Banks Will Now Publish Photo of Loan Defaulters

Banks to publish photos of loan defaulters in newspapers --  Business Standard

The action will be taken if loans not cleared within 15 days of issuance of notice

Adopting a name and shame policy to make borrowers pay their dues, banks have decided to publish in newspapers photographs and details like names and addresses of wilful loan defaulters and market leader SBI has taken the lead in doing so.
 
Besides, banks would also publish photographs, names and addresses of guarantors of such defaulters in newspapers if the dues are not cleared within 15 days of the notice containing particulars of the original borrowers.
 
Some banks have also decided to prominently display the photographs and other details of the wilful loan defaulters at branches in the locality of such borrowers, a senior executive with a leading bank said.
 
Taking the lead, State Bank of India (SBI) has begun publishing photographs and other particulars of such defaulters and has published one such public notice in newspapers for five defaulters in the national capital.
 
These persons had taken export credit loans of Rs three lakh each and their outstanding amounts were in the range of Rs 2.6 lakh to Rs 2.93 lakh.
 
Executives at many other banks said that they would also publish the photographs and other details of their wilful defaulters in local newspapers circulated in areas of residence of such persons.
 
As per RBI's regulations, wilful defaulters are mostly those who are found to be engaged in deliberate non-payment of dues despite adequate cash flow and good networth.
 
Besides, banks can also classify defaulters as 'wilful' if the loans are utilised for purposes other than those previously stated, funds are siphoned off from the bank-financed activity, records are falsified, securities are disposed of without bank's knowledge and the borrower indulges in fraudulent transactions.
 
RBI has already put in place a system to disseminate credit information pertaining to wilful defaulters for cautioning banks and financial institutions, so that any further bank finance is not made available to such borrowers.
 
Now, banks have decided to make public the photographs and other details of wilful loan defaulters through newspaper notices, so that such borrowers clear their dues. Besides, banks also expect such notices to act as a deterrent for others against any loan defaults.
 
In one such notice, SBI said that names and photographs of the guarantors of those defaulters would be published in newspapers if these borrowers do not clear their dues within 15 days of the publication of notice.
 
The bank also warned other defaulters that "their photograph may be the next to be published after completion of necessary formalities, if the dues are not cleared immediately".
 
RBI has also asked Credit Information Bureau India Ltd (CIBIL) to publish a list of wilful defaulters involving defaults of Rs 25 lakh and above.

http://www.business-standard.com/article/finance/banks-to-publish-photos-of-loan-defaulters-in-newspapers-113031000140_1.html

Indian Banks Find New Ways to Shame Debtors

In a rather surprising move, public sector banks in India announced plans to shame bad debtors by publishing their pictures in the newspapers. According to officials from the Reserve Bank of India, such bad debtors are those who have sufficient funds to repay their debts, and a good monthly income, but they deliberately postpone fulfilling their duties.

This is a response to the continuous trend of bad loans which seems to affect all the banks in the country, and officials hope it will help reduce the value of the outstanding debts, and therefore reduce the lenders’ expenses and allow them to provide worthy loans to those who deserve them.

Just one of the tools of the trade

Without any doubt, the banks already have a lot of tools they can use to recover outstanding debt, and the most powerful such tool is the interest rate itself: the longer you owe money to the bank, the more you will have to pay back, eventually. In addition, there is the credit worthiness system, used all over the world, which is generally based on the FICO score for each individual customer. Failure to repay the debt on time leads to a serious drop of the score, for a period of up to seven years. In turn, a lower score blocks the client’s access to new loans, or at least to new worthy loans, and they are stuck with the expensive bad credit loans.

The lenders have the option to reject a loan application, or to require collateral, or to ask for co-signers – usually, they take a lot of preliminary measures to insure that the borrowers can and will repay on time. And, if everything else fails, there is also the possibility to send outstanding debt to collection agencies, which are quite efficient in recovering everything that can be recovered.

Whose responsibility is it?

Obviously, nobody supports the idea of not repaying the loans. Taking a loan without any intention to repay it is just as bad as stealing money out of somebody else’s pockets. But a loan is a contract with two parties, and the lender should be just as responsible as the lender when entering such an agreement. Banks have to take a lot of precautions and insure that the lender can repay the loan – this is what differentiates a legitimate lender from a predatory one. Maybe, just maybe, they should analyze their own procedures before putting all the shame on the bad borrowers.

Of course, there are plenty of questions still pending in the case of Indian banks. For instance, will the newspapers publish the photographs of the offenders as a public service, or will the banks have to pay in order to get the pictures published? And, if they have to pay, will it be the regular fee for an advertisement in the newspaper? Because, if this is the case, the costs can be expected to skyrocket, and it might be cheaper for the banks to simply reorganize their collection departments.

This is a delicate campaign, and the banks’ marketing departments have to prepared to handle possible slip-ups that might have severe consequences for the image of the banking system as a whole. For example, will they publish the pictures of all their bad borrowers? If so, the public will surely lose interest quickly; moreover, there is strength in numbers, and, if there are too many pictures published, people might start thinking that it’s only natural to have delinquent debts. If they decide to single out just a handful of people, there is a serious risk of selecting a person who has a serious reason for the debt, for instance, a recent death in the family, a period of financial problems, and so on – and the banks will appear a completely soulless to other potential customers (not that soul and bank are two words usually associated anyway)