Defaulters to be named only if they are willful defaulters: RBI

The Reserve Bank of India (RBI) has decided to stick to its stance of not naming large borrowers, until and unless they are willful defaulters.

Governor Raghuram Rajan said defaults in business do happen because everything is not under promoters’ control and such naming can hamper operations.

“The act of default is sometimes not your fault — demand is weak, prices are low, dumping is going on, etc. So, there are a variety of reasons as to why a project gets stalled. Putting the promoter’s name up to say he defaulted, without giving the reason why, might not be right. We have no problem in publishing the willful defaulter list — that is where the promoter has, in the eyes of the bank, taken the bank for granted,” said Rajan.

By putting out names of defaulters in the public domain without understanding or explaining the severity of a situation “may create a loss of business and undue anxiety and panic. And, therefore, chill business activity”.

RBI has given the Supreme Court the names of large defaulters to the banking system but the names have not been made public.

Rajan also defended banks in saying they can’t be simply held to have erred if at a later date the promoter fails to repay a loan. “We need to look at the conditions, those circumstances, in which the loan was given. Today, we know some sectors that are weak but there is always a statement that it will strengthen and that these are temporary weakness. If banks give loans under these circumstances, if there is some forbearance that takes place, it doesn’t immediately apply that there was corruption,” he said.

However, to tackle the issue of rising bad loans in the system, RBI has decided on a framework for large exposure of loans to borrowers. “Taking into account the views and suggestions from stakeholders on the discussion paper on a ‘Large exposures framework and enhancing credit supply through the market mechanism’, a fresh discussion paper will be issued by April 30 on large borrowers meeting part of their funding requirements from the markets,” said RBI’s review of monetary policy on Tuesday.

These steps are being taken after the Asset Quality Review by banks in the October-December quarter. This was done at RBI’s behest, to ensure banks were proactively classifying their loan portfolios, with the aim of making full provisions to clean up, with a 2017 deadline. As a result of this exercise, 15 government-owned banks reported losses on their domestic operations in that quarter, due to increased provisions for doubtful assets or loss of assets, and write-offs for bad loans.

Credits Business Standard

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