A willful default would be deemed to have occurred if any of following event have taken place
The unit has defaulted in making it payment /repayment obligation to the lender even if it has the capacity to honour the repayment obligation.
The unit has not utilized the finance from the lender for the specific purpose for which availed finance from the lender but diverted it for other purposes.
The unit has siphoned off the fund so that the fund has not been utilized for the specific purpose for which the fund was availed of and neither there is fund available with the unit in form of other assets.
The unit has disposed off or removed the movable fixed asset or the immovable property given by him or it to lender for the purpose of securing the term loan without the knowledge of the bank / lender.
What is Guidelines issued By RBI:
In line with RBI guidelines issued in May 2002, PSU bank issued a circular to all its branches and offices to ensure that all bad accounts with exposure of Rs.25 lac and more outstanding which are willful defaulters as per RBI norms are reported to central office in a prescribed format and such report had to be submitted on quarterly basis .
Consolidated report of each bank is then submitted to RBI for suitable action and advice. But in fact, majority of branches ignored the circular or submitted one or two accounts in the report just to appear as if they have examined all accounts and found all other bad accounts as victim of natural failure or economic recession etc. Only a few accounts like Kingfisher appeared as willful defaulters. RBI never took pain to verify correctness of such reports.
Level Of Compliance :
And it is astonishing that RBI also remains silent spectator on all such quarterly reports. They simply receive the report as a ritual and file it. Normally it is the culture in majority of offices. Perhaps this is the reason that during last 14 years ,not even 1400
And most unfortunate and painful part of the story is that concerned banks have failed to satisfy the court or RBI that their act of treating the accounts of Kingfisher is genuine and as per norms. Till date , all concerned banks have failed to recover the money from Kingfisher though every banker know it very well that promoter of Kingfisher is having sufficient means to repay the bank’s dues.
This is because RBI or bank management or administrative offices or legal machineries, all are victim of bribery and flattery and hence they all are mostly very casual in discharging their duty. They act as government servant and want safe exit from bank. They do not want to invite additional work burden and do not want to face the torture in court of law or face indirect slap in the hands of bosses. This is why money could not be recovered from majority of willful defaulters even though their name have been reported on quarterly basis to all concerned.
Real test of bank officers should be based on quality of lending but unfortunately it is usually done based on volume of lending, even if voluminous lending by a Brach head or Regional head or bank head causes huge loss to bank in the long run.. This is why thing do not move in right direction all the time.
RBI issues guidelines for recognition of willful defaulters out of list of bad borrowers or NPA borrowers, but do not take pain to suggest practical remedial steps in consultation with appropriate government departments to ensure that banks do not face any difficulty in recovering money from such willful defaulters.
RBI and Government of India as a matter of fact do not control on their own officials and courts of law as they appear to control on bankers. This is why lacs of cases pertaining to bank recovery related to various banks remain pending in courts of law in various parts of the country for years and decades. Even office of Debt Recovery Tribunals called as DRT failed to act as per their established and defined motto in recovery.
It is first time and first PNB bank which has at least courageously declared that there are 904 willful defaulters involving a sum of Rs.11000 crore. I term the act of PNB as courageous because in the past, none of public sector bank including State Bank of India even took it necessary to declare a really willful defaulter as willful defaulter.
Though RBI has issued several guidelines in the past for loan account to be treated as willful defaulter, it is bitter truth that neither bank management nor RBI really want that they speak spade a spade. This is why each PSU bank has declared only a few accounts in the category of willful defaults just to show RBI that they have complied with RBI instruction.
And RBI also never take trouble to verify the veracity of such reports which are submitted by each PSU bank periodically as per need of RBI. Window dressing in banks is very commmon and RBI knows it very well. RBI completes it duty by issuing guidelines on every matter and Bank management in turn issues circular to all branches and gives a certificate of compliance to RBI. In this way both become safe .
It is in common interest of all, bank management, RBI and defaulting borrowers that bank officials consider it safe and comfortable to hide bad accounts as much as possible. Because as soon as a loan account is treated is put in NPA category bank officials have to initiate steps for recovery of the same. And if the account is declared as willful default, bank has to take immediate and stringent legal action for recovery of defaulted amount, even if it needed sale of hypothecated or mortgaged properties. Such painful steps annoy borrowers and the chain of gifts distribution gets broken causing loss to many officers involved. Similarly RBI remains in deep slumber as long as bank management say that they are healthy, their assets are standard and they are earning profit.
