Wilful
Defaulter
Why in news?:
·
Mallya owes approximately Rs. 7,000 crores in loan repayment to
total 17 banks.
·
United Bank of India became the first bank to Kingfisher Airlines
and its promoter Vijay Mallya as wilful defaulters.
·
Nov 2015: SBI declared Vijay Mallya as wilful defaulter
Who is willful defaulter?:
Person/company,
who has taken loan from any scheduled commercial bank or financial institution,
and
-
Has capacity to repay the loan / installment but not repaying the
loan.
-
Has diverted loan money for other purpose.
-
Has not utilized the loan money for the actual purpose (for which
they had taken the loan)
-
Has sold off the mortgaged assets (in exchange of which, they had
taken the loan.)
In simple
terms: Has the money + but doesn’t want to pay + used the money in desi liquor
+ makes the collateral vanish = Wilful defaulter.
Implication after Wilful defaulter branding:
·
Once a lender announces as person/company as “willful defaulter’-
their names are sent to RBI and credit information companies.
·
This way, all other banks and NBFCs are warned not to lend any
more money to such totally awesome person.
·
As per SEBI order: Willful defaulters can’t raise money from
capital market i.e. they cannot issue fresh IPO or bonds.
·
In Sep-2014, RBI issued new directive- from now on, if person
doesn’t repay loan then extract it from ‘guarantors’. And if those guarantors
don’t repay the loan then declare them as willful defaulters as well.
Vinod Rai on willful defaulters:
Former
Comptroller and Auditor General (CAG) Vinod Rai gave following commentary:
·
Public sector banks have large NPA because cronies have used
political connections to get loans- even for unviable business projects.
·
These cronies did not have the financial knowledge or business
acumen to deliver the product / service.
·
Kingfisher loan default is just a small trickle- many others like
him.
Solution:
need to make bank board members’ appointment more transparent
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