Determined to address the problem of rising bad loans, the finance ministry has asked banks to register first information reports (FIRs) and initiate criminal proceedings against wilful defaulters. The ministry is also planning to hold more frequent meetings with the Central Bureau of Investigation (CBI) as well as regulators Reserve Bank of India and Securities and Exchange Board of India (Sebi) to avert and/or tackle potential dangers to the banking system caused by wilful defaulters, official sources said.
“Public sector banks have been told to show zero tolerance towards wilful defaulters and lodge FIRs against them. Taking over the company management from such defaulters is also a must. Not just the banking system, but society is paying a heavy price due to such defaulters," financial services secretary Rajiv Takru told FE.
Banks are already submitting to the RBI on a quarterly basis a list of those who deliberately default (cases of over R25 lakh where suits have not been filed but were classified as doubtful/loss accounts). In addition, the RBI and CIBIL have a database of suit-filed accounts, including wilful defaulters of over R25 lakh.
According to a December 2012 statement, as on March 31, 2012, PSBs had 3,536 such suit-filed accounts worth R16,525 crore and 1,138 non-suit-filed accounts worth R4,175 crore. The RBI and CIBIL forward to Sebi a copy of the list to prevent them from accessing the capital market. Of course, this is still a relatively small, but growing segment of the gross non-performing assets (NPAs) of PSBs that had jumped to R1.79 lakh crore at the end of the June quarter from R1.55 lakh crore as on March 31, 2013.
According to RBI norms, a "wilful default" would be deemed to have occurred if the unit has defaulted in meeting repayment obligations even when it has the capacity to honour the obligations, or has diverted the funds obtained from the lender for other purposes, or siphoned off funds or has also disposed of the movable fixed assets or immovable property given as collateral.
Meanwhile, the RBI, on its part, may soon direct lenders to fine-tune their early-warning systems (EWS) for timely detection of risks arising from big accounts. The regulator also wants the banks to upgrade their management information system (MIS) and IT framework and improve their EWS to effectively spot early signals of distress in individual accounts and at the sectoral level, finance ministry sources said. The distress signals