IN A WILFUL MUDDLE

The central bank's latest circular on wilful defaulters creates more confusion than clarity, forcing many to ask if it was offering a window of escape to the likes of Vijay Mallya and Nirav Modi

-  M.G. ARUN

THIS WAS A CONTROVERSY that the Reserve Bank of India (RBI) could have well done without. On June 8, the country's central bank issued a circular to commercial banks, according to which wilful defaulters-those who choose not to honour their obligations to banks despite the ability to do so-could get into a compromise settlement with banks and finance companies and seek write-offs from these lenders. Further, the RBI directed banks to fix a minimum cooling period of at least a year before considering fresh exposure to borrowers who had undergone compromise settlements. Though the RBI was at pains later to clarify that this was not a fresh directive, the timing of the new circular and its purpose left the general public unconvinced. The RBI also said that the circular was meant to be a "general prescription" for defaulters, and excluded wilful defaulters and fraudsters, but many feared that the new framework made it easier for wilful defaulters to obtain new loans after a year of executing a compromise settlement.

What led to the confusion and the criticism perhaps was how the central bank phrased its directive that banks "may undertake compromise settlements or technical write-offs in respect of accounts categorised as wilful defaulters or fraud without prejudice to the criminal proceeding underway against such debtors". With the cases of the big defaulters who allegedly took India's banking system for a ride and siphoned off thousands of crores of rupees-including the likes of the 'big three' absconders, industrialist Vijay Mallya and diamantaires Nirav Modi and Mehul Choksi-fresh in public memory, the backlash that the RBI circular attracted came as no surprise.

THE BIG DEFAULTERS