Corporate loan defaulters now have another reason to worry. Public sector banks will soon insist on including a new condition in their lending terms: a one-time settlement on a defaulted amount will no longer automatically absolve borrowers from prosecution for a transaction that is under investigation.
The Indian Banks? Association (IBA), the banking sector?s trade body, is formulating a general policy on how investigative agencies should tackle the treatment of a defaulting borrower who has availed of a one-time settlement to clear his dues.
The subject is likely to come up for discussion during IBA?s forthcoming managing committee meeting, which will be held in Hyderabad on March 23. Bankers will discuss what modifications should be brought about in the final clearance certificate that is issued to defaulting borrowers once he settles his dues with the bank.
An IBA official said that the managing committee was scheduled to discuss the issue last month, but that meeting did not take place. Hence, the matter would definitely come up for discussion when the meeting is convened later this month.
Talking to FE, Bank of India chairman & managing director TS Narayanasami, who is also IBA chairman, said, ?As a banker, I am interested in recovering my money. Once I have recovered the money, then the clearance certificate I will give to the borrower should confine itself to the fact that he has cleared the bank?s liability and not any other liabilities. The borrower also cannot claim to be free from all charges that may be pending against him. I have no authority to say so.??
So, banks have to ensure that the clearance certificate issued to the borrower should not help absolve him from any other financial crimes that he may have committed. ?Therefore, we want that the discharge certificate to have a proper clause in it to this effect. We have to make it happen in the light of one or two cases that have surfaced,?? said Narayanasami.
Bankers say there have been cases where borrowers who are involved in other criminal financial cases have made use of clearance certificates issued by banks after a one-time settlement to clear their names in other cases linked to that particular bank transaction.