Wednesday , 24 April 2019
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Dipping Into Purses Of 7,600 Mallyas

So, it is not just one Vijay Mallya. There are over 7,600 Vijay Mallyas. These 7,600 wilful defaulters owe over Rs 66,000 crore to public sector banks as of December 2015. Union Minister of State for Finance Jayant Sinha told Rajya Sabha on Tuesday that the total outstanding amount in top 100 non-performing accounts (NPAs) with public sector banks was Rs 1.73 lakh crore as of December 2015. In simple words, over 38 per cent of the outstanding amount is owed by wilful defaulters. The number of wilful defaulters of public sector banks rose from over 5,500 to 7,600 in three years to December 2015 while the amount involved more than doubled from Rs 27,000 crore to Rs 66,000 crore. State Bank of India, the country’s largest lender, topped the list with Rs 11,700 crore in wilful defaults, followed closely by Punjab National Bank, which had Rs 10,000 crore in wilful defaults, and Central Bank of India with Rs 4,400 crore.
Who is a wilful defaulter? Every company and individual who is engaged in business borrows from banks and uses the borrowed money as capital for starting production or commerce or expansion of an existing business. They borrow with expectations of income much higher than the interests of the bank loans for them to be able to repay the loans. However, since the global slowdown set in in 2008, most companies and individuals failed to pay up as their income projections went wrong. They faced factors beyond their control. They might not have capacity to pay. They are not wilful defaulters. Wilful defaulters are those who have defaulted in repayment despite having the capacity to repay; those who have diverted the borrowed funds for purposes other than the specific purposes for which finance was availed of; those that have not utilised the borrowing for the specific purpose for which finance was availed of or created assets within the borrowing unit but siphoned it off; and those that have disposed off or removed the movable fixed assets or immovable property given by them for the purpose of securing a term loan without the knowledge of the lending institution.
Diversion and siphoning of funds – in which funds are utilised for purposes un-related to the operations of the borrower, to the detriment of the financial health of the entity or of the lender – is the most common modus operandi of the wilful defaulters. They use short-term working capital funds for long-term purposes not in conformity with the terms of sanction. They deploy borrowed funds for purposes / activities or creation of assets other than those for which the loan was sanctioned. They transfer funds to the subsidiaries/Group companies or other corporates. They make investment in other companies by way of acquiring equities/debt instruments without approval of lenders.
Various oversight institutions, including the Central Vigilance Commission, Parliament’s Standing Committee on Finance on Financial Institutions, the Reserve Bank of India and the Indian Banks’ Association have been trying to grapple with wilful default but the problem has only magnified in the past decade or so. One of the measures to fight it is to file FIRs and suits against wilful defaulters, but that is a very time-consuming process. According to official data, suits have been filed against 5,200 of the 7,600 wilful defaulters that owe Rs 43,000 crore. FIRs have been filed against another 1,500 of them for recovery of Rs 16,000 crore. As much as Rs 36,000 crore has been marked for auction of residential or commercial properties owned by wilful defaulters to recover loans under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act). The Securities and Exchange Board of India (SEBI) has decided to bar wilful defaulters from raising public funds through stocks and bonds, and also from taking board positions at listed companies. SEBI has also decided to bar such defaulters from setting up market intermediaries such as mutual funds and brokerage firms or from taking control of any other listed company.
The RBI has directed banks and other financial institutions not to grant any additional borrowing facilities to wilful defaulters. In addition, the entrepreneurs and promoters of wilful defaulter companies are to be debarred from institutional finance for floating new ventures. While these penal measures are strictly enforced, the RBI must also publicly publish the names of wilful defaulters. After all, the RBI regularly publishes a list of wilful defaulters and forwards it to SEBI and Credit Information Bureau (India) Ltd (CIBIL). As circulation of the list in offices of regulators has not deterred the wilful defaulters, the list should be published in newspapers to shame them in the eyes of society to force them to repay the outstandings.

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