Wilful defaults by borrowers rise 45%

As many as 4,114 loan accounts were classified as wilful defaults by Credit Information Bureau (India) Ltd (Cibil) as on September 30,2011 as against 3,700 accounts in the previous year. The amount diverted by wilful defaulters was Rs 10,395 crore in September 2009. If a borrower has defaulted in meeting his repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilised for the specific purpose for which finance was availed of,nor are the funds available with the unit in the form of other assets,this loan account is  classified as wilful default.

As per the RBI rules,lenders should initiate criminal proceedings against wilful defaulters and wherever possible,the banks and FIs should adopt a proactive approach for a change of management of the wilfully defaulting borrower unit.

State Bank of India tops the list in wilful default accounts with its borrowers refusing to repay Rs 3,395 crore. It’s followed by Kotak Mahindra Bank Rs 2,292 crore,Canara Bank Rs 1,721 crore and Central Bank of India Rs 1,137 crore.

“Recovery in wilful defaults is a tedious and a long-drawn process. This may take several years. In many cases,no assets are found at the time of legal process and in some cases promoters are not traceable,” said an official of a nationalised bank.

According to the RBI,no additional facility should be provided to the listed wilful defaulters and entrepreneurs and companies which are guilty of siphoning and diversion of funds should be debarred from institutional funds for five years. However,it later relaxed the rules a bit and said loans extended to wilful defauters can be restructured if the latter is willing to “rectify the wilful default”. Borrowers who try to dispose of the mortgaged property without the knowledge of bank or the lenders are classified as wilful defaulters.

Instances of default by Crisil-rated entities increased to 188,the highest for any year. The annual default rate for rated entities has hit a ten-year high of 3.4 per cent in 2011-12.

“These pressures are also reflected in the increase in banks’ gross non-performing assets (2.9 per cent of advances from 2.3 per cent),and in the quantum of debt restructured (to 3.3 per cent of advances from 2.5 per cent) between March 31 and December 31 of 2011,” Crisil said.