Not only this , bank management use to conceal willful defaults under the umbrella of economic recession or global recession or natural constraints to avoid carrying out exercise of staff accountability to fix responsibility on erring officials .
In fact bank management in general (birds of same flock together in offices ) to protect erring bank officials who in greed of gifts sanctioned loan to bad borrowers or who failed to properly monitor their advance portfolio or who failed to take necessary steps to contain willful default or who protected willful defaulters to earn some more bribe in lieu of it or who concealed it willfully so that he or she may get safe retirement or his friends at top may be bid farewell without any punitive action for committing fault of omission or commission.
In most of cases it is top officials or VIP s from important offices who use to build pressure on juniors for making finance to big borrowers and hence as soon as the lower officials declare as bad loan as bad loan, all guilty have a possibility of getting exposed.
It is also true that there may be still thousands of other bad accounts which should also have come category of willful defaulter as per RBI norms and action should have been initiated long ago against erring borrowers. I do not agree to information that there are only 904 accounts in PNB which are coming under category of willful category.
In fact they might have decided a cut-off point that they will in the beginning declare only those accounts as willful defaulters where default is more than, say Rs. 5 crore or Rs.10 crore or Rs.100 crore. At least , top officers of PNB has thought it fit to declare 904 accounts as willful defaulters and now they will initiate legal action against 904 borrowers and it will have definitely a positive impact on other willful defaulters.
I therefore praise this act of PNB management that at least they have initiated the process and I hope other banks will also now follow the suit. It is in the larger interest of bank as well as in the interest of bank staff, bank investors and bank borrowers that timely action is taken for detecting bad borrowers and for recovery of dues from bad borrowers.
I praise Chief of Bank of Baroda that they declared all hidden bad accounts in their quarterly result ending December 2015 even if the bank incurred a loss of about Rs.3500 crore. I have also seen news in newspaper that other banks including SBI Chairman has promised to declare all bad debts in quarterly and final result for the year ending March 16.
Though I doubt that top management of PSU bank and SBI will have so much courage to keep their promise and abide by RBI in true spirit. And if they do so honestly, I think it will have devastating effect on bank’s financials and bank’s health as also on entire stock market and then on Government of India.
Lastly I appreciate that SBI Chairman informed a few days ago that they will now sanction loan for a project only after strict scrutiny of the project from all required angle of consideration.
As a matter of fact , real transformation of bank does not lie in declaration of hidden bad debts as Non-performing assets and then recovery of money from defaulters , but it lies on improvement of quality of lending , it depends on quality of manpower, quality of recruitment and promotion and it depends on quality of support it receives from administrative offices as well as from judiciary.
And the most important is that fate of banks depends largely on politicians who rule this country or who oppose a ruling party. Because it is politicians in general, who have exploited banks for their self- interest and for their vote bank. It is they who are responsible for polluting work culture in bank, for spoiling recovery culture by forcing loan waiver or compromise policy on banks and damaging loan processing processes by building undue pressure on banks for achieving an unachievable target fixed by them for each banks.
It is these politicians who appoint ED and CMD based on bribery and flattery. It is they who promote false and manipulation in balance sheet and false certification form team of Chartered Accountants.
Root cause of all bad lending emanates from fabricated and concocted financial statement cooked up by greedy Chartered Accountants. It is these CAs in our country who teaches improper lending and ways for tax evasion to all business men.
NPA in 1983, defaulter in 2010!--It is astonishing for common men that a NPA loan of 1983 is treated as willful default in the year 2010. But for a banker who knows the ins and outs of the bank , it is established culture to hide bad loan as long as possible . They hesitate and fear in even putting a NPA account in the catgory of willful defaulters because it may expose misdeeds of some of top officials and it may increase their work load too.
Wilful defaulters may be the flavour of the season but they've been around for more than three decades, reports Shakti Patra in Mumbai-Financial Express-23.02.2016
Wilful defaulters may be the flavour of the season but they’ve been around for more than three decades, reports Shakti Patra in Mumbai. Bank of Baroda, for instance, has an account that was recognised as a non-performing asset (NPA) way back in December 1983, but the borrower was declared a wilful defaulter only in March 2010. But, for the most part, lenders have been quick to call a spade a spade:
Typically, a wilful defaulter is labelled as one within six months of the exposure turning toxic.
Not all banks are equally candid about these accounts: Dena Bank, United Bank of India and Punjab & Sind Bank, for instance, have just disclosed the names of the defaulters but not the dues.
