Will it work?

The chairman of a key Parliamentary committee on Sunday argued for naming and shaming corporate houses which default on repayment of bank loans. Non-performing assets (NPAs) of public sector banks have risen to a staggering Rs 6.8 lakh crore. Speaking to the Press Trust of India, KV Thomas, chairman of the Public Accounts Committee (PAC), felt that naming and shaming" such corporate houses may help banks get back their money. Of the Rs 6.8 lakh crore of NPAs of public sector banks, approximately 70% are those of big corporate houses. "We intend to give names of such big defaulters who owe money to banks in our reports to be submitted in Lok Sabha before the end of the budget session," he told PTI. The committee must differentiate between willful defaulters and those cases of where companies are unable to pay back their loans temporarily on account of genuine reasons such as industry slowdown, delay in government policy clearances and bureaucratic approvals.

Last year, the Reserve Bank of India, in a sealed envelope, submitted a list of big loan defaulters (companies with over Rs 500 crore bad loans) in the Supreme Court. The Central bank acted on an apex court order. "RBI is supposed to uphold public interest and not the interest of individual banks. RBI is clearly not in any fiduciary relationship with any bank. RBI has no legal duty to maximise the benefit of any public sector or private sector bank, and thus there is no relationship of 'trust' between them. RBI has a statutory duty to uphold the interest of the public at large, the depositors, the country's economy and the banking sector. Thus, RBI ought to act with transparency and not hide information that might embarrass individual banks," said the court.

The argument often posed by those who want the banks to go public with the names is that it will ensure greater transparency in a sector that is reeling under the weight of bad loans. But there are those who believe that merely naming and shaming them isn't enough. Such methods may work for loans given to individuals or smaller establishments.But it may not work for high-profile corporate borrowers because many of them are too shameless to care. Even after he was declared a willful defaulter, liquor baron Vijay Mallya continued to flaunt his wealth. In any case, the names of willful defaulters are in the public domain because the banks have filed suits against them. The best way to address the problem of willful defaulters is to strengthen the legal system.