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Bank Loan Defaulters – How Indian Banks Handle This?

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Bank Loan Defaulters

The Kingfisher king is not alone. Since long, corporate giants and other super-duper rich Indians are eventually stealing from the country. They have borrowed huge money from Indian banks and are not repaying it.

Manipulating the banking system and the law they easily prove that they are incapable of returning the loan while in actual, they are sitting on top of their billion dollars worth empires. And the irony is that middle and lower-middle classes, who are in real need of loans, actually struggle to get one.

Current Concern

Statistics show that around 75% of total unpaid loans of Indian banks were granted to the ultra rich businessmen of the nation. Such loans are triggering the Non-Performing Assets (NPAs) of banks, both public and private.

The worst hit is State Bank of India (SBI). In the present fiscal year, Rs. 20,692 of its loans has turned bad. Most of the banks’ balance sheets look really bad.

Such a serious situation doesn’t arise overnight. The Supreme Court (SC) points to the lack of efficiency on the part of the banks and financial institutions in loan sanction and monitoring. Unfavorable business conditions of Public Sector Banks (PSBs) put immense pressure on government reserve and the SC now demands a complete list of loan defaulters.

Banks’ Initiatives

Traditionally, banks’ treatment towards loan defaulters has been very polite. In fact, Reserve Bank of India (RBI) was conservative letting banks take harsh measures for loan recovery. Banks usually emphasized on loan restructuring as a means of getting the money back. However, restructuring only didn’t help much.

The situation now is enough complicated and it is the time to start taking actions. Realizing that, PSBs have sought legal assistance. Bank authorities are now filing FIR against the willful defaulters and seeking other legal actions against the habitual defaulters also.

Finance Ministry and RBI, both have given full freedom to banks to deal with the defaulters in their own way. Banks can even take over a business if its owner defaults a loan. However, such equity control doesn’t seem to be a very good solution. Banks will then end up investing public deposits in some companies actually on the verge of bankruptcy.

Banking Sector Reforms

On 7th May 2015, RBI has issued the Framework for Dealing with Loan Frauds. It includes detailed guidelines for banks to treat the defaulters and to improve their financial health. Some of its highlights are:

  • Prompt reporting of fraud accounts.
  • Carrying out forensic audit before considering a default case for Corporate Debt Restructuring.
  • Independent and transparent selection of third parties like financial analysts, verification agencies etc.
  • Devising a sound NPA monitoring system.

Top 25 Loan Defaulters in India* 

Rank Defaulter Unpaid Loan Amount
1 Kingfisher Airlines More than Rs. 2650 crore
2 Winsome Diamond & Jewellery More than Rs. 2650 crore
3 Electrotherm India Ltd. More than Rs. 2200 crore
4 Zoom Developers Pvt. Ltd. More than Rs. 1800 crore
5 Sterling Biotech Ltd. More than Rs. 1700 crore
6 S. Kumars Nationwide Ltd. Around Rs. 1700 crore
7 Surya Vinayak Industries Around Rs. 1500crore
8 Corporate Ispat Alloys Ltd. More than Rs. 1300 crore
9 Forever Precious Jewellery and Diamonds More than Rs. 1250 crore
10 Sterling Oil Resources Ltd. Around Rs. 1200 crore
11 Varun Industries Ltd. Around Rs. 1130 crore
12 Orchid Chemicals & Pharmaceutical Around Rs. 940 crore
13 Kemrock Industries and Exports More than Rs. 900crore
14 Murli Industries and Exports Ltd. Around Rs. 900 crore
15 National Agricultural Cooperative Marketing Federation of India More than Rs. 850 crore
16 STCL Ltd. More than Rs. 850 crore
17 Surya Pharma More than Rs. 700 crore
18 Zylog Systems (India) Ltd. More than Rs. 700 crore
19 Pixion Media Pvt. Ltd. More than Rs. 700 crore
20 Deccan Chronicle Holdings Ltd. Rs. 700 crore
21 K.S. Oil Resources Around Rs. 700 crore
22 ICSA (India) Ltd. Around Rs. 650 crore
23 Indian Technomac More than Rs. 600 crore
24 Century Communication Ltd. More than Rs. 600 crore
25 Moser Baer India Ltd. & Group Companies Around Rs. 600 crore

Data Source: All India Bank Employees’ Association (AIBEA), June 2014.

* Data on bad loans of PSBs except SBI, IDBI and overseas banks.

Final Notes

Worldwide, banks have always been very strict towards their loan defaulters. For example, in UAE, a loan defaulter is eventually punished with the central bank blacklisting and international travel ban. In case, the defaulter leaves the country the matter is passed to the Interpol.

Then why in India bad loans have become such a big issue? Definitely, banks have to be proactive in terms of policy making and implementing. But a supportive role from the judiciary system is vital.