This refers to the report “RBI tightens norms for errant borrowers” (FE, December 23). “Wilful defaulters” and “non-co-operative borrowers” and what other categories the banking regulator wants to create! The public sector banks(PSBs) in India have piled up bad eggs during the last 10 years or so. This period coincides with the UPA-I and UPA-II tenures. The government at the Centre was micro-managing PSBs by issuing directives to lenders even as Reserve Bank of India became a mute spectator. The top brass in the PSBs knew the location of power centre and had scant respect for the banking regulator. The result is there for everyone to see. PSBs have been making recovery efforts only on paper. The borrowers very well knew that PSBs do not have street sense to make recoveries. In fact, borrowers took the lenders for a ride helped by the messy legal system in place. Inordinate delays in the legal process helped only the borrowers and created a frustrating environment for the lenders. The latest circular from Reserve Bank talks about errant borrowers having the ability to pay. The lenders have a tough job of making assessment of “ability” and “willingness” of borrowers. While “willingness” is purely a matter of attitude, “ability” is a phenomenon culled out from the primary and collateral securities. The performance parameters and financial position also make up for “ability”. Right now, the lenders, mostly the public-sector banks, have no capacity to assess “willingness” of borrowers. As for “ability”, books of accounts can be doctored. Dressing up and down of financial statements is a common business practice leaving no clues as to the real position.
The primary and collateral securities cannot be disposed without the co-operation of borrowers. In the circumstances, RBI’s efforts in sprucing up the recovery mechanism of PSBs may not bear fruit and the borrowers will have the last laugh.