Big, bad loans hit a record high in India

BENGALURU – Unrecovered bank loans from wilful defaulters have reached a peak in India, raising questions about political interference, corruption and the urgent need to hold banking and government officials accountable. 

Data from credit information firm TransUnion Cibil shows that dues from people who have the financial means but do not repay their loans have risen by at least 1.2 trillion rupees since March 2019. 

The sharp jump owed by wilful defaulters marks an almost 50 per cent rise in unrecovered loans to 3.54 trillion rupees (S$58 billion) as at March 2023, involving 16,883 accounts, with a dozen of the top defaulters owing billions.

Government-owned banks are owed the most – 77.5 per cent of the outstanding amount in June. 

India’