Read full news in following link
SBI's Rs 11,700 crore locked as bad loans with wilful defaulters-Economic Times-25.02.2016
The bank had identified 1,164 cases of wilful default with outstanding loan amount of Rs 11,705 crore, as on September 2015, as per data collated by the Finance Ministry.
Read more at:http://economictimes.indiatimes.com/articleshow/51123764.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
Latest News Related to Banking are as follows
It is because government is already facing a challenge to reduce fiscal deficit . Fiscal deficit arises when total of expenditure exceeds total of revenues and receipts and non-debt capital receipts . If health of bank further deteriorates, government will need to infuse more and more capital to keep banks safe , risk-free and basleIII compliant. But the fact is that government find it very difficult to increase revenue whereas there is huge pressure for more and more increase in expnditure.
The standing committee on finance says a surge in bad loans raised questions about the credibility of the systems in place to deal with the issue
A parliamentary panel on expressed dissatisfaction over the management of bad loans by the central bank and commercial banks. It said that surge in non-performing assets (NPAs) raised questions about the credibility of the systems in place to deal with the issue.
The committee noted with “deep concern” that in spite of various measures taken by the government and RBI, “the NPA problem confronting the financial sector and threatening the stability of the banking system seems far from over”.
Standard Chartered Bank posts first global loss in 26 years on $1.3bn India hit-Times of India 25.02.2016
StanChart, which is a lender to large corporate groups with exposure to commodities (like Essar), has reported a $981-million (Rs 6,728-crore) loss from its operations in India, down from a profit of $561 million in 2014. This is the biggest ever loss posted by a bank in India.
Why Raghuram Rajan's NPA move may either bring Indian banking to life, or push it into a coma
Matters have come to such a head that the Reserve Bank of India Governor Raghuram Rajan's zeal to clear the mess that's hobbling the economy by March 2017 has divided the house in the middle. His surgery may either bring Indian banking back to life, or push it into coma
It is observed by a banker that companies have operating profits which are much lower than what are needed to cover their interest, which means that they are still getting loans from banks to service their interest and keep their loans alive. So, we think that the RBI has not been stringent enough
Governor's advocacy of surgery may appear to be an option, but it comes with some immediate costs. Banks are reporting record losses and are on course to record more in the coming quarters as they race to complete the exercise by March 2017. The Indian industry, which is not used to this kind of shock treatment, is resisting it. Bankers say public perception is turning adverse.
My views of news of merger of banks
Government of India through various Finance Ministers has always put thrust on merger and acquisition of banks to save them from probable disaster. This is not new suggestion by current Finance Minister Mr. Arun Jaitley but it has been suggested several times by FMs during last three decades .
In my view , merger of banks is not at all the permanent solution to cure the critical health of PSU banks . Health of banks has been deteriorating year after year only due to ill-motivated policies of the government and due to bad execution of good policies by bankers in nexus with bad borrowers and bad politicians.
Ruling class never took any serious step to stop rise in bad assets , rather they always added more and more bad assets to gain political advantage for their respective parties. PSU banks have been exploited by almost of past governments.
Present government and present Governor RBI are at least trying their best to clean the balance sheet of PSU banks and they have been trying to know the hidden volume of bad assets so that at least from now onwards remedial steps may be taken .
Solution lies in improvement of quality of recruitment of officer in banks, improvement of promotion process to stop reign of bribery and flattery , stopping political leaders who exploit bank for their vote bank, stopping practice of loan waiver, stopping practice of government in forcing banks to promote compromise settlement, stopping loan mela culture, improving efficiency of judiciary in dealing with cases of banks related to recovery and improving the quality of processing of loans by stopping target oriented lending.
How to deal with NPA and how to reduce NPA are explained below in brief:---
By improving following key points bank may contain creation of NPA to a great extent.
I am submitting below copy of my blog which I wrote in the year 2009 link of which is as below
Here the million dollar question arises whether Late Indira Gandhi had nationalized banks to compete with International banks, whether banks are meant to extend credit in thousands of crores to a few hundred merchants or manufacturers only?
Have government forgotten the social objective of banks completely?
Is it possible for a government to survive by discarding the interest of common men, farmers, small traders in India?
Is it necessary for India to have bigger banks to extend credit to farmers and small traders who together constitutes 95% of population and without whose support even economic viability of large projects would be at stake?
It is important to mention here that there is sharp rise in loan portfolio or visible growth in advances of banks in general is not due to financing made by banks to small traders and farmers but only due to bulk financing made to big corporate houses, to real estate developers and to infra structure developers.
Does any one in the government or in RBI mean that by merger and enhancing powers of banks, there will be equitable GDP growth in country like India?
