Indian economy was witnessing a heavy turmoil in the previous years and in the current year also this is, to the some extent continuing. However, we are witnessing some comforts where the Whole- sale price index have come to zero and the consumer price index is much within the comfort level.
Things are getting improved and probably this would continue in the future but one thing is worrisome is that the Banks have invested huge amount in project which have not rolled out and are idle due to some policy matters. Due to this, Banks are having high NPAs and as a resultant of which they have to provide the higher provision with respect to the non-performing assets.
The Apex Bank has taken a lot of initiatives to strengthen the recovery system of Banks. They had come up with the wilful defaulter provision and in some of the case it has been applied also (United Bank of India Vs Kingfisher Airlines and its promoter Vijay Mallya). But the provision of wilful defaulter seems to be very tough in practical applications as because the legal recourse is available with the borrower. Further, the lender is also required to establish that the fund was siphoned for declaring the borrower as a wilful defaulter.
Introduction of Concept of Non Cooperative Borrowers: To overcome the problems which is being witnessed at the time of labelling the wilful defaulters and to further strengthen the recovery mechanism of banks specially smaller banks, the Reserve Bank of India have come up the Non Cooperative Borrowers concept.
Non Cooperative Borrowers are the Borrowers, who have the ability to make the repayment of loans, obstruct the lender by
- Not providing the information sought
- And by not providing the access to collateral.
The definition of Non- Cooperative Borrowers will include the following persons:
- Individual
- Directors of the Companies
- Promoters of the Companies
However, Directors will not include the following persons:
- Directors nominated by the Government.
- Independent Directors
- Directors appointed by the lending institution.
Effect of declaring the Non- Cooperative Borrowers:
After declaring the non-cooperative borrowers, the following will take place
- The Banks which will be providing the fresh loans to the non-cooperative customers will have to categorize this loan as a sub standard assets and will have to make the provision as per the provisioning requirement.
- To avoid the higher provisioning from the books of banks, the fresh loan lending banks will exert pressure on the borrower to first clear the dues of existing lender.
Conclusion: The above mentioned rule will surely help in recovery of various bad loans and this will be very much instrumental in recovery of bad loan of small banks as because the borrowers care much for payment of dues of larger banks and they do not care much for repayment of dues of smaller banks. By the introduction of this, the larger bank will always exert pressure for clearing of the dues of the smaller banks and thus whole economy will revive.
(Author- CA Sanjay Kumar Chaudhary, Mail Id: sanjay0120@gmail.com)
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What about other forms of organizations?
Dear Mr. Kumar,
01. The provision is also applicable for the partnership firms as the managing partner of the partnership firm will be labelled as Non Cooperative Borrowers. This is as per the Circular of RBI dated 22nd Dec 2014.
02. The large lenders can not directly make the payment to small bankers. However, they will exert pressure on borrower to make the payment to small bankers first. Otherwise, they will have to make the provision on fresh loan and the provision will be on the basis of substandard assets.
03. The provision is applicable on all the scheduled commercial banks( excluding RRBs) and all India term lending and refinancing institution ( EXIM, NABARD, NHB, SIDBI).
What about the Partnership Firms? Can they be treated as Individuals? Otherwise, the borrowers will take advantage of this lacuna. Further,the large lenders should not release any funds at all, even on issue of provisional sanction letter. It is advisable, the dues of smaller banks are directly remitted to them by the large lenders, instead of relying on the promises of the borrower.
2) Provisions of this new categorization should also be made available to large lenders also, as now a days smaller banks are coming forward to lend to such recalcitrant borrowers against higher/different collateral or higher margin and interest. Ultimately, the Indian Banking system should be more healthy.