While common borrowers are harassed for recovery of smaller loan amounts, when it comes to big borrowers, banks are often found giving preferential treatment to these defaulters. Nor are the banks willing to part with information regarding these write-offs. In fact, of the 10 public sector banks (PSBs) about which Moneylife wrote, only one lender, namely, the State Bank of India (SBI), had revealed names of big defaulters whose bad debt was written off and not too impressive efforts were made to recover the dues.
Indian Overseas Bank (IOB) has now shared the list of its big defaulters, who have borrowed Rs100 crore and more, which were written off from its books.
Information shared by IOB to Pune-based Right to Information (RTI) activist Vivek Velankar reveals that as on 31 March 2020, the Bank wrote off Rs17,821 crore and recovered just Rs102 crore or 0.5% from 66 big defaulters. These big defaulters, whose loans were written off, include Bhushan Steel & Power Ltd (Rs1,274.97 crore), ABG Shipyard Ltd (Rs693.62 crore), IL&FS Financial Services (Rs499.97 crore), Vadraj Cement Ltd (Rs521.8 crore), Lanco Infratech Ltd (Rs510.32 crore), IVRCL Ltd (Rs615.39 crore), Lanco Amarkantak Power Pvt Ltd (Rs875.94 crore) and Frost International Ltd (Rs841.03 crore).
Earlier, when Mr Velankar had asked IOB to reveal details of bad loans written off and the status of their recovery as well as the names of big defaulters with a loan amount of Rs100 crore and above, the Bank had refused to share this information under the RTI Act and had instead asked him to find it out for himself from the Bank’s annual reports.
However, since IOB refused to share names of big defaulters, Mr Velankar, who is also president of the Sajag Nagrik Manch, had filed his first appeal under RTI. In an order, KN Manorama, general manager and first appellate authority (FAA) shared the list of big defaulters whose loans were written off by the Indian Overseas Bank.
The list shared by the FAA shows that, of the 66 big defaulters, IOB could recover a fraction of the amount from only 16 of them. Shockingly, some borrowers have repaid just Re1 or Rs2 against their huge debt that was written off. For example, IOB wrote off Rs615.39 crore bad debt of IVRCL, but recovered just Re1 as per the list provided by the FAA.
An aggrieved Mr Velankar says, "Isn't this a mockery of the banking system? And these are the big borrowers, who are not bothered to repay any money and banks like IOB wanted to protect their identity by not sharing names under RTI. Why are banks protecting such defaulters?"
"This also shows that banks are reluctant to follow rules and laws passed by the union government to recover loan amounts from big borrowers. In fact, banks are more interested in writing off loans of these big defaulters so as to show a smaller amount under non-performing assets (NPAs). May be there is a nexus among bankers and these defaulters resulting in banks not showing much interest in recovering written off debt. Also, since these written off loans are not part of the balance sheet, nobody even looks at them. This method of writing off loans is being rampantly used by banks and both the finance ministry and the Reserve Bank of India (RBI) need to take strong action against banks indulged in such practices," Mr Velankar says. The rest of the big defaulter have not repaid a single rupee to Indian Overseas Bank.
Here is the list of defaulters who repaid some fractional amounts to IOB against the written off loans as on 31 March 2020...
As reported by Moneylife, over the past eight years, 10 PSBs wrote off Rs3.85 lakh crore and recovered just Rs43,592 crore from big defaulters.
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 followed 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.
Such write-offs also debunk the aggressive posturing by the government and policy-makers about their so-called recovery efforts.