Hail Crackdown on ‘Willful Defaulters’

By Sunil Dang

The Supreme Court on August 10th, refused to accept Sahara chief Subrata Roy’s plea to put on hold the auction process of the group’s project Aamby Valley in Pune, Maharashtra. During the hearing, senior advocate and Upper House lawmaker Kapil Sibal, appearing for Subrata Roy, said that the auction process should be put on hold till September so that his client could arrange Rs 1,500 crore to be deposited into Sebi-Sahara account. The Sahara Group had earlier sought 18 months’ time to repay around Rs 9,000 crore balance amount of the principal amount of Rs 24,000 crore. Sibal, however, had said that according to the group, the remaining amount was around Rs 8,000 crore and it had made all efforts to deposit the money. Taking such a strong action against Sahara Shree deserves praise, especially the Supreme Court Counsel who has been handling the case and exposing the intention of Shahara Shree’s objective to gain time and delay the payment process.

Sahara like treatment has to be taken against people like Lalit Modi, Vijay Mallya and other willful bank defaulters too. Crackdown on some bankers won’t help the government to recover the bad loan amount whish runs in thousands of crores. Even though Vijay Mallya has been absconding in London, the government of India can initiate process of selling out Mallya’s properties in India. The properties belonging to Vijay Mallya may not be enough to fish out the bad loan amount (around Rs 9,000 crore) but it would certainly hurt Mallya and may force him to come to India. Similar, stringent step needs to be taken against Lalit Modi, who is hiding overseas to evade punishment with regard to alleged charges of economic offence.

At the same time, bankers need to understand while chasing their target of loan disbursal; they shouldn’t approve loans to companies on their face value because it’s the health of the company balance sheet that would determine the repayment of loaned amount not the company owner’s face value. Ironically, bankers are helping the loan defaulters through debt restructuring rather penalizing them for non-payment of loans. Recent case of JP Group getting relief in Rs 4,460 cr bad loan last fortnight would further damage the government repute.

The finance minister Arun Jaitley is quite right when he says, “The delay in enacting the Banking Regulation (Amendment) Bill which seeks to empower the Reserve Bank of India to direct lenders to act against big defaulters is hindering the banks’ capacity to support growth.” The delay in resolution of NPA (non-performing assets) is impacting the capacity of banks to lend to support growth and lend to small investors. NPAs of banks have risen to over Rs 9 lakh crore and the RBI is now being given power to refer these cases to the Insolvency and Bankruptcy Board. And the situation become further appalling when the willful defaulters like Sahara Shree, Vijay Mallya and others began defying the Supreme Court reprimands and notices indicating they keep the system in their pockets and they can force the system to act the way they want. So, Supreme Court’s strong ruling in Sahara Shree’s case should serve as a good indication of the future line of judiciary action. In fact, it should be beginning of the end of these willful defaulters who have made habit of hiding after galloping public money via bad loans.

So, the Banking Regulation Amendment Bill is a step in right direction. The bill has provisions empowering the RBI to issue directions to banks for resolution of stressed assets. The sectors most responsible for the accumulated NPAs are steel, power, textiles and infrastructure. In July, the RBI identified 12 large loan defaulters who account for 25 per cent of the total NPAs, or bad loans, in the banking sector. Action has already begun under the Insolvency and Bankruptcy Code against some of these defaulters, including Essar Steel, Bhushan Steel and Bhushan Power and Steel. However, it would be an icing on the cake if our bankers comply the Supreme Court’s suggestions to release the list of bank loan defaulters relaxing their KYC norms for special cases.

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