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Mumbai: Reserve Bank of India (RBI) governor Raghuram Rajan on Tuesday defended the central bank’s position to keep names of large bank defaulters private, saying that such disclosures, if not seen in context, can “chill business activity".

Last week, RBI submitted the names of large defaulters to the Supreme Court, but requested the court to keep the names confidential. Explaining the central bank’s stance, Rajan said that publishing names of defaulters can lead to anxiety and panic within the system.

“...if simply any act of default, without understanding the severity or reasons, is put up for public consumption, it may result in a loss of business as well as undue anxiety and panic and therefore chill business activity," said Rajan at a press conference after announcing the first monetary policy review of the current fiscal year.

Rajan drew a comparison to disclosures on products like credit cards to explain his position.

“Sometimes you default on a credit card bill. Would you like that default to be put up in public? ...regardless of why you defaulted, if every time it happened it was put up in public for everyone, including your family and neighbours, to see and no reason was given, you might have some concerns, right," Rajan asked reporters.

Similarly, in case of larger borrowers, a multitude of reasons can affect the successful execution of a project, the RBI governor pointed out. Reasons can range from weak demand, low prices, dumping of resources by foreign countries and a delay in government permissions, to decisions by the judiciary negatively impacting business, Rajan said.

“Details are sometimes hard for a layman to fully understand because they are intricate," he added.

Rajan, however, said that the RBI had no issues with disclosure of names of wilful defaulters by banks. Some banks have disclosed such lists while others have been prevented from doing so by pending court cases.

“We have no problem if the intent is to publish a wilful defaulter list. That is where the promoter has, in the eyes of the bank, taken the bank for granted. The bank has gone through a legitimate process to call a promoter a wilful defaulter..." Rajan said.

With questions being raised about the quality of the due diligence conducted before approving debt restructuring and additional lending in the Kingfisher Airlines Ltd case, Rajan said that the decisions taken back in 2010 were based on various estimates and requests by the banks and government alike.

“In the Kingfisher case and as well as other cases, it (regulatory forbearance) was given on the basis of estimates of whether the industry will recover or not. In no circumstance was the entire forbearance given or all the requests acceded to, but there was some given to a certain extent in 2010 and investigative agencies will look at that," Rajan said while addressing the press.

The RBI governor stated that it would be important for the investigative agencies to now look at the reason behind a certain judgement being made during times of stress and whether it was the most prudent decision to have been made, under those circumstances. He also warned against excessive media attention to cases being investigated, as this would hamper activities carried out by the agencies.

On 30 March, RBI submitted a list of defaulters with loans over 500 crore in a sealed envelope to the Supreme Court, with a request to not divulge the list to the public.

This came after the court on 16 February made the central bank a party “in public interest" to a 2003 case related to bad loans advanced to a few companies by state-owned Housing and Urban Development Corp. Ltd. The case was filed by the Centre for Public Interest Litigation, an activist organisation headed by lawyer Prashant Bhushan.

A bench headed by chief justice T.S. Thakur had then directed RBI to provide a list of companies that have defaulted on bank loans in excess of 500 crore and expressed serious concern over rising bad loans.

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