The Reserve Bank of India on Thursday directed lender institutions to publish photographs of only those borrowers in newspapers who have been declared willful defaulters. It asked the banks not to indiscriminately publish photographs of defaulters and guarantors in newspapers. Finally, it directed the lending institutions to formulate a policy in this regard. The approach taken by these lending institutions should be neither discriminatory nor inconsistent. Unlike large corporate borrowers, poor farmers behind on their loan repayments are often subject to the worst kinds of humiliation from banks. Their photos are published indiscriminately across local newspapers and notice boards as defaulters. Instead of poor farmers, who do not have the means to pay back their loans, willful defaulters should be named and shamed in public. Publishing their photographs may shame them into paying up. The reasons for default could boil down to factors beyond the control of borrowers. But willful defaulters are truant borrowers who, despite having the capability to repay the money, do not cough it up. It’s a question of accountability or the lack thereof shown by large corporate borrowers, who willfully default on their loan payments, despite possessing the means. By using their political connections and working the overburdened judicial system, these corporate entities get away without paying the price for it.
In its submission to the apex court earlier this year, the central banks said it was “extremely necessary” to keep the names of those defaulters owing Rs 500 crore or more to public sector banks confidential due to their “fiduciary relationship”. “Disclosing personal information which is fiduciary in nature with regard to banks by a statutory body (RBI) would defeat the very purpose of having fiduciary responsibility on the part of banks,” the RBI said. “For these reasons, it is extremely necessary to keep the confidentiality of the information provided along with this affidavit.” In response, the court said: “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.” The court could not have said it any better.
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. They argue that 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. They argue that the solution to the problem of bad loans lies in fixing the legal system. The debt recovery tribunal, for example, is a fast-track route to dispose of such cases. Fortunately for the borrower, an appeal can be set against a tribunal judgment in a high court and even the apex court. These cases often drag on for years due to our slow legal system. The best way to address the problem of willful defaulters is to strengthen the legal system. This will allow for quicker bad loan recovery and help nurse the banking system to health.