Even in America where big banks are many, one out of every seven Americans starves and struggle for earning their bread and butter for at least survival. In India the position is worse than that in USA. In India nine out of every ten Indians are unable to earn sufficient money even for respectful living. Considerable large proportion of Indian population is suffering from mal-nutrition; they die of curable diseases in want of proper medical assistance and they remain unemployed in want of adequate opportunities. This is India where even federal structure of the country is at stake due to largely growing unemployment and where person like Raj Thakre has been trying hard to disallow Non-marathi to seek employment in Maharashtra and Shiv Raj Chouhan CM says he would not employment to Biharis and North Indian in the state of MP. Besides in majority of villages, small towns and cities there is no proper sanitation facilities, acute scarcity of water and electricity, crisis for medical treatment and what not. This is why I reiterate that Indian environment is different from other developed nations and hence need unique treatment.
It is worthwhile to add here that USA government have realized after fall of big banks and financial Institution during last year that management of big banks is very difficult compared to smaller ones. Still there are about 8000 smaller banks functioning in USA to serve common men. It is also true that 125 banks became bankrupt or closed their shutters during the current year in USA.
If we talk of India we have less than 30 public sector banks and they are said to be in better health position. They are well scattered in every nook and corner of the country to serve Indians in general. They have to be encouraged to extend maximum help to small borrowers.They cannot extend any better help to poor person after merger of banks.Then what is the need of merger and acquisition? Why is government bent upon merger Need of the hour is to make them able to cater to the needs of common men.
Even if government feels the necessity of having large banks with huge capital to compete with foreign banks, they can choose to have one or two like SBI or PNB (after merger of SBI with associate banks I think capital size of SBI will be comparable with their foreign counterparts and similarly after merger of PNB with some suitable bank),At least other banks should be left untouched to serve common men and forget big projects, bulk financing, corporate borrowers completely and concentrate only on small and mid size borrowers i.e. credit upto ten lacs.
Even if we leave aside the social objective,it is not commercially proposition to build pressure (frequent request by FM or RBI is enough to build pressure) on banks to go for merger and acquisition especially when government have granted economic freedom to individual banks in the era of economic reformation , liberalization and globalization When need will arise banks will themselves strive hard to grow bigger to survive. As of now banks in India are said to be safer than foreign banks. Even government has admitted it repeatedly.
Inspite of all,if government still consider it better to go for merger , I would like to suggest our Finance Minister to merge all PSBs including SBI and make them one entity like Income Tax department and other departments of Government of India so that there be no unwarranted interest rate war, no case of multiple financing, no case of take over at the cost of bank’s interest and no unhealthy competition as prevalent in banking industry. There will be unified effort to recover the money from recalcitrant borrowers. Banks will be able to check money laundering in a better way .People will not get opportunity to park their black money in different branches of different banks.
Need of the hour is to strengthen the existing structure of banks, make them more and more efficient and enthusiastic. Government should make efforts for repayment of loan and for this purpose make water tight laws to ensure cent percent recovery of loan from willful defaulters so that proportion of dead money in bank’s balance sheet comes down and they can afford and generate will to make finance to common men. Present scenario is that branch manager of every bank’s branch is afraid of extending credit to small borrowers in fear of account going bad and lastly added to Non Performing Asset. Need of the hour is to avoid political intervention in banking affairs and to resort to healthy norms for financing without any fear of target achievement. To add fuel to fire every banks are suffering from staff shortage and as a consequence there is no monitoring on existing borrowal accounts and gradually service quality in banks at many branches is deteriorating in want of adequate staff. Banks are even unable to redeploy the existing surplus staff at Metro branches due to protest from powerful employees union.
Last but not the least; bitter truth is that big business houses are getting all sorts of help from the government, from the banks and from all corners but all at the cost of poor and middle family. Rich business houses are producing, hoarding and realizing maximum profit on their products and it will not exaggeration to say that the present trend of rising price is caused by these profit makers only. Government has been making promises and promises to control price, but always fail on this front because they have given undue freedom and undue privileges to these business houses. I hope government will make all best efforts to give relief to general mass who are subjected to unbearable pain on account of sharp price rise in all commodities without proportionate rise in their monthly income.
