Backed by the finance minister and also staring at yet another quarter of low profits in the face of rising bad loans–many of them by willful defaulters as their companies are healthy enough service their loans—banks have decided to tighten the noose on such defaulters, by 'naming and shaming' even the guarantors of such borrowers as well. The move involves publishing the photographs of defaulters and their guarantors and other details in newspapers and at notice boards of bank branches and community centres.
Last week finance minister P Chidambaram had asked public sector banks to go after willful defaulters to bring down their high rate of bad loans. The drive is being carried out mostly by public sector banks as private sector ones have better recovery systems and agents. Of late banks began publishing pictures of willful loan defaulters in newspapers and at other places around the areas of residence of such borrowers earlier this year to induce them to pay up.
This exercise has now been extended to the guarantors of loan defaulters as well as part of efforts to build pressure on the borrowers to clear their dues and Allahabad Bank published one such public notice Tuesday. Interestingly, public sector banks are at the forefront of taking such measures and those already making public the photographs and other details of loan defaulters include the country's biggest lender SBI and Uco Bank, Allahabad Bank, Indian Bank and Indian Overseas Bank. So far, the public notices issued by private banks mostly do not contain pictures of the loan defaulters or their guarantors, but they are also actively considering such 'name and shame' exercises.
Allahabad Bank Tuesday published photos of two guarantors as well in the newspapers as part of a public notice for sale of two properties mortgaged for the loan. The borrower, a corporate entity, had failed to pay it dues and the total outstanding amount currently stands at over Rs 365 crore. As a result, the bank has published the photos of its two individual guarantors, as also the name of a group corporate entity, while inviting bids for the two properties — one in Haryana and another in Mumbai.SBI began publishing the pictures of its individual loan defaulters in March, while Uco Bank has also went public with the name, photograph and other details of a well- known industrialist for non-payment of loans by his company.
According to bankers, the photographs, names and addresses of the guarantors would be published in newspapers if the dues are not cleared within 15 day of the notice containing particulars of the original borrowers. Some banks have also decided to prominently display the photographs and other details of the willful loan defaulters at the branches in the locality of such borrowers. Banks also expect such notices to act as a deterrent for others against any loan defaults. As per RBI's regulations, willful defaulters are mostly those who are found to be engaged in deliberate non-payment of the dues despite adequate cash flow and good networth.
Banks can also classify the defaulters as 'wilful' if the loans are utilised for purposes other than those previously stated, funds are siphoned off from the bank-financed activity, records are falsified, securities are disposed off without bank's knowledge and the borrower indulges in fraudulent transactions. RBI has already put in place a system to disseminate credit information pertaining to wilful defaulters for cautioning banks and financial institutions, so that any further bank finance is not made available to such borrowers.
