Let us place the matter direct - from 4306 in 2013-14, the number of bank frauds rose to 9,103 in 2021-22. Reserve Bank of India (RBI) data released just about six months ago by the end of the year 2022 showed that the number of financial frauds were even on the rise in 2022-23. During the first six months of the financial year 2022-23, the number of financial frauds cases were 5406 in number, while a year earlier in 2021-22 during the corresponding months, the number of frauds were 4069. Now the RBI, in its June 8, 2023 circular, has allowed the wilful defaulters and fraudsters to go for compromise settlement, and they would be allowed ever fresh loans after 12 months.

All these are happening under a government that claims of doing everything in national interest. Moreover, the present RBI direction is even contrary to its own 'Prudential Framework for Resolution of Stressed Assets' issued on June 7, 2019, which had made clear that the borrowers who committed frauds/ malfeasance/ wilful default would remain ineligible for restructuring.

“While negotiating compromise settlements, it should be appreciated that the bank is a public sector entity and the stakeholders are taxpaying general public. Therefore, more than the interest of the Borrowers, the interest of public at large should be kept in mind,” the RBI note has said. As per circular of the RBI, the wilful defaulters and companies involved in frauds can go for a compromise settlement or technical write-offs by banks and finance companies.

It is worth recalling that that Union Ministry of Finance had informed the Parliament of India in December 2022 that banks had written off Rs11.7 lakh crore bad loans from their books in the last six year ending with the financial year 2021-22. It means Rs11.7 lakh crore had just vanished from the banking system. In the written reply, the Ministry of Finance had said that banks write off NPAs as part of their regular exercise to clean up their balance sheet, to avail tax benefit and optimise capital. Now, the latest information from RBI reveals that NPAs have been reduced to Rs 13,22,309 crore in the last ten years through such write-offs.

It goes without saying that the banks are being systemically fleeced, both through legal and illegal means, by big borrowers in connivance with bank officials, for which no responsibility is shouldered by both the Modi government and the RBI. Rather than taking prompt actions against such criminal incidents, it is surprising that RBI is now allowing them compromise settlements – that just amount to protecting the culprits against criminal proceedings.

The RBI has even said that banks can undertake compromise settlements or technical write-offs without prejudice to the criminal proceedings against such wilful defaulters or fraudsters, who the RBI note loved to call ‘debtors’.

Public sector banks are directed by the RBI to fix a minimum cooling period of at least 12 months before giving them fresh loans after the compromise settlements. RBI has said that the cooling period for exposures other than farm credit should be subject to a floor of 12 months, and regulated entities like banks and finance companies are free to stipulate higher cooling periods in term of their board-approved policies.

It is a common knowledge that banks in the country have been in the practice of approving compromise settlements running into hundreds of crores even with cut in the outstanding payments of loans not to be repaid by the borrowers. The logic for such compromise settlements are that these save banks legal expenses on recovery cases and facilitates early recovery of bad loans. However, reality is otherwise, leading huge losses to banks.

Such restructuring of bad bank loans is known as “evergreening” which is done in connivance with bank officials and big borrowers. Even the enactment of the bankruptcy code did not help much in recovery of bad loans. RBI Governor Shaktikanta Das has more than once warned about continuing “evergreening”. Banks often go for structuring of bad loans even without informing or taking consent of judicial authorities, such as Debt Recovery Tribunals (DRTs) hearing fraud or default cases.

Bank Unions have opposed the present RBI decision to allow wilful defaulters and fraudsters to avail compromise settlements and fresh loan after 12 months, saying that RBI’s “framework for compromise settlements and technical write-offs” is a “detrimental step that may compromise the integrity of the banking system and undermine the efforts to combat wilful defaulters effectively”.

All India Bank Officers Confederation (AIBOC) and All India Bank Employees Association (AIBEA) have said that the decision is “an affront to the principles of justice and accountability.” It would be rewarding for the dishonest and distress the honest borrowers who strive to meet their financial obligations, which would lead to erosion of public trust in the banking sector and also undermine the confidence of depositors.

AIBOC and AIBEA said that in February 2016, the Department related Parliamentary Standing Committee on Finance recommended for accountability of nominee directors of the RBI/ Ministry on the bank boards as well as the CMDs and MDs of banks. Moreover, the list of top wilful defaulters, as suggested by the Standing Committee, is yet to be published. The RBI should make the list of the wilful defaulters’ public, introduce stricter penalties, enhanced scrutiny and a more proactive approach to identify and prevent potential defaulters.

Country is really in dark about who are the big defaulters of over Rs1 crore. Even in the written reply in December 2022 in the Parliament of India, the Union Ministry of Finance had said that RBI had informed them that borrower-wise information on written off loans accounts is not maintained by them. The list of suit filed against wilful defaulters of Rs25 lakh and above is available in public domain on the websites of the Credit Information Companies (CICs) and that of non-suit filed wilful defaulters is confidential in nature and are not in the public domain, the reply of the Union Finance Ministry had added.

The timing of the RBI decision is also noteworthy since it has come at a time when the general election 2024 is just 10 months away. It has given additional occasion for recalling the old allegation that many big borrowers, bank and government officials, and politicians of the ruling establishment are hand in glove in fleecing the public money from banks. (IPA Service)