Bad loans write-off: Debt defaulters list doubled, their dues tripled in last three years

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New Delhi | Updated: Apr 01, 2016 11:38 AM

Cibil: 6,819 wilful defaulters owed Rs 74,699 cr to banks until December 2015

rbiThe Reserve Bank today said it will soon undertake “incognito visits” to bank branches to check culture towards customer complaints in banks. (Reuters)

Prodded by the Supreme Court, which took suo motu cognizance of a report in The Indian Express that Rs 1.14 lakh crore of bad loans had been written off by state-owned banks between 2013 and 2015, the Reserve Bank of India (RBI) submitted Wednesday a list of defaulters who owe Rs 500 crore or more to public sector banks. The RBI told the top court it was “extremely necessary” to keep these names confidential due to their “fiduciary relationship”.

But data from Cibil, the agency which collates information on credit, show 6,819 wilful defaulters owed banks Rs 74,699 crore until December 2015, up from Rs 22,332 crore that 3,703 wilful defaulters owed until December 2012.

The RBI defines wilful default as deliberate non-payment of dues by the borrower despite adequate cash flow and good net worth.

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The list of such defaulters (see box) is headed by Winsome Diamonds-Forever Precious group, originally promoted by Jatin Mehta. Banks have filed ten suits in court against the group for recovery of Rs 3,969 crore, according to Cibil data. Mehta who quit the board of directors three years ago is now based abroad. The Central Bureau of Investigation and Enforcement Directorate are investigating this case.

Zoom Developers has had banks filing ten cases against the company and promoters. Zoom which owes Rs 3,002 crore collectively to 26 state-owned banks routed the money through 350-odd subsidiaries, related parties based in India and abroad.

The S Kumars group, belonging to Nitin Kasliwal, is a new entrant to the wilful defaulters list. Banks have categorised Rs 496 crore of borrowings of Reid & Taylor of the group as wilful default. The total wilful default amounts to Rs 1,789 crore. Of this, Rs 960 crore is owed to IDBI Bank, including Rs 701 crore by S Kumar Nationwide.

According to Cibil data, Pearl, Pixion and Century Communication companies, with Prabodh Kumar Tiwari and Abhishek Tiwari listed as directors, have wilful default of Rs 1,226 crore marked against them going. Their companies include Pearl Studio, Pixion Vision, Pixion Media, Pearl Vision and Century Communications. Banks have filed 14 suits against these group companies.

The amount at stake for Indian lenders from this category of borrowers is much higher. That is because not all banks have declared them as wilful defaulters. For instance, Kingfisher owes Rs 9,000 crore to banks, but only two banks, SBI and PNB, have declared the company as a wilful defaulter. Only the loan exposure of SBI — Rs 1,201 crore — is mentioned in the Cibil defaulters list. While PNB has classified Rs 597 crore overdues as wilful default recently, most banks are yet to classify the company as a wilful defaulter.

When her comments were sought, Cibil Chief Operating Officer Harshala Chandorkar said: “The asset quality in the corporate sector has been a concern and the situation still remains grim. The aggregate NPA ratio in the corporate sector has increased to 5.4 per cent in September 2015 from 5.0 per cent in March 2014. The surge in NPAs has been contributed by large corporates. The bright spot, thus far, remains the retail segment which actually exhibited a reduction in NPAs (4.7 per cent in September 2015; 5.3 per cent in March 2014).”

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“Given the public sector banks’ higher exposure to large corporates, they were among the worst affected when NPAs in large corporates surged. Whereas MNC banks, which have kept a sharp check of exposure to large corporates, actually saw their NPAs marginally improving. For private banks, NPA rates have shown marginal deterioration,” she said.

“The NPA situation is delicate and requires close monitoring. Cibil, given its database and expertise in handling large amount credit information, has the expertise and solution capabilities to monitor some of the systemic risks related to lending. In fact, this may be improved further if the quality of reporting is further improved, in the sense that banks report more variables such as account-wise days-past-due and others, in even more prompt fashion so that early warning systems may be easily provided to regulators and government departments by an independent third party such as Cibil,” Chandorkar said.

D R Dogra, Managing Director & CEO, of ratings firm Care Rating, said: “Wilful default is a serious issue as it erodes the moral fabric of banking. In business, enterprises do fail as there is risk involved which may not be gauged correctly to begin with. However, a default on account of wilful conduct goes beyond the realm of business models that do not work out or external conditions which impact a company’s ability to service debt.”

A state owned company also figures in the wilful default list. PNB has hauled troubled National Agricultural Cooperative Marketing Federation of India Ltd (NAFED), the apex organisation of marketing cooperatives for agricultural produce in India, under the Ministry of Agriculture, to the court for recovery of Rs 224 crore.

Ramnath Pradeep, former Chairman & MD, Corporation Bank said: “Wilful default has been an issue for quite some time but nobody was bothered. Nobody had fear of any action for wilful or normal default. After the Vijay Mallya default episode was highlighted by the media, banks have started taking some action. In many cases, promoters were able to divert bank funds for other purposes. Promoters are also making use of loopholes in laws to escape action.”

He blames banks for some of these troubles citing the case of loans disbursed to diamond companies. “Banks are not supposed to discount sanctions to associate/sister parties without consent. However, banks have been discounting sanctions,” Pradeep said.

Among banks, PNB and SBI has been aggressive in chasing wilful defaulters. It has filed 905 suits to recover Rs 11,467 crore from borrowers. SBI has filed 1,034 suits to recover Rs 12,091 crore at the end of December 31, 2015.

However, some of the wilful defaulters have challenged the banks’ decisions in courts, delaying the process of recovery. While bankers say most wilful default cases are allegedly frauds committed by the promoters with money being siphoned off from the companies, cases filed by banks in courts and debt recovery tribunals for many years are yet to be adjudicated.

The RBI had recently brought guarantors also under the wilful defaulter category, but experts said this is like closing the stable doors after the horses have fled.

If the guarantor, the RBI said, refuses to comply with the demand made by the banker despite having sufficient means to make payment of the dues, such guarantor will also be treated as a wilful defaulter. The RBI also said wherever possible, banks should adopt a proactive approach for a change of management of the wilfully defaulting borrower unit. But this rarely happens.

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