Bank watch

Sajjad Bazaz
Publish Date: Nov 12 2012 12:00PM

Of branded defaulters
We don’t expect Padma Shri for willful defaulters, who are parasites on the economy

WE witnessed first of its kind incident recently when a willful defaulter aimed his pistol in full public view at a bank’s recovery team when the latter had called upon his residence to pursue him to repay the bank loan in default running in crores of rupees. The willful defaulter is said to have enough resources to liquidate the bank outstanding loan amount.
 The episode sent shivers down the spine of one and all. Firstly, Kashmir is a place where a civilian taking out his any kind of fire arm in full public view under the prevailing security environment here is something that we have never witnessed since the eruption of armed separatist movement. Secondly, a common man was shocked to learn that a well reputed businessman has blocked the bank’s money even though he has all the required resources to repay the bank loan.
 Incidents of a borrower turning into a defaulter are not new in the banking industry. But willfully refusing to repay the loan is simply a crime against depositors. As all of us are aware of this basic fact that banks get deposits from the public and same deposits are granted as loans and advances to the borrowers belonging to various sectors of economy. When these funds change hands, the money gets multiplied. The appreciation in the value of money in the process results in the growth of the individuals, firms, companies and overall in the economy. Any blockade happening in this flow of money cycle hampers growth. Here the willful defaulter is a parasite on the economy.
 In banking terminology, willful defaulter has its own definition. According to the Reserve Bank of India (RBI), a willful defaulter is one who has not used bank funds for the purpose for which it was taken and who has not repaid loans despite having adequate liquidity resources. It’s notable that most of the willful defaulters have turned out from influential class – those who enjoy access to the corridors of power. There are even cases where people at the helm of affairs have turned out to be chronic willful loan defaulters.
 Willful default broadly covers deliberate non-payment of the dues despite adequate cash flow and good networth; siphoning off of funds to the detriment of the defaulting unit; assets financed either not been purchased or been sold and proceeds have been misutilised; misrepresentation / falsification of records; disposal / removal of securities without bank's knowledge and fraudulent transactions by the borrower.
 Loan recovery drive is a routine matter with an aim to pursue defaulters to repay the bank dues. We have a breed of borrowers in the habit of making willful default in the payment of their dues to the banks like the one mentioned above. There are instances where a borrower’s business unit is doing rather well, but he would not pay the dues deliberately and would rather invest the available resources in some other venture. Instances galore which reveal. Most of the chronic defaulters lead utmost lavish and luxurious lives. The basic intention to repay is missing in such cases and these are the defaulters who not only hamper the recovery but also set a bad precedent for the others to follow.
 I recently came across an eye opening report in Money Life revealing that a well-known industrialist from Pune, who despite being declared as “willful defaulter” by several banks, was earlier in January 2012 awarded the Padma Shri. The industrialist was identified as Kinetic group chairman Arun Firodia.
 In this case, an RTI activist has already questioned: “Despite the fact that several banks have declared Mr Firodia a “willful defaulter” continuously between 31 March 2005 and 31 March 2012, how his name was  short-listed and forwarded to the PM and the president?"
 In a report available on the website of Credit Information Bureau (India) or CIBIL, as of 31 March 2012, Mr Firodia's name has been shown associated with Kinetic Finance, Athena Financial Services, along with his daughter Sulajja Firodia Motwani. According to CIBIL data, as of 31st Match, Athena Financial Services has an outstanding of Rs54.60 crore, while Kinetic Finance owes Rs2.76 crore to debtors, mostly banks.
 Needless to mention that Padma Shri is the fourth highest civilian award in India and is awarded in recognition of their distinguished contribution in various spheres of activity including the arts, education, industry, literature, science, sports, medicine, social service and public affairs.
 Since banks are saddled with rising bad debts, the banks should gather momentum to proceed tough against the willful defaulters or borrowers who have not repaid bank loans despite having the capacity to do so. They should seek regulatory support for imposition of stricter penalties against the willful defaulters, including a long term ban on floating of new ventures by the promoters of such companies or individuals who have been willful defaulters. Even the directors and auditors of such firms should equally be held accountable for the default. This can definitely put pressure on everybody to become more disciplined in terms of fair transactions with the banks.
 Meanwhile, yesterday’s case mentioned above should be an eye opener for the government. It has necessitated need for the government to provide support to the loan recovery process. The amount in default belongs to the public and they have to provide protection and security to the bank personnel to guard the trust and interest of the depositors. Finally, we don’t expect a Padma Shri for such willful defaulters!

(The views are of the author & not the institution he works for.

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