The Unwitting, Involuntary Defaulters
Recently, the people of our country has been sensitised to the strange phrase ´Wilful Defaulter´. While we struggle with the full meaning of this term, we are having to come to terms with the hard fact that our banks are losing lakhs of crores due to potential loan default. Just in the last quarter (Q4, FY16) alone, our PSU banks have reported Rs 25,000 crore of losses on this account. And while alien acronyms like NPA´s, CDR´s, Provisioning, etc., are being bandied about, make no mistake that the bottomline is that these losses will be made good mostly by our hard-earned tax payments. So, lets cut through this smokescreen and try to bring in a modicum of transparency into this shameful affair. And in all this analysis, let´s not worry about the numbers, but let´s concentrate on the sinister concepts involved. Thankfully, RBI has defined ´wilful defaulter´ as a borrower who intentionally defaults on his repayment obligation, despite adequate cash flows, or has diverted/siphoned off the borrowed funds, or not utilized the funds for the purpose for which it was taken. Later on, RBI widened its scope to include ´guarantors´ in it. With such immense clarity about wilful defaulters, I just thought we as absolute lay persons, need to know a little more about the opposite term, meaning the borrowers who are defaulters but not wilful - let´s call them the unwitting or involuntary defaulters. We also need to know who will assess and certify the wilfulness or otherwise of these delinquent borrowers, and how is it assessed. The need to know all this, is not just driven by human curiosity, but more because the government, RBI and the lender banks propose to treat these two groups, viz., wilful and unwitting defaulters quite differently, in terms of shaming them, prosecuting them, freezing or auctioning their assets and so on.
Who´s going to separate the chaff (wilful) from the wheat (involuntary)? Nobody else but the same set of honest to goodness bankers who handed out these loans in the first place, without adequate business case, and rigorous risk evaluation. And what criteria are they going to use? Does the borrower have adequate cashflow - can be manipulated; has the borrower siphoned off the funds - almost the whole country is doing with impunity; did the borrower utilise the funds for unintended purposes - no amount of forensic audit can unearth this from these innovative account books. If all that does not sound too promising, then you will do good to remember that there are many reasons which discourage bankers from declaring such borrowers as ´wilful defaulters.´ As per the guidelines, higher provisioning is required to be made towards such accounts.
There is a scope for subjectivity in this whole segregation process, with huge potential of favouritism, promises of quid pro quo´s all around, and more and more of tax payers´ money is likely to be thrown as lifelines to the friendly and partisan businessmen who agree to a philosophy of give and take through good times and bad. Every delinquent borrower will pull strings to be tagged as ´unwitting, involuntary defaulter´, and try to pose as the good citizen who followed all the rules but business environment and/or regulatory changes unfortunately went against him. This page is dedicated to the well-being of such ´good´ citizens, and their holy nexus with our honest bankers. May their tribe prosper, even as the country goes down.