The confidentiality argument is no excuse at all. The public is entitled to know
“To the existing traditions of the RBI, which will be the bedrock of our work, we will emphasise two other traditions that become important in these times: transparency and predictability” — Raghuram Rajan, on assuming office as Governor, Reserve Bank of India
Should banks, especially in the public sector, be made to disclose the names of top loan defaulters and their amounts outstanding?
The question assumes importance in the context of rising non-performing assets (NPAs), which, in the case of public sector banks (PSB), are estimated to have grossed nearly 5 per cent of total loans at the end of March 2014. This excludes loans that have been restructured under the corporate debt restructuring mechanism, which may account for another 5-6 per cent.
Such burgeoning of NPAs, in turn, forces infusion of fresh capital into banks by the Government — representing nothing but transfer of public money into private accounts by proxy. The Centre’s own stretched fiscal position makes it difficult to perpetually feed the ever-increasing capital appetite of PSBs.
To the extent that bad loans made by PSBs eat into their earnings, it is only fair that the public knows the names of the main defaulting borrowers and maximum efforts are taken to undertake recovery.
According to the RBI’s estimates, the top 30 loan defaulters account for one-third of the total gross NPAs of PSBs. “We are monitoring the top 30 NPA accounts in each bank, each zone. It is a matter of concern that it is the big borrowers (with loans of over ₹1 crore) who are defaulting,” the previous government’s finance minister P Chidambaram noted not too long ago.
Name and shame
Unfortunately though, the idea of naming big defaulters — some who continue to fly high even when the companies promoted by them have gone sick — immediately evokes resistance from our policymakers, who cite the RBI Act and various statutory provisions pertaining to so-called banking secrecy.
Interestingly, in 2011, the Central Information Commissioner (CIC), reacting to an application filed by a Panipat (Haryana)-based RTI activist, PP Kapoor, had asked the RBI to reveal publicly the names of the top 100 industrialists who had defaulted on loan repayments to PSBs.
In a well-reasoned directive, the then CIC Shailesh Gandhi cited the larger public interest while giving his order: “The Bench is convinced that the benefits accruing to the economic and moral fibre of the country far outweigh any damage to the fiduciary relationship of bankers and their customers if the details of the top defaulters are disclose.” Further, the CIC held that “information about industrialists who are loan defaulters of the country may put pressure on such persons to pay their dues”.
Revealing the names would “serve the object of reining in such defaulters, warning citizens about those who they should stay away from in terms of investments and perhaps shaming such persons or entities”.
The confidentiality cloak
The RBI, however, responded to the CIC order by approaching the Delhi High Court through a writ petition under Articles 226 and 227 seeking its quashing on grounds, among others, “of the cardinal common law principle of bankers’ duty of confidentiality”. “The direction of the CIC to disclose the details of the top 100 industrialists by making them a separate category and holding that public interest demanded disclosure of such information is against the basic tenets of banking,” the RBI stated in its petition.
The RBI currently circulates a list containing details of non-suit filed accounts of defaulters owing ₹1 crore and above, besides that of wilful defaulters with outstandings of ₹25 lakh and above.
But these are only to banks and financial institutions for their confidential use. According to the RBI, this information on defaulters is being held by it in a ‘fiduciary capacity’ on behalf of the banks.
Such posturing, though, negates the very purpose of compilation of the defaulters’ list. In fact, one of the stated objectives of the Central bank when it first issued a circular on disclosure of information on defaulters (No DBOD No BC47/20.16.002/94 dated 23.04.1994) was to “make public the names of the borrowers who have defaulted”.
The argument of banking secrecy will not wash any more. This is even more so when leaders of the world’s most powerful nations at the G20 summit meeting in London in April 2009 declared that “the era of banking secrecy is over”, while resolving to tackle tax havens.
It is precisely on the basis of the G20 declaration that India has been undertaking discussions with Switzerland on sharing of information on black money stashed in foreign banks.
In a letter to his Swiss counterpart Eveline Widmer-Schlumpf in March, Chidambaram even threatened to drag Switzerland to multilateral forums like G20 for blocking requests on information pertaining to bank accounts.
It is indefensible by the same logic to cloak the list of major defaulters —particularly those who have ‘wilfully defaulted’ — under the veil of secrecy. If the RBI Act or other statutes prevent this now, the new government should straightaway seek to amend these laws in the interest of transparency.
The writer is with State Bank of Patiala. The views are personal
(This article was published on June 16, 2014)
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