The banker-customer relationship is set to undergo a sea change if the S S Kohli panel report is accepted by the Reserve Bank of India (RBI). The panel, which submitted its report on December 6, has recommended amendment of the banking secrecy laws to enable banks make public the list of wilful defaulters.
India does not have a banking secrecy Act. However, close to a dozen Acts governing the banking sector prevailing have provisions forbidding bankers to disclose the identity of the customer unless it is a suit-filed account.
The government will now be required to amend each of these Acts (such as the State Bank of India Act, the Industrial Development Bank of India Act, the Banking Regulation Act, etc). Alternately, it can also promulgate an omnibus Act waiving the existing provisions in various acts and enabling banks to disclose wilful defaulters' identity.
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The panel has defined wilful defaulters as borrowers who divert funds or deploy them in subsidiaries and associate companies. Those who undertake fraudulent transactions with the borrowed funds are also wilful defaulters. Besides, those firms or borrowers who do not meet the debt service obligation of banks and financial institutions despite adequate cash flows and net worth are also defined as wilful defaulters.
Besides, S S Kohli, Punjab National Bank chairman and former Indian Banks' Association chief, the panel included IDBI executive director T M Nagarajan, ICICI executive director Kalpana Morparia, former IFCI chairman PV Narasimhan, RBI chief general manager K C Bandyopadhyay, State Bank of India deputy managing director R Sundararaman and Bank of India general manager M Madhavan.
A company's track record in terms of repayment has also to be looked in by lenders while identifying wilful defaulters, the report said.
It also pointed out that if a borrower operates an account with any bank outside the consortium without taking the permission of consortium banks, the borrower could be termed as a wilful defaulter even though the account is a performing one.
The penal has suggested that the names of the wilful defaulters as well as those of the full-time senior executives of the errant companies should be circulated among banks and financial institutions as well as the public. In order to prevent the borrower from accessing the domestic capital market a list should also be provided to the Securities and Exchange Board of India.