The Supreme Court last week gave the Reserve Bank of India “a last opportunity” to disclose the list of wilful defaulters under the Right to Information Act. This is indeed a welcome decision, as bad loans have ballooned to `11.18 lakh crore as of March 2018. Wilful defaulters with dubious track records need to be named and shamed to stop the loot of depositors’ money.
For too long many businesses have treated the Indian banking system as a personal piggy bank from where they can borrow money but not always return it. The RBI has said that fiduciary responsibilities does not permit it to disclose names. That has consequently not found favour with the Supreme Court. However, that said, one needs to ponder on the definition of wilful defaulters.
According to the RBI’s master circular on the subject, a wilful defaulter could range from an individual to a firm that has not paid back loan obligations “even when it has the capacity to honour the said obligations” to those who have not paid back money and “siphoned off the funds“ or “even disposed off fixed assets or immovable property given for the purpose of securing a term loan without the knowledge of the bank.”
While the latter falls into a category where criminal cases can be filed if the charges are proven through forensic audit along with bankruptcy proceedings, the ‘original sin’ of not paying despite the bank believing the company had the capacity to pay, is perhaps a more nuanced ‘sin’. To paint all cases with the same brush may seem like an easy remedy but may not necessarily be one.
Like any other rational player, the ‘theory of the firm’ places upon even loss-making firms the burden of prioritising pay-outs. Should the bank be above or below employees and the tax department in its pay-back list is a question that needs to be pondered upon. But a more transparent banking disclosure regime is certainly the need of the hour.