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.
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.
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.
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.