In September, FE had reported that Bombay Rayon, which owes a consortium of banks R4,055 crore, was served a wilful-defaulter notice by Central Bank of India. The notice was issued after the textile company did not allow the bank to conduct a forensic audit of its books, a senior executive at the bank confirmed.
State Bank of India has the largest exposure to Bombay Rayon at Rs 1,500 crore.
Meanwhile, the company had also been referred to the corporate debt restructuring (CDR) cell. Most banks were not in favour of approving the restructuring plan.
The threat of being termed as wilful defaulters, which restricts a companys ability to access any additional finance from the banking system, is pushing companies into paying up some of their dues, said bankers. Banks have taken a tough stance in recent months with promoters who they feel have the ability to make good on their outstanding dues.
The decision to repay R30 crore in dues to Central Bank of India has helped Bombay Rayon get a nod for a debt restructuring package. The repayment led Central Bank of India to withdraw wilful defaulter notice and also meant that the account got upgraded to a standard account from a non-performing account.
In an address to the parliamentary consultative committee, finance minister P Chidambaram had said that public sector banks should be strict with wilful defaulters. Since then the finance ministry has been exhorting banks to take a tough stance with errant borrowers.
According to RBIs latest circular, once a company is declared a wilful defaulter, it loses access to finance from other banks and financial institutions. Further, promoters of such companies cannot be given fresh funds for five years to start a new venture. Lenders can also initiate criminal proceedings, if necessary, against the guarantors and companies or seek a change in management.
In another recent meeting of all 26 public sector banks with the finance minister in September, Chidambaram had said all banks must try and increase recoveries from accounts that have turned bad.
The push for recoveries has shown some results, with PSBs showing increased recoveries in recent quarters. Bank of Baroda recovered R586 crore in the first half of the year, versus R447.41 crore in the first half of last year, while Bank of India recovered R426 crore in the July-September quarter against R316 crore in the same period last year.