India is said to be suffering from naxalism due to increasing poverty and due to the fact that they are denied their legitimate right and they are even deprived of justice in proper time. Can merger and acquisition by banks help in ameliorating their problems of poverty ridden Indians? I would like to draw the attention of learned FM and PM that late Indira Gandhi (Congress Party) had nationalized banks because private banks were hesitant to extend credit to common men, villagers were deprived of banking facilities and common men was afraid of even entering in to bank. Private Banks were exploiting not only staff working in the banks but were also exploiting business houses. It will not be exaggeration to predict and say that the same Congress Party under the banner of UPA is dragging banking industry in pre-nationalization era.
Please keep in mind that during reformation era 23 banks were forcefully merged to bigger banks by government of India because they succumbed to malady and irregularity they accumulated, and not because they were small banks. Giant banks, Lehman Brothers, AIG failed not because they were big but they followed wrong policies and committed misadventure in delivery of credit and in making investments.
In India I doubt the honesty and integrity of government in their efforts for merger, acquisition and consolidation of banks because they know the quantum of malady and bad assets hidden behind the rosy balance sheets of PSBs.Otherwise there is no reason for providing capital infusion to various weak banks from time to time. It is their political agenda to save the banks from exposure of their reality when the misdeeds increases to such a large extent that it punctures the tyre of running banks. They are trying to divert the attention of public from inherent weaknesses of PSBs and this is why they are not agreeable to respectable wage revision of bank employees even after two year long dialogue with union leaders. Exodus of talented employees and non entry of well qualified person in PSB banks is also a vital reason behind growing weakness of Banks. On the contrary private banks like ICICI and HDFC banks have grown to such a large extent in last 15 years of their existence that even 100 year old PSBs are facing challenge for survival.
My other blogs on issue of merger are given in following links
The Government has taken several steps for quick disposal of pending cases. DoPT conducts quarterly meeting with CVC, CBI and other Central Government Ministries to monitor pending cases of sanction for prosecution and check delay in sanction for prosecution. A Committee chaired by Secretary (DoPT) also monitors the status of cases of sanction for prosecution on quarterly basis and takes necessary steps to resolve delayed cases expeditiously.
In respect of pending disciplinary cases in CVC, the Commission has taken up with the individual Chief Vigilance Officers (CVO) of the Ministries/ Departments/ Organizations concerned on the need for expeditious finalization of disciplinary proceedings. CVC is also monitoring the pendency of disciplinary cases by sending alerts through SMSs and E-mail to the concerned CVOs.
This was stated by the Minister of State in the Ministry of Personnel, Public Grievances and Pensions and Minister of State in the Prime Minister’s Office Dr. Jitendra Singh in a written reply to a question by Dr.Swami Sakshiji Maharaj in the Lok Sabha today.
The Committee in its report has recommended continuation of some posts in existing level, upgradation/ downgradation/ clubbing/ additional charge of some posts based on inputs received from various Ministries/ Departments and Central Vigilance Commission (CVC).
At present 151 posts of CVOs in CPSEs and other organizations falling under various Ministries/ Departments are filled by DoPT. The CVOs in CPSEs etc. are appointed after taking concurrence of CVC and the concerned Administrative Ministry of the CPSEs/ concerned organizations and with the approval of the Competent Authority. Whenever any situation arises where a vacancy of CVO cannot be filled up due to non-availability of suitable officers or any other exigencies, such posts of CVOs are operated on additional charge basis, till the time a regular CVO is posted, for smooth functioning of vigilance administration.
As and when a proposal for appointment of CVO is received from Ministries/ Departments, expeditious action is taken to fill up the vacancy.
This was stated by the Minister of State in the Ministry of Personnel, Public Grievances and Pensions and Minister of State in the Prime Minister’s Office Dr. Jitendra Singh in a written reply to a question by Shri K.N.Ramachandran in the Lok Sabha today.
In order to avoid delay in processing of such proposals due to procedural infirmities/ shortcomings/discrepancies in the proposals, DoP&T has switched over to Single Window System w.e.f. 01.08.2014 for accepting the proposals as per order No. 142/4/2012-AVD.I dated 28.07.2014. DoPT also conducts quarterly meeting with Central Vigilance Commission, Central Bureau of Investigation & other Central Government Ministries to monitor pending cases of sanction for prosecution and check delay in sanction for prosecution. Government has sanctioned 92 additional Special Courts across the country to dispose of prevention of corruption act cases expeditiously. Of these, 86 Courts have become functional.
This was stated by the Minister of State in the Ministry of Personnel, Public Grievances and Pensions and Minister of State in the Prime Minister’s Office Dr. Jitendra Singh in a written reply to a question by Shri Prataprao Jadhav and Shri Ram Tahal Choudhary in the Lok Sabha today.