In an effort to strengthen the ailing banking sector, the government has now allowed CEOs of public sector banks to directly seek issuance of look-out circulars (LOCs) against wilful defaulters to prevent them from fleeing the country. A Home ministry notification said CEOs of PSBs have been added to the list of officials who can now make a request for issuance of LOCs to the ministry.
The development comes following a recommendation by an inter-ministerial panel under Financial Services Secretary Rajiv Kumar. The step was taken keeping in the mind the loan defaults made by Vijay Mallya, Nirav Modi and Mehul Choksi and thereafter, fleeing the country.
“It will act as a big deterrent for wilful defaulters and also bring about a fundamental change in the creditor-debtor relationship,” PTI quoted Kumar as saying. The Department of Financial Services has also issued an advisory to CEOs of all PSBs to act as and when required in a specified manner.
Soon after the emergence of the Punjab National Bank case, where diamantaire Nirav Modi and his uncle Mehul Choksi have been accused of making fraudulent transactions worth Rs 14,000 crore, the Finance Ministry asked PSBs to collect passport details of all those borrowers who have taken loans of more than Rs 50 crore.
Earlier this month, the Central Information Commission (CIC) issued a show-cause notice to RBI Governor Urjit Patel for “dishonouring” a Supreme Court judgment on disclosure of the list of wilful defaulters.
Kumar said possession of mere passport detail was not enough. “This circular has empowered banks to take a decisive action against wilful defaulters and fraudsters by requesting for issuance of LOC by the concerned authority, thereby thwarting any move by them to flee the country,” he said.
Earlier this year, the government formed an inter-ministerial panel to look into various issues, including how to put a check on wilful defaulters fleeing the country. Mallya had fled the country in March 2016 after defaulting on loans given to Kingfisher Airlines, which was promoted by his group.
Moreover, Parliament passed the Fugitive Economic Offenders Bill, 2018, giving authorities powers to attach and confiscate the proceeds of crime and properties of economic offenders, like bank fraudsters or loan defaulters fleeing the country. The law is aimed at quickly recovering losses to exchequer or PSBs in cases of frauds.
Union Finance Minister Arun Jaitley had in his Budget speech for 2018-19 said the government was considering bringing a new law to confiscate assets of such absconders.