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The Supreme Court has said that it is in favour of making public the total figure of outstanding bank loans to individuals and entities. Commenting on the list provided by the central bank, a bench of Chief Justice T S Thakur and Justice R Banumathi said that “This information does make out a case. This is quite a substantial amount which is involved.”
RBI has objected to naming and shaming the defaulters on the grounds that defaults are possible in a bad economic scenario.
Looking at the list of defaulters who owe Rs 500 crore or more to banks, the bench observed “Rich people take crores of rupees as loans and declare insolvency, while poor farmers are suffering.” Arguing the case for the petitioner, advocate Prashant Bhushan said banks had seized and auctioned several acres of farmers’ land despite the fact that they had defaulted in the repayment of very small loans ranging between Rs 15,000 and Rs 1 lakh.
Rather than looking at the issue in hand which is of defaulters, it seems the debate in moving towards a rich versus poor battle.
The crux of the matter is the distinction between defaulters and wilful defaulters. RBI governor Raghuram Rajan said defaults in business do happen because everything is not under promoters' control and making such names public could hamper their operations.
Most of the banking NPAs in the current scenario are on account of poor policies and lethargic governance as in the case of power and infrastructure sector. Steel sector loan defaults are on account of dumping from global majors as worldwide demand has crashed.
These sectors account for a major chunk of NPAs that are currently dragging banks down. Naming and shaming the promoters of such companies is unlikely to solve the problem or change anything.
An article in Business Standard by Renuka Sane, Anjali Sharma and Susan Thomas [LINK 1] says that the Supreme Court order for defaulter disclosure appears to be a case of overreach. The original dispute made no demand for defaulter information from the RBI.
The article continues to point out that the job of a court is to adjudicate disputes: hear both sides, weigh the evidence, deliver a judgement, in an efficient and timely manner. If there is no clear link between the disclosure order and the case at hand, the disclosure order has only added costs and delays, and thus diminished the performance of the court.
The present case which the Supreme Court is hearing is one that was filed in 2003 by the non-profit Centre for Public Interest Litigation (CPIL) and had originally raised the issue of loans advanced to some companies by state-owned Housing and Urban Development Corporation (HUDCO). The bench later expanded the scope of the PIL and impleaded the Ministry of Finance and Indian Banks’ Association.
Court delays have only made the matter worse as wilful defaulters use it as a tool to defer payments and force banks to enter a settlement. Take the case of Kingfisher and Vijay Mallya; there have been 81 hearings since 2013 but there is no sign of a start of the recovery process. Ironically it was a single judge and a division bench of the Calcutta High Court who had rejected pleas against declaring Kingfisher a wilful defaulter.
While Rajan’s point makes sense that genuine cases should not be clubbed with wilful defaulters, Bhushan’s argument also carries weight. Just as a bank considers external forces can be reason for a company defaulting the same logic should be extended to farmers. Low prices of their products or changing weather patterns should be taken into account before depriving the farmer of his land.
Releasing the list of defaulters is not going to help in recovery of the money. In fact if the courts would have been proactive we would not have so many defaulting cases in the first place. The Business Standard article [LINK 1] says that BIFR proceedings can run for four to five years. Civil court proceedings on issuing or enforcing orders for recovery have gone on for 20 years.
The need of the hour is for the speedy implementation of Insolvency and Bankruptcy Code, 2015 which discourages delays and gives banks a free hand in recognising a problem and addressing it immediately. Delays, be it at the end of the government, banks or courts result in curable assets turning bad and later toxic.
