Banks have added Rs 38,976 crore from 662 borrower accounts as wilful defaulters during the 12 months ended December 2020 when the Covid pandemic hit the country’s financial system.
With this, total wilful defaults amounted to Rs 244,602 crore from 12,917 accounts as of December 2020, as against Rs 205,606 crore from 12,255 accounts in December 2019, according to data available from credit information bureau Transunion Cibil.
Wilful defaults have now more than doubled from Rs 118,130 crore in December 2017.
“Banks are now often using the wilful defaulter status as a weapon to force borrowers to repay loans. Many borrowers pay up fearing the tag, as once they are declared a wilful defaulter, they won’t get any more bank funding. Banks used the wilful default tag during the Covid period, so recoveries improved,” a banking sector source said.
However, recoveries from some of the top wilful defaulters have remained negligible.
In cases such as Winsome Diamonds and Jewellery Pvt Ltd (Rs 8,000 crore), Kingfisher Airlines Ltd (Rs 10,000 crore), Sterling Biotech Group (Rs 15,600 crore), Rei Agro Ltd (Rs 3,871 crore), Pixion Media Pvt Ltd (Rs 3,000 crore), which were referred to investigative agencies, banks are yet to recover any money.
While the agencies have seized assets of these defaulters under the money laundering law, most of the promoters have challenged the attachment — and cases are stuck in various courts. Most promoters, including Jatin Mehta of Winsome Diamonds, Vijay Mallya of Kingfisher, and Nitin Sandesara of Sterling Biotech, have left India and are now locked in legal and extradition battles with the banks and the government.
As per the Reserve Bank of India’s (RBI) classification, a ‘wilful default’ would be deemed to have occurred if the borrower has defaulted in meeting their repayment obligations to the lender even when they have the capacity to honour the said obligations.
A wilful default happens when the borrower has not utilised the finance from the lender for the specific purpose for which finance was availed — and has diverted the funds for other purposes, or siphoned off funds, or disposed of or removed the movable fixed assets or immovable property given for the purpose of securing a term loan without the knowledge of the bank.
State Bank of India (SBI), India’s largest bank, has topped the list of wilful defaulters with 1,792 borrower accounts owing Rs 62,709 crore as of December 2020. Punjab National Bank is in the second position with wilful defaults amounting to Rs 36,684 crore as against Rs 24,062 crore in December 2019. Banks had offered moratoriums and announced loan restructuring in 2020 to various classes of borrowers to mitigate hardships caused by the pandemic.
SBI has declared 1,538 borrowers including companies, with aggregate outstanding of Rs 53,806 crore, as wilful defaulters in respect of loans that were sanctioned before March 31, 2014. Of these 1,538 wilful defaulters, at least 218 have outstandings of more than Rs 50 crore each. The majority of wilful defaulters are in sectors such as iron and steel, textile, food processing, gems & jewellery, trading, engineering, construction, and infrastructure.
According to data reported by public sector banks, till December 2020, suits for recovery have been filed in 12,917 cases of wilful defaults. In cases involving secured assets, action under provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 has been initiated in 8,175 cases. Apart from this, the Central Bureau of Investigation (CBI) has registered and probed 512 cases of bank loan default at the behest of public sector banks (PSBs) between 2018 and 2020. The probe agency has launched prosecutions in about 269 cases.
According to the RBI’s Master Circular on wilful defaulters, once the bank declares a borrower wilful defaulter, no additional funding facility should be granted by any bank to the listed wilful defaulter. In addition, such companies (including promoters) should be barred from institutional finance from banks for floating new ventures for a period of five years from the date of removal of their name from the list of wilful defaulters as published or disseminated by the RBI or credit information companies. Lenders should initiate criminal proceedings against wilful defaulters, wherever necessary, it states.
In March 2014, there were only 5,090 wilful defaulters who defaulted on Rs 39,504 crore. This grew steadily over the years to number 12,917 wilful defaulters and Rs 2.44 lakh crore by December 2020, as per the CIBIL list. This figure is set to rise further in the coming quarters as banks are expected to add more names to the list.
The RBI has allowed credit information bureaus such as CIBIL to disclose the identity of wilful defaulters and those borrowers against whom banks have filed suits for recovery of loans. Regular suit-filed NPA (non-performing asset) accounts of banks involve loans of Rs 6,60,865 crore involving 26,190 borrowers. SBI leads with Rs 1,71,189 crore of 4,873 borrowers, according to CIBIL data.
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