Economy

SC chides RBI, says big defaulters escape while farmers driven to suicide

12 Apr 2016 | By Vaneet Randhawa

The Supreme Court reprimanded the Reserve Bank of India after RBI said that it should not disclose details of the loan defaulters.

SC said the rich were defaulting on crores while the poor farmers had to commit suicides when they default on loans.

SC opined that if the banks could not reveal the names they should atleast expose the defaulted "huge and substantial amounts".

In context: Stance of SC and RBI on loan defaulters

Bad debts trebled between 2012 and 2015: Indian Express

Answering an RTI application registered by the Indian Express, the RBI had revealed that while bad debts "stood at Rs.15,551 crore for the financial year ending March 2012, they had shot up by over three times to Rs.52,542 crore by the end of March 2015."

16 Feb 2016SC asks RBI to produce the list of defaulters

Taking due note of Indian Express discovery, SC directed the RBI to present the list of companies that had defaulted on the payment of bank loans of Rs.500 crore or more.

However, the regulator pleaded against making this information public, which was illegal.

The SC said so while hearing a PIL by CPIL on the "non-performing assets of Housing and Urban Development Corporation (HUDCO)."

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Contention of the CPIL PIL

CPIL PILContention of the CPIL PIL

CPIL's PIL had raised the issue of loans advanced to some companies by Housing and Urban Development Corporation (HUDCO).

The plea cited that top 10 Indian banks had written off more than Rs.80,000 crores worth of corporate debt.

It also contended that the RBI had allowed restructuring of Rs.3 trillion debt of various companies which showed that the tax payers money was being wasted.

How do banks write-off bad debt?

In cases of loans that are unreasonably difficult to collect (which reflect badly on a bank's financial statements), the banks practice write-offs to "remove loans from their balance sheets and reduce their overall tax liability."

30 Mar 2016RBI gives defaulter list, asks SC to not make the names public

The RBI gave the SC a list of defaulters who'd failed to pay back loans of over Rs.500 crore, however, RBI requested the apex court to refrain from making the names public.

RBI contended that disclosing the names might "accentuate the failure of business rather than nursing it back to health."

RBI stated that the disclosure could affect the employees working for these entities.

RBI Governor says defaulter disclosure a 'chill business activity'

Reserve Bank of India (RBI) governor Raghuram Rajan said: “...if simply any act of default, without understanding the severity or reasons, is put up for public consumption, it may result in a loss of business as well as undue anxiety and panic and therefore chill business activity”.
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12 Apr 2016SC chides RBI, says big defaulters escape while farmers driven to suicide