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Business News/ Industry / Banking/  Wilful defaults rising in India despite threat of new bankruptcy law
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Wilful defaults rising in India despite threat of new bankruptcy law

IDBI Bank sees wilful defaults more than double—from ₹3,600 to ₹7,381 crore—between Decembers of 2017 and 2018
  • Govt has asked all banks to set up a separate fraud prevention wing to detect potential wilful defaults at an early stage
  • The sharpest increase in wilful defaults among public sector banks was at loss-making IDBI Bank. (Mint)Premium
    The sharpest increase in wilful defaults among public sector banks was at loss-making IDBI Bank. (Mint)

    Mumbai: Despite lenders using the Insolvency and Bankruptcy Code (IBC) and other means to recover loans and check defaults, most of them have seen a substantial jump in wilful defaults in 2018, shows data from Cibil.

    Lenders were told by the Reserve Bank of India (RBI) in 2017 to refer more than three dozen defaulting companies to the National Company Law Tribunal (NCLT). According to data from the Insolvency and Bankruptcy Board of India (IBBI), 1,484 cases have been admitted to the bankruptcy court between January 2017 and December 2018. These include referrals by financial creditors and operational creditors, besides the defaulting companies themselves.

    The sharpest increase in wilful defaults among public sector banks was at loss-making IDBI Bank, which saw wilful defaults more than double—from 3,660 crore to 7,381 crore—between December 2017 and December 2018. This is more than 13% of the bank’s gross non-performing assets (NPAs).

    IDBO Bank reported more than 100% rise in wilful defaults over a one-year period.
    View Full Image
    IDBO Bank reported more than 100% rise in wilful defaults over a one-year period. (Naveen Kumar Saini/Mint)

    Other public sector banks, such as Bank of India (BOI) and Bank of Maharashtra (BOM), are not too far behind. While BOI has seen 60% year-on-year (y-o-y) jump in wilful defaults to 9,785 crore, BOM witnessed a 41% increase to 1,385 crore. While data for State Bank of India (SBI) and its associates was not available as on 31 December 2018, they had the largest chunk of wilful defaults till September at 37,250 crore.

    A senior banker at one of India’s largest public sector banks, requesting anonymity, said lenders have been recognizing several large defaults over the last year and the process could have led to figuring out which ones have wilfully defaulted. “Moreover, after the finance ministry asked us to probe all bad loans above 50 crore for fraud, we did forensic audits for all. The ones showing traces of fraudulent activity have been classified as wilful defaulters."

    Among private sector banks whose December 2018 data is available, Kotak Mahindra Bank stands out with wilful defaults of 8,757 crore, 22% higher on a y-o-y basis. HDFC Bank has seen little change in the past one year with wilful defaults at 465 crore in December 2018.

    Among private sector banks, Kotak Mahindra Bank stands out with wilful defaults of  <span class='webrupee'>₹</span>8,757 crore, 22% higher on a y-o-y basis.
    View Full Image
    Among private sector banks, Kotak Mahindra Bank stands out with wilful defaults of 8,757 crore, 22% higher on a y-o-y basis. (Aniruddha Chowdhury/Mint)

    Another banker who did not want to be named said the government has asked all banks to set up a separate fraud prevention wing to detect these cases at an early stage. “We are in discussions with the Indian Banks’ Association to form common guidelines with regard to fraud and wilful defaults so that banks do not follow different procedures."

    A borrower is tagged a wilful defaulter if he/she fails to meet repayment obligations despite having the capacity to repay. Other instances include not utilizing the loan for the specific purpose for which it was taken, and instead, diverting it for other purposes.

    The RBI has also mandated banks to submit a list of suit-filed accounts and non-suit filed accounts of wilful defaulters of 25 lakh or more at least every month to credit information firms like Cibil.

    The evidence of wilful default is examined by a committee of high ranking bank executives. If the committee concludes that wilful default has happened, it issues a show cause notice to the borrower, and after considering their submissions, issues an order, which is reviewed by another committee comprising the managing director or the chief executive officer, and two independent directors. The order becomes final only after it is confirmed by this review committee.

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    ABOUT THE AUTHOR
    Shayan Ghosh
    Shayan Ghosh is a national editor at Mint reporting on traditional banks and shadow banks. He has over 12 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
    Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
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    Published: 22 Feb 2019, 11:18 PM IST
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