FRAMEWORK FOR COMPROMISE SETTLEMENTS AND TECHNICAL WRITE-OFFS BOON FOR FRAUDSTERS AND WILLFUL DEFAULTERS BANE FOR THE GULLIBLE DEPOSITORS

EDITORIAL

RBI vide its circular RBI/2023-24/40/ DOR/STR/REC/20/21.04.048/2020-24 dated June 08, 2023 has stirred the hornet’s nest by introducing a scheme for compromise settlement and technical write-offs for frauds and wilful defaults. Till date fraudsters and wilful defaulters were ineligible for restructuring. This has been in vogue for a long period and on 08^th June 2023; the above said circular has come as a rude shock for the general public, bank depositors and bank unions.

Para 6 (ii) of the said circular states “Proposals for compromise settlements in respect of debtors classified as fraud or wilful defaulter, as permitted in terms of clause 13 of this annexe shall require the approval of the Board in all cases”.

Para 13 annexe states “Regulated entities may undertake compromise settlements or technical write offs in respect of accounts categorised as wilful defaulters or fraud without prejudice to the criminal proceedings underway against such debtors”. This circular is made applicable to all commercial banks, co-operative banks, All India financial institutions and NBFCs.

By allowing compromise settlements for accounts classified as fraud or wilful defaulters the bankers are made to go against the principles of justice and accountability. Thus, this scheme rewards unscrupulous borrowers and sends a wrong message to honest borrowers. Also, this scheme becomes counterproductive to the health of the banking industry and a stress on the depositors.

The RBI data shows that as on March 2022, a whopping amount of Rs. 92480 crores comes under top 50 wilful defaulters’ accounts. Another data shows that in the last five years banks have reported 983 frauds above Rs.100 crores amounting to Rs.376400 crores. Will it not be loot on people’s deposits if compromise settlement scheme is applied to these fraud accounts?

The present communiqué opens a comfort zone to the debtors classified as fraud or wilful defaulter. There are many unanswered questions before the general public, which the RBI is obliged to clarify. Some of the questions are:

• Through this circular, what is the signal RBI wants to give to bank loan frauds and wilful defaulters?
• By shielding such accounts are they not endangering the health of the banks?
• By compromising the health of the banks through such a circular, does not the RBI put to risk the hard-earned savings of the general public at large? 
• Does the RBI relinquish its moral obligation to safeguard the investors’ interests?
• Is it suffering from pressures from vested interest quarters thus losing its sovereignty?

The bank unions have been demanding of the government to publish the wilful defaulters’ list and recover the full amount through stringent laws. The Government, in its own wisdom, has not released such a list, thus protecting the wrong-doers. Adding fuel to the fire is this circular which asks bank boards to go in for compromise settlements in fraud and wilful defaulters’ accounts. The government which had been protecting these borrowers under secrecy cover has brazenly come out with such a scheme to protect the frauds and wilful defaulters. The heart of the present dispensation apparently bleeds more for the crony capitalists than for the common man.

Bank Unions have been demanding of the RBI to withdraw such a circular with immediate effect and restore the confidence of the public on banks. Bank Employees Federation of India has given a call for demonstration in all the State Capitals against this move of the RBI. This pernicious move of the RBI favouring wilful defaulters at the cost of the deposit holders has to be resolutely fought against and defeated.