has also asked banks to impose a strict ban on any new loans to wilful defaulters. Such borrowers are also now barred from being appointed as directors on boards of companies.

In May last year, markets watchdog Securities Exchange Board of India (SEBI) had made new rules restricting wilful defaulters from raising additional funds from the capital markets.

SEBI has prohibited wilful defaulters from raising capital through public issues, from taking over other listed companies and from becoming market intermediaries.

Former RBI governor Raghuram Rajan had set banks a March 2017 deadline to clean up their balance sheets.

Mounting bad loans and high default rates by large companies have drawn criticism from experts and regulators.

“If you owe a lot of money and still celebrate birthday bashes, it gives a wrong message to the people. If you are in trouble cut down your expenses, show to the people that you are doing something,” Rajan, known for not mincing words, had said last year in an oblique reference to a flamboyant industrialist whose companies have failed to repay large amounts of bank loans.

Rajan had also asked central bank employees to show no leniency towards rich “wrong-doers”.

“No one wants to go after the rich and well-connected wrong-doer, which means they get away with even more. If we are to have strong sustainable growth, this culture of impunity should stop,” Rajan had said in a message to RBI employees.