While small borrowers are made to pay every single paisa they borrowed, public sector banks (PSBs) appear to favour big defaulters while writing off their loans of Rs100 crore and above.
Take, for example, over the past nine years, Central Bank of India wrote off nearly Rs21,000 crore of big defaulters, while for small borrowers of Rs50 lakh and below, the loan write off stood at just Rs247 crore.
Information shared by the Bank under Right to Information (RTI) Act with Pune-based activist Vivek Velankar shows that Central Bank has written off Rs20,903 crore as technical write-offs in the nine-year period from FY12-13 to FY20-21. As against these write-offs, the recovery was just 7% or Rs1,483 crore. This applies only to loan defaults of Rs100 crore and more.
However, when it comes to writing off loans of small borrowers with a debt of Rs50 lakh and below, Central Bank of India says it wrote off these loans only twice in the past nine years. In FY12-13, it wrote off loans of Rs242 crore and in FY20-21, it was just Rs5 crore. There was no loan write off for small borrower between FY13-14 to FY19-20, the lender says. The Bank also does not have any information on recovery from small borrowers against the loan write offs.
Central Bank of India continues to share the list of big defaulters and money recovered from each of these written off loans. In the reply, Phool Singh, the central public information officer (CPIO) of Central Bank, says, "...details of the borrowers of technically written off loan accounts of Rs100 crore and above, this relates to third party information and no larger public interest involved and information available to bank in fiduciary relationship with customers, therefore exempted under section 8(1)(d)(e)(i) of the RTI Act."
Mr Velankar, who is president of the Pune-based Sajag Nagrik Manch, says, "If this indeed is a matter of confidentiality or fiduciary relations, then how did State Bank of India (SBI) give me the entire list with names and why can’t the other lenders do the same? When a common borrower defaults, the same banks publish his name and all details through advertisement in newspapers. Why do they want to keep the names of defaulters hidden? Why doesn’t the 'confidentiality' or 'fiduciary' clause apply while publicising the names of common borrowers?"
"Further, while Central Bank of India is not even sharing names of big defaulters, it appears that the bank recovered bad loans from small borrowers in every way possible and there may not be any need to write off these debts.
"In addition, for small borrowers, the bank auctioned their properties by publishing all their details in newspapers. Why is the same treatment not given to big defaulters? Why this discrimination against small borrowers by the bank?" he asks.
Technically speaking, when debts are written off, they are removed as assets from the balance sheet because the bank does not expect to recover payment. This practice is frowned upon by experts but is routinely done by banks as part of their tax management clean-up process. The beneficiaries are invariably some of our biggest industrialist defaulters.
In contrast, when a bad debt is written down, some of the bad debt value remains as an asset because the bank expects to recover it.
"Basically, there is no control on banks either by the Reserve Bank of India (RBI) or the finance ministry," Mr Velankar says, adding, "In fact, since these are written off debts and are no longer part of the balance sheet of the banks, nobody really keeps an eye on this and banks are taking undue advantage of this. It also shows how these PSBs that talk big about transparency are in reality more keen on hiding things from public view."
As reported by Moneylife
, several banks and financial institutions are using all possible ways and means to keep their records hidden from public view.
Last week, the Supreme Court rejected a plea to hear a review-petition filed by several public and private sector banks seeking exemption from disclosing any information related to their customers, trade secrets, risk ratings or any unpublished price-sensitive information under the RTI Act.
A bench led by justice SA Nazeer observed that fresh petitions will be heard by the original bench led by justice L Nageswara Rao, which had dismissed a joint plea by the Central government and 10 banks seeking a recall of the judgement in the Jayantilal N Mistry case of 2015. At that time, the apex court had asked RBI to disclose inspection reports of banks as well as details of wilful defaulters on the grounds that the central bank had no fiduciary relationship with the banks.
Noted RTI activist Subhash Chandra Agrawal says, "It is indeed unjustified that the Supreme Court verdict of the year 2015 has not been implemented by RBI even after about six years now in the 2021 resulting in continuing malpractices of banks where big loan-defaulters escape even by one-percent One-Time-Settlement (OTS) for big ones involved in scams mounting to thousands of crores of rupees, with many of them escaping the country by erecting big empires in other nations, while small loan-defaulters face all types of inhuman torture."
"RBI should follow the Supreme Court verdict of 2015 by putting all banking-information under section 4(1)(b) of the RTI Act including also the inspection reports, list of defaulters and details of one-time-settlements on the website to save public money being grabbed by big sharks so that people and the media may know of the favouritism being extended to big defaulters in terms of negligible OTS rate of just one-percent. OTS system should be uniform for big and small defaulters," Mr Agrawal added.
In the Reserve Bank of India vs Jayantilal N Mistry case
, the Supreme Court had said, "In the instant case, the RBI does not place itself in a fiduciary relationship with the financial institutions (though, in words it puts itself to be in that position) because, the reports of the inspections, statements of the bank, information related to the business obtained by the RBI are not under the pretext of confidence or trust. In this case neither the RBI nor the banks act in the interest of each other. By attaching an additional 'fiduciary' label to the statutory duty, the regulatory authorities have intentionally or unintentionally created an in terrorem (serving or intended to threaten or intimidate) effect.”
“Furthermore, the RTI Act under Section 2(f) clearly provides that the inspection reports, documents etc. fall under the purview of 'Information', which is obtained by the public authority (RBI) from a private body,” the apex court observed.
In the judgement, SC had conclusively stated that, “As in this case, the RBI is liable to provide information regarding the inspection report and other documents to the general public.”