SC Vs RBI - List of Wilful Defaulters



SC Vs RBI - List of Wilful Defaulters

       List of Wilful Defaulters

On April 26, the Supreme Court directed the Reserve Bank of India (RBI) to disclose to the public the names of wilful defaulters on loans and also other information gathered by the central bank during its annual inspection of commercial banks. The RBI and the Supreme Court have been at loggerheads over this issue for a while now, with the central bank repeatedly refusing to obey the orders of the Supreme Court.
In January 2016, the RBI refused to comply with demands made by activists under the Right to Information Act (RTI) to disclose copies of the annual inspection reports on banks such as the State Bank of India, Axis Bank, and ICICI Bank despite orders from the Supreme Court. The RBI also refused to provide information regarding the derivative losses suffered by banks and the fines imposed on banks by the RBI for violating various norms. The Supreme Court has this time around given the RBI a “last opportunity” to abide by its orders or face serious penal action.
Supporters of the Supreme Court’s position believe that greater transparency will allow the general public and investors in public and private sector banks to make better decisions with their money. The disclosure of the names of wilful defaulters to the public, many believe, will help bring about better credit discipline in the country by exposing problems brewing within banks sooner rather than later.  According to data gathered by TransUnion CIBIL, the amount of wilful defaults has risen by four times in the last five years from Rs 39,504 crore at the end of March 2014 to Rs 1,61,213 crore at the end of December 2018. At the same time, the number of wilful defaulters has doubled over the same period. State Bank of India, the largest public sector bank, has suffered the largest amount of wilful defaults among all banks.
The RBI has argued that the disclosure of auditing information related to banks can lead to the exposure of sensitive information that may not be in the commercial interest of banks or even in the interest of the wider economy. The RBI also seems to believe that releasing information about defaulters can unfairly shame borrowers who may genuinely not be able to pay back their loans due to various financial difficulties. Such shaming could have the unintended consequence of impeding genuine business activity in the economy.
If the RBI is forced to abide by the Supreme Court order, it will certainly increase publicly available information on banks. Greater transparency will also help make the RBI more accountable. If there are legitimate reasons for banks and the RBI to withhold certain information from the public domain, however, the forced disclosure of information following the Supreme Court’s order may lead to various unintended consequences both within the financial sector and the broader economy.