Just a little over four years back, when the initial rumblings of the raging bad loan saga was just beginning to surface, public sector lenders such as the State Bank of India and Corporation Bank tried out a novel exercise — of carrying prominently-placed advertisement in daily newspapers with photographs of individual defaulters alongside a stern warning that if they failed to respond, photographs of their guarantors would also be published.
One of the SBI ads in August 2011, for instance, had the photograph of a woman who contracted a personal loan of Rs 80,000, of which Rs 52,264 was outstanding; even though the lady was listed only as a ‘defaulter’ and not ‘wilful defaulter’. Corporation Bank went to the extent of displaying photographs of defaulters on hoardings in order to put them to shame, including a number of small-time businessmen affected by the turbulence in the wake of the 2008 global financial meltdown.
Fast forward five years to now, when non-performing asset (NPA) disclosures have precipitated and are simply mounting by the day, there seems to be a discernible resistance among banks in declaring the details of their biggest defaulters. Between the year when the banks first came out with their series of ads to shame defaulters, and now, the difference clearly lies in the profile of the defaulters — mostly individuals and small businessmen then as compared to write-offs involving larger corporate borrowers that are surfacing now.
The issue could be pertinent as the looming NPA scare for banks now is precisely on account of the surge in big-ticket loans that are facing stress. According to RBI estimates, the top 30 loan defaulters currently account for one-third of the total gross NPAs of PSBs. Till March 31, 2015, the country’s top five PSBs had outstandings of Rs 4.87 lakh crore to just 44 borrowers, if borrowers were to be categorised in terms of those having outstandings of over Rs 5,000 crore (see chart). Even a single default could stress the bank balance sheets, much more than the cumulative impact of the cases involving small businesses or the lady featured in the SBI advertisement with an outstanding of Rs 52,264. This time, though, there are no names out, let alone pictures in newspapers.
Sectoral outstandings of PSBs to the corporate sector are clearly growing. Cumulatively, as on March 2015, the outstanding loans of PSBs to the agriculture and corporate sectors was Rs 6.83 lakh crore and Rs 27.71 lakh crore, respectively, sharply higher than Rs 4.72 lakh crore and Rs 21.60 lakh crore three years earlier (see chart).
The position on declaration of NPAs is even more precarious. For 30 of the 39 listed banks that have reported third-quarter earnings till Friday, gross NPAs have risen 26 per cent between the September and the December quarters. Provisions have jumped 74 per cent while aggregate net profit has plummeted 42 per cent. The trigger for this sudden rush among PSU banks to come clean, which earlier was restricted to a one-quarter exercise just immediately after the appointment of a new managing director, is a Reserve Bank of India directive asking banks to classify visibly stressed assets as NPAs and set aside money to cover the risk of default. The fallout of the directive, which followed an asset quality review by RBI on the earnings of PSU banks, showed that state-owned lenders have been sitting on a pile of troubled assets that they have avoided categorising as risky until now.
There is more pain to come, as Arundhati Bhattacharya, chairman of SBI warned in the latest post-results interaction with the media. “We may see a similar amount of provisioning in the next quarter (January-March). There are accounts that may have been classified as NPAs in other banks but not by us yet. So, these could happen in the next quarter,” she said. Queries sent to the SBI chair on the status of the bank’s estimated 39 borrowers having outstandings of over Rs 5,000 crore each (as on March 31, 2015) went unanswered. RBI estimates peg the cumulative outstanding amount on account of these 39 borrowers at Rs 4,42,267 crore till end-March 2015.
Even as the central bank has led the charge on cleaning up bank books, the RBI has been somewhat indifferent on revealing the details of the big defaulters.
“RBI data reporting system does not collate data on loans provided recovered or written off by the PSBs to farmers and corporate houses … Each bank has its board-approved loan policy in terms of RBI guidelines and accordingly the loans are provided by the banks. The borrower’s details are not disclosed as prescribed under Section 45E of the RBI Act, 1934, and the banking laws,” according to the finance ministry, which said this in response to a query on NPAs raised during the winter session of Parliament.
The idea of naming big defaulters triggers sharp resistance from the government and the central bank, who cite these provisions of the RBI Act to legitimately deny information. This notion was challenged in 2011, when the then Central Information Commissioner (CIC), reacting to an application filed by a Haryana-based RTI activist, had clearly directed the RBI to reveal publicly the names of the top 100 industrialists who had defaulted on loan repayments to PSBs.
The CIC held that disclosure of “information about industrialists who are loan defaulters of the country may put pressure on such persons to pay their dues” and that revealing the names would “serve the object of reining in such defaulters, warning citizens about those who they should stay away from in terms of investments and perhaps shaming such persons or entities”.
The RBI, however, reacted to the CIC order by moving the Delhi High Court through a writ petition seeking its quashing on grounds that it went against “the cardinal common law principle of bankers’ duty of confidentiality” and that the CIC direction to disclose the details of the top 100 industrialists was “against the basic tenets of banking.”
The studied silence notwithstanding, the RBI does currently circulate a list of non-suit filed accounts of defaulters owing Rs 1 crore and above, besides that of wilful defaulters with outstandings of Rs 25 lakh and above, but these are only to lending institutions for their confidential use. The latest list is understood to have some 150-odd names, The RBI, according to a senior bank official with one of the State Bank of India subsidiaries who has spoken about earlier the central bank’s cloak of secrecy, maintains that this information on defaulters is held by it in a ‘fiduciary capacity’ on behalf of the banks. The official did not, however, respond to a formal email sent by The Indian Express on the issue.
In response to an Indian Express RTI query seeking details of those whose bad debts of Rs 100 crore or more had been written off, the RBI said: “The required information is not available with us.”
The RBI’s stance has come in for heavy criticism in the Supreme Court in December 2015, where the apex court ruled that the RBI and commercial banks cannot hide routine information, such as the names of top defaulters, the losses suffered by banks and details of action taken against erring banks, sought by the public under the Right to Information Act. The central bank and commercial banks hitherto denied such information on the ground that it was information held in a fiduciary capacity and could not be revealed to the public at large.
Experts concur that the RBI has a statutory duty to uphold the interest of the public at large, the depositors, the country’s economy and the banking sector. Therefore the central bank ought to act with transparency and not hide information that might embarrass individual banks.
An analysis of the information available with the RBI till 2012-13 also shows that between 2009 and 2013, both the advances by public sector banks to individuals and business entities as well as their amount of bad debts written off doubled. From 0.33 per cent of total advances in 2009, bad debts rose to 0.61 per cent in 2013. Bank-wise break-up shows that SBI, India’s largest bank, is way ahead of others in declaring loans as unrecoverable, with its bad debts shooting up almost four times since 2013 — from Rs 5,594 crore in 2013 to Rs 21,313 crore in 2015.
The series of disclosures following the RBI’s fiat has prompted the government to establish six new Debt Recovery Tribunals (DRT) at Chandigarh, Bengaluru, Ernakulum, Dehradun, Siliguri and Hyderabad to speed up the recovery of bad loans of the banking sector. This, however, may be less than adequate. According to Bhattacharya, one reason these accounts had to be classified as NPAs was that the loan recovery process takes too long. Based on SBI’s experience, resolution through the DRTs sometimes takes as long as 60 months, she asserted at the SBI results briefing on February 12.