Sunday, April 03, 2016

Transparency activist: Does Modi govt include bank defaulters for pledging "sab ka saath, sab ka vikaas"?

By Our Representative
The Reserve Bank of India's (RBI's) recent "submission" through an affidavit to the Supreme Court of India, in a sealed cover, a list of defaulters on loans, worth Rs 500 crore or more, taken from different banks, has created a flutter among pro-transparency activists.
The Apex Court had sought this information from the RBI after it took suo motu cognizance of a recent news report about how a majority of the public sector banks had "written off" bad debts to the tune of Rs 1.14 lakh crore between the financial years 2013 and 2015. The data was obtained by making a right to information (RTI) plea.
In order to justify its act, the RBI has argued that "public disclosure would dent the 'fiduciary relationship' that it has with the commercial banks and in turn the 'fiduciary relationship' that those banks have with their borrowers."
In an email alert, RTI activist Venkatesh Nayak of the Commonwealth Human Rights Initiative (CHRI) says, the RBI's own Master Circular relating to customer service issued in July 2015, suggests that it has contracted its own stance before the Supreme Court.
Paragraph #25 of Master Circular, which talks of "Customer Confidentiality Obligations", says, "The bankers' obligation to maintain secrecy arises out of the contractual relationship between the banker and customer, and as such no information should be divulged to third parties except under circumstances which are well defined."
At the same time, it has made following exceptions: (i) Where disclosure is under compulsion of law, (ii) Where there is duty to the public to disclose, (iii) Where interest of bank requires disclosure, and (iv) Where the disclosure is made with the express or implied consent of the customer.
According to Nayak, "This Master Circular makes it clear that the term 'customer' includes both depositors and borrowers. The characterisation of a bank's relationship with its borrowers -- particularly those who defaulted on repayment of loans as 'contractual' in nature clearly contradicts what it said before the Apex Court."
Nayak insists, "RBI needs to explain to its depositors whose hard earned money it lends out, why it is pushing for double standards -- one for internal operations and one when faced with litigation launched in public interest."
He continues, "Until the Apex Court directs the public disclosure of the names of defaulters contained in sealed cover handed over to it by RBI, it will not be known how many of them are 'wilful defaulters'."
To prove his point, Nayak quotes from another RBI Master Circular, which describes 'wilful default' as "deemed to have occurred" if "the unit has defaulted in meeting its payment/repayment obligations to the lender even when it has the capacity to honour the obligations."
The Master Circular adds, "The identification of the wilful default should be made keeping in view the track record of the borrowers and should not be decided on the basis of isolated transactions/incidents. The default to be categorised as wilful must be intentional, deliberate and calculated."
Comments Nayak: "There is very little information in public domain about whether these banks checked whether the defaulters were 'wilful defaulters' or not before writing off bad loans or pushing for debt restructuring."
He adds, "Ten public sector banks rejected my request for this information in 2014. They cited 'commercial confidence' covered by Section 8(1)(d) of the RTI Act as the reason for refusing access to names of defaulters and the manner in which bad loans were restructured."
Nayak says, "Fiduciary relationship is a relationship based on mutual trust and everything that is done in it must be done lawfully. The law does not permit any kind of protection based on trust for illegal or wrongful actions."
He adds, "The Government of India must also clarify whether its promise of 'sab ka saath, sab ka vikas' (with all development for all) will include loan defaulters also, particularly wilful defaulters who seem to have a 'dented and painted relationship' with some banks which is now being characterised as 'fiduciary' in nature."

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