Non-performing assets in the balance sheet of Indian banks pose a great threat to the stability of the banking system. Analysts maintain that the actual bad loans in banks’ balance sheets are much higher than what is shown. An estimate showed that bad loans of Indian public sector banks stood at a staggering figure of $41 billion as on 31 March 2015[1]. The Ministry of Finance and Reserve Bank of India (RBI) are seized of the matter. RBI has even released guidelines for early detection of financial stress and timely measures to recover the dues. The present regulatory infrastructure for debt recovery is found to be inadequate in this regard.
Default of borrowers is broadly of two types- circumstantial and willful. Default arising of change in external environment (e.g., lack of fuel supply for a power plant) is favorably considered by the lenders and if requested, is offered restructuring package. The regulator needs to be very strict with the willful defaulters. CIBIL, the credit information bureau, maintains database of willful defaulters (suit-filed accounts) with exposure of Rs. 2.5 million ($38,500) or above. A report states that more than 7000 willful defaulters owe about $10 billion to state-owned banks [2]. RBI has come up with a guideline in 2014 to identify willful defaulters with a view to ‘put in place a system to disseminate credit information pertaining to willful defaulters for cautioning banks and financial institutions so as to ensure that further bank finance is not made available to them’[3]. A willful defaulter is said to be one who has defaulted in meeting its payment/repayment obligations even when the borrower has the capacity to pay. Instances of doubtful practice also include fund diversion, siphoning off the funds, and disposal of mortgaged assets. RBI cautions every bank to keep a watch on the payment behavior and fund utilization pattern of its borrowers to identify potential willful defaulters… to read full article courtesy by ( http://financelab.iimcal.ac.in/artha/index2.php ) click here