Banks seek stricter norms for reporting on wilful defaulters

Banks have urged the Reserve Bank of India (RBI) to amend the norms for reporting on wilful defaulters and non-performing assets (NPAs). They said to prevent defaulters from taking fresh loans from other lenders, reporting to RBI and credit information companies should continue even after NPAs were sold to asset reconstruction companies.

Banks and financial institutions can’t grant additional facilities to those listed as wilful defaulters. Also, those identified as having siphoned or diverted funds or involved in fraudulent transactions are barred from securing institutional finance.

Senior public sector bank executives said there was apprehension the banking system would be misused by wilful defaulters after banks stopped reporting about them. Continuing such reporting would help asset reconstruction companies recover dues from the assets acquired by them and, consequently, redeem security receipts, they added.

After the asset quality of lenders was hit by the economic slowdown, risks of a hit to loan books emerged. Also, various sector-specific concerns have come to light, especially in the power, roads and airline sectors. Exposure to certain group firms with excessive leverage has also hit asset quality.

Through the past three years, the credit quality of banks in India has deteriorated sharply. Gross NPAs increased from 2.4 per cent of gross advances in March 2011 to 4.4 per cent in December 2013, before improving to 4.1 per cent in March 2014.

Banks, through the Indian Banks’ Association, have also urged RBI and credit information companies to maintain a database of wilful defaulters. Any addition or deletion from this database should be carried out only after receipt of information from banks that had reported the wilful default, banks said.

Considering the threat of NPAs and wilful defaults, the scope of reporting could also be extended to regional rural banks, local area banks and non-banking financial companies (NBFCs), they added.

A senior NBFC executive said so far, NBFCs weren’t part of the reporting framework, but the new guidelines for early detection and resolution of stressed assets had seen a start in this regard.

From April 1 this year, NBFCs had to inform RBI of loans for which payments were due for 31-60 days (special mention account 1, or SMA1, category) and 61-90 days (SMA2 category). Also, these entities had to be part of a joint lenders’ group set up to frame a corrective action plan for borrowers.

Finance companies are still not required to declare borrower who is defaulter as willful defaulter and report it to the regulator.