Penalise willful defaulters but help genuine ones: FinMin tells PSBs -Governance Now

Penalise willful defaulters but help genuine ones: FinMin tells PSBs

Financial services secretary Rajiv Takru has asked banks to compulsorily file FIRs against willful defaulters while extending support to borrowers who have defaulted due to economic slowdown

GN Bureau | October 21, 2013

As bankers prepare for the review meeting with finance minister P Chidambaram on Tuesday, the finance ministry has suggested a two-way approach to check the mounting pile of bad loans. It has asked public sector banks (PSBs) to provide adequate support to companies which have defaulted on loan repayments due to the economic slowdown while going after those that are wiful defaulters.

According to a report in the Economic Times, financial services secretary Rajiv Takru has highlighted the urgent need to check the rising non-performing asset (NPA) figures. “Every bank in any particular lending consortium will have to file an FIR (first information report) against a borrower who is found to be a wilful defaulter. This is an act of criminality. However, lenders need to...support those borrowers who fail to repay loans due to industrial or sectoral issues. Banks are working on this,” Takru said.

Explaining the criminal aspect behind a wilful default, Takru said that a willful default occurs when a company ceases to repay loans because of fraud. Takru has also suggested that banks take over management control of companies whose loans have been approved for restructuring.

Till June, 549 cases of corporate loan defaults worth Rs 3.38 lakh crore had been referred to the corporate debt restructuring (CDR) cell. This marks a 49 percent jump from last year’s restructuring cases worth Rs 2.27 lakh crore.

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