RBI should have revealed the names, but with defaulters being taken to NCLT, and stripped of their firms, this is quite moot
RBI may have, in the past, not wanted to reveal the names of willful defaulters because it felt the contract between bankers and their borrowers forbid making these details public, but the arguments never really measured up. The main reason was the fact that, as a result of these willful defaulters, it was the taxpayer that was being asked to bear the cost, either in the form of the value of these banks falling precipitously or by way of the government infusing money into these banks—since 2005, Rs 2.3 lakh crore has already been infused into these banks, and it is still not over yet. If the taxpayer was being asked to bail out bankrupt—or thieving—businessmen, it was a bit rich to argue that the names would be kept quiet for commercial reasons. And, to the extent the banks were complicit in the fraud—as it now appears some were—the central bank had all the more reason to disclose the default since it was only after this was known that any investigation could even begin. Ideally, the names should have been made public on the websites of all banks. And, in any case, rightly or wrongly, India’s Right To Information (RTI) Act said that the information had to be made public, and in case there was any ambiguity about whether this applied to the defaulters, a Supreme Court verdict on this settled that some years ago.
Also, for all the arguments about commercial secrecy, the fact is that if defaults are not made public the day they happen, how is any credit rating agency, or the stock markets for that matter, or any analyst, really to take a view on a company? It is only when default data is immediately made public that serious analysis of the causes and, based on this, projections can be made that are critical for any form of credit rating/analysis. This was why Sebi backed a similar proposal last year, though it later backtracked on it.
Much of this, however, is moot thanks to the actions that have been taken by both RBI as well as the government. RBI’s Asset Quality Review, for instance, forced banks to come clean—or cleaner—on the dodgy loans, and more stringent recognition norms were put in place. The government then did one better and came out with the Insolvency and Bankruptcy Code (IBC) that was executed through the National Company Law Tribunals (NCLT). When all defaulting borrowers over a certain size—the so-called Dirty Dozen, to begin with—had to be taken to the IBC/NCLT, and the government also put in laws to ensure that defaulters couldn’t get back their companies until they cleared the dues, the names had become public anyway. Certainly the smaller defaulters have not yet been made public—the Central Information Commission (CIC) wants even the list of defaulters over `50 crore to be made public—but the big names have been made public, and the second and third lists of defaulters to be taken to IBC/NCLT are also ready. So, in order to not be guilty of contempt of court, the central bank would do well to release all the names.
The next question is about what the PMO says it did with the list of willful defaulters provided to it by then RBI Governor Raghuram Rajan; the implicit argument here is that the PMO—or the finance ministry to whom it must have referred the matter to—did nothing about it. It is important not to exaggerate this either. For one, if Rajan did mention industrialist X, what was the PMO to do? A process of law has to be followed to get the promoter out or to force him to make good his dues. Just naming and shaming is of little use since it doesn’t help get back the lakhs of crores of rupees of dues. So, the PMO, in consultation with the finance ministry and RBI, came up with the best solution possible in the form of the IBC. If the PMO has implemented the solution that it was supposed to do after Rajan gave them the list, how is it to be faulted? The PMO and RBI will need to comply with the CIC’s directives, but this is really academic since so much has happened from the time the demands were first made for the information; and those demands were made precisely because the government/RBI was doing nothing, but that is no longer true today.