Wilful defaults at commercial banks are on the rise even as the Reserve Bank of India has been tightening the noose on defaulters.
Banks witnessed a continual rise in wilful defaults in all of the past five financial years. Overdue borrowings classified as wilful defaults totalled Rs 12,261 crore (Rs 122.61 billion) in the financial year 2003-04.
They were Rs 11,824 crore (Rs 118.24 billion) in 2002-03, Rs 7,600 crore (Rs 76 billion) in 2001-02, Rs 4,852 crore (Rs 45.82 billion) in 2000-01 and Rs 2,145 crore (Rs 21.45 billion) in 1999-2000.
In the financial years 2002-03 and 2003-04, banks classified an aggregate of Rs 24,085 crore (Rs 240.85 billion) as wilful defaults, compared with a total of Rs 14,594 crore (Rs 145.94 billion) in the previous three financial years to 2001-02.
Moreover, according to banking sources, wilful defaults as per cent of banks non-performing assets are also on the ascent.
The ratio of wilful defaults to NPAs stood at 18.63 per cent in the financial year 2003-04, compared with 17.19 per cent in 2002-03, 10.71 per cent in 2001-02, 7.59 per cent in 2000-01 and 3.53 per cent in 1999-2000.
Banks are empowered to initiate criminal proceedings against wilful defaulters, wherever necessary, and change the management of the borrowing firm.
A borrower entity is stated wilful defaulter if it has defaulted in meeting repayment obligations to lender even when it has the capacity to honour its obligations and when the funds borrowed are diverted for other purposes.
In May 2002 the RBI had asked banks follow stringent norms against willful defaulters. It had laid down a mechanism for classification of wilful defaults and stringent penal measures against defaulters and guarantors. Additionally, banks were asked to ensure end-use of funds by the borrowers.
In order to ensure the classification of wilful defaulters is done objectively and borrowers who default due to genuine reasons are not put to hardship, the central bank asked banks in May 2004 to inform the concerned borrower before carrying out such a classification.
Banks were also asked to give borrowers reasonable time for making representations against the bank's decision to classify their accounts as wilful defaulters.