Reserve Bank of India Governor Raghuram Rajan has said that revealing the identity of loan defaulters or disclosure may create loss of business and “chill economic activity”.
On March 31, the RBI had submitted to the Supreme Court a list of defaulters owing Rs 500 crore or more to public sector banks just three months after the apex court ruled that the RBI is “clearly not in fiduciary relationship with any bank” and that it cannot hide information solely because of the embarrassment it may cause.
Rajan defended the RBI’s move to keep names of defaulters sealed, saying only wilful defaulters’ names should be exposed and the reputations of the ones who have defaulted due to circumstances beyond their control should not be tarnished. Because any such behaviour can make businessman risk-averse and bankers from lending, he warned. The default can be due to reasons like weak demand, dumping by other countries or change in policies, he said.
“If you default on repaying your credit card bill and the bank publishes your name in the defaulters list, would you like it?” he asked.
On strategic debt restructuring (SDR), where banks are allowed to take control of a defaulting company, Rajan said the instrument is being reviewed constantly and the RBI has already told banks to start acting as soon as they take a call to invoke the SDR. Banks should not let the existing management to continue after the takeover. “As soon as the SDR is invoked, we want banks to immediately move on and take over the management because letting the existing management continue defeats the whole purpose of the SDR scheme,” Rajan said.
The governor said he is satisfied with the progress of the balance-sheet cleanup undertaken by the banks following a one-time asset quality review of the central bank under which it identified as many as 150 top distressed accounts and asked banks to provide for them as NPAs or bad loans.
In cases such as Kingfisher Airlines, Rajan said RBI is co-operating with investigative agencies like CBI and the ED, but underscored the need to establish criminality of bankers based on malfeasance and not take action if external factors would have impacted a loan.
He warned that any action for non-criminal behaviour by bankers will lead to an aversion to risk-taking and can “chill” the banking sector and the lending process, which in turn will chill the economy.