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Banking industry

Congress Questions RBI's Decision to Allow Wilful Defaulters and Fraudsters to Take Fresh Loans

Strategic Insights

— 1 min read

The Congress party, led by communications chief Jairam Ramesh, has raised questions about the Reserve Bank of India's (RBI) decision to allow wilful defaulters and fraudsters to take fresh loans. Ramesh stated that the RBI must reveal if there was any pressure from the Modi government to issue instructions that allowed banks to undertake compromise settlements or technical write-offs for wilful defaulters and fraudsters.

Key Takeaways:

  • The RBI issued instructions on June 8, 2023, allowing banks to undertake compromise settlements or technical write-offs for accounts categorized as wilful defaulters or fraud without prejudice to the criminal proceeding underway against such debtors.
  • The instructions will permit accounts to take fresh loans after a 12-month 'cooling period', raising concerns that it is a "clean chit" to all wilful defaulters and frauds who have run away with public money.
  • The All India Bank Officers' Confederation and the All India Bank Employees Association, which represent six lakh bank employees, have opposed this policy, warning that it will erode public trust in the banking sector and undermine the confidence of depositors.
  • The RBI governor's statement that wilful defaulters would not be allowed to access capital markets or take fresh loans in 2021 is contradicted by the recent policy change.
  • Banking frauds have risen 17-fold under the Modi government, from Rs 34,993 crore in 2005-14 to Rs 5.89 lakh crore in 2015-23.
  • The top 50 wilful defaulters, led by Modi's friend Mehul Choksi, owe a substantial Rs 92,570 crore (as on March 31, 2022).

Statistics:

  • Banking frauds have increased by Rs 5.89 lakh crores (17-fold) under the Modi government in 2015-23 compared to Rs 34,993 crores in 2005-14.
  • The top 50 wilful defaulters owe Rs 92,570 crores as on March 31, 2022.
  • The recovery rate for distressed loans is an abysmal 13 per cent, meaning that only Rs 1 is being recovered out of every Rs 8 written off.
  • Banks wrote off loans worth Rs 10 lakh crore between 2017-18 and 2021-22.

Sources:

  • ABP News
  • RBI's 'Framework for Compromise Settlements and Technical Write-offs' issued on June 8, 2023
  • Jairam Ramesh's statement dated July 19, 2023

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