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Why Is The RBI Giving Wilful Defaulters Such A Long Rope?

24/05/2016 8:07 AM IST | Updated 15/07/2016 8:26 AM IST
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An Indian policeman stands guard with a sniffer dog at the entrance of the Reserve Bank of India (RBI) headquarters in Mumbai, India. The RBI on Tuesday cut its key interest rate by a quarter of a percentage point and hinted at other measures to boost liquidity and spur economic growth. (AP Photo/Rafiq Maqbool)

Despite the Supreme Court's clear directives issued five months ago, the RBI has, of late, been adopting dilatory tactics on the matter of revealing the data on willful defaulters of bank loans. This is information that they were authorized to collect and disseminate to the general public as per a Parliamentary Mandate since March 1994. Here I systematically counter the RBI's excuses of (1) having no data, (2) having a paucity of resources, (3) being bound by confidentiality clause, and (4) that this is against the economic interests of the nation. This is proof that the RBI is misleading the Supreme Court, and, thereby, the whole nation, in this matter.

The Reserve Bank of India's recent fickle and flickering attitude regarding willful defaulters (WDs) reminds me of the 1969 thriller, Blow Hot, Blow Cold! The RBI seems to be perpetually unable to make up its mind on whether to reveal the data or not!

On 16 December, 2015, the Supreme Court (SC) observed that all information held by the government and its instrumentalities "is owned by Citizens... information regarding top industrialists who have defaulted in repayment of loans must be brought to the citizens' knowledge; ... a larger public interest ... would be served on disclosure of the same," [para-79 RBI vs. Jayantilal N Mistry and other cases]. The SC rejected the RBI's pleas of "fiduciary relationship" and "economic interest" to deny such information, adding that "This attitude of the RBI will only attract more suspicion and disbelief" (para-65).

The RBI's recent fickle and flickering attitude regarding willful defaulters (WDs) reminds me of the 1969 thriller, Blow Hot, Blow Cold!

On 16 February, 2016, the SC took suo motu cognizance of a media report on the write off aggregating ₹1.14 lakh crore by Public Sector Banks between 2013 and 2015, and directed the RBI to furnish data on defaulters with outstandings of ₹500 crore and above. Thereafter, the RBI submitted a "sealed-cover" list on 30 March this year, adding a plea not to disclose the names, so as to avoid an adverse impact on the businesses, and on the livelihood of employees of such entities.

Then, in response to an RTI query raised by Hindu Business Line (BL), the RBI said that (a) they didn't have the data, (b) collating the data would divert their resources disproportionately, and (c) they were bound by the confidentiality clause.

However, within a week, they quickly dispatched the querist to CIBIL, a Credit Information Company (CIC) to try for the data.

But the CICs' principal activity is to gather information for their own research and credit ratings of corporates/firms/individuals and sell reports/ratings for a fee!

This was a deliberate attempt by RBI to pass the buck, because under the Credit Information Companies (Regulation) Act, 2005, (CICRA), "No credit information received..., shall be disclosed to any person other than its specified user" S/17(4), but media is not a "specified user" (S/2).

[T]he RBI [said] they were working on a new system for making public the list of wilful defaulters. Why? What's wrong with the database built up since March 1994...?

On 26 April, the SC directed the government to set up a panel to look into the huge write-offs by public sector banks.

Following this order, the Finance Ministry sought access to the big borrowers' database from RBI, but was denied permission.

Meanwhile, the RBI governor told the media that they were working on a new system for making public the list of wilful defaulters.

Why? What's wrong with the database built up since March 1994, now updated monthly and available online with the CICs?

To refresh the RBI's memory, the sole and direct responsibility for collection/dissemination of data on bad debts was entrusted to the RBI by the Parliament after the Budgetary Speech in 1994. Later, the RBI outsourced it to the CICs, and made them responsible for monthly (or, more frequent) collection/dissemination of the information pertaining to suit filed accounts of wilful defaulters on their respective websites, for availability on a near real-time basis. However, as per the Parliamentary Mandate, the RBI remains the de jure super custodian of all such data.

Accordingly, Banks send two lists of defaulters to the CICs -- a list of suit filed cases (which is already in the public domain), and a list of non-suit filed cases of wilful defaulters of ₹25 lakh and above.

Thus, the tug-of-war is really regarding the non-suit filed cases of wilful defaulters.

As the data is already available at the CICs, the questions of availability of data or lack of resources in the RBI do not arise at all!

What new mechanism does RBI need? It is just a dilatory tactic!

[A]s per the Parliamentary Mandate, the RBI remains the de jure super custodian of all such data....

The governor further said it might not be correct to flash the name of all and sundry, including those who forgot to pay their credit card bills... "As a regulator, we have no intent or desire to protect malfeasance."

Mr. Guv'nor, who are we kidding, Sir?

Do you seriously believe that the banks are so callous that if a person forgets to pay his monthly credit card bill, they will instantly file a suit against him, or, put his name in the wilful defaulters' list (WDL)? And that too, a valued customer with a credit card limit of at least ₹25 lakh?

Though the WDL is approved at a level up to the executive director of the bank, does the RBI want to check each and every name in it?

And about malfeasance? Going by the definition of wilful default, if non-payment despite having the ability to pay or diversion/siphoning of funds for other purposes outside the business or selling assets purchased out of bank loan for running the activity, etc., do not constitute malfeasance, what else does?

Now, the questions of fiduciary responsibility/confidentiality/economic interest. Although already dealt with by the SC, a few points need mention.

A bank takes a deposit from a depositor on trust and has a necessary duty to protect such information, otherwise, there may be a burglary/robbery at his house. No such trust/fiduciary relation exists vis-à-vis a borrower. Actually, the borrower's credit-worthiness (prestige!) increases on getting a bank loan and display of the bank's hypothecation board on his factory gate!

It is high time that in the national interest, the RBI lets the data flow through the CIC tap, without adopting any dilatory tactic.

A borrower who has wilfully neglected to repay the bank's dues, or, diverted/siphoned off funds from the business, or, sold off business assets, cannot hide under the confidentiality clause.

Further, experience shows that the business resources of a wilful defaulter have weakened so much that he cannot take care of the economic interest of the employees/nation.

It is high time that in the national interest, the RBI lets the data flow through the CIC tap, without adopting any dilatory tactic.

A quick disclosure of the defaulters' names will ensure that fresh loans are not given to them, and nor are they able to raise equity from the stock/corporate bond market.

To ensure the latter, the Securities and Exchange Board of India (SEBI) may make it mandatory to include a suitable clause in the offer documents of equities/bonds.

Views expressed are personal

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Photographs by Nemai Ghosh

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