DNA Money Edit: Govt directive pushes up wilful defaults

Wilful defaults by loan borrowers from banks in India have risen by 60% to Rs 8,582 crore in the last five years, according to the data submitted by the government in the Lok Sabha. Don't fret over the sudden spike in wilful defaults. It was not as if the banking sector was suddenly hit by a deluge of frauds in this period. 

A government directive in 2015 had insisted that all accounts exceeding Rs 50 crore if classified as NPAs be examined by banks from the angle of a possible fraud. This led to a number of wilful defaults to climb sharply. A special cell was set up in the Central Bureau of Investigation (CBI) to deal with bank frauds.

A forensic audit was conducted by banks on all accounts above Rs 50 crore. Bankers started exercising caution by declaring wilful defaults and FIRs were being registered by public sector banks against 2,881 wilful defaulters during this period, according to data put out by the Ministry of Finance. The steep rise in wilful defaults is directly related to this circular, say bankers. 

A wilful defaulter is defined as a person who has the resources to repay the loan, but does not do so intentionally, and deploys the money for purposes other than intended.

In addition, public sector banks had been advised to seek a report on the borrower from the Central Economic Intelligence Bureau, in case an account turns non-performing.