In a setback to banks and financial institutions, the number of wilful defaulters jumped 19 per cent in FY18 over the previous year, according to latest data. Interestingly, as on September 2018, public sector banks alone reported a total of 9,866 wilful defaulters involving an amount of Rs 1,47,081 crore, as against 7,562 borrowers with suit-filed wilful defaults (including all scheduled commercial banks) having an outstanding amount of Rs 93,355 crore as on September 2017.
As per data disclosed, as on September 2018, 2,571 FIRs have been registered against wilful defaulters, 9,363 suits have been filed for recovery of borrowed amounts and action has been initiated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 with respect to 7,616 cases.
As for wilful defaulters having an exposure of Rs 100 crore and above, the RBI has disclosed that there were 185 borrowers in the suit-filed wilful defaulters category with a total exposure of Rs 42,979 crore as on September 2017, the Ministry of Finance informed the Lok Sabha.
Meanwhile, though the RBI has submitted a list of defaulters above Rs 500 crore in a sealed cover to the Supreme Court, the information is confidential as the central bank has requested that it not be revealed to the public. The SC is considerating the matter.
Meanwhile, in the light of rising wilful defaults, the government has given more teeth to banks and financial institutions to take action against errant borrowers and recover dues. First, wilful defaulters aren’t to be sanctioned any additional facilities by banks of financial institutions, their units are debarred from floating new ventures for five years, and lenders may initiate criminal proceedings wherever necessary.
Banks and financial institutions can also publish photographs of borrowers declared as wilful defaulters, but they should first formulate policy with the approval of the respective Boards, clearly setting out the criteria on which the decision has been taken to ensure that the approach is neither discriminatory nor inconsistent.
Further, as per Sebi norms, wilful defaulters and companies with wilful defaulters as promoters/directors are debarred from accessing capital markets to raise funds, while as per the Insolvency and Bankruptcy Code, 2016, wilful defaulters are debarred from participating in the insolvency resolution process.
The Fugitive Economic Offenders Act, 2018 has also been enacted to provide for attachment of property of a fugitive economic offender, confiscation of said property and disentitle the offender from defending any civil claim. The government has also advised state-run banks to obtain a certified copy of the promoters/directors and other authorised signatories of companies availing loans more than Rs 50 crore. Further, for enforcement of auditing standards and ensuring audit quality, the National Financial Reporting Authority is to be established as an independent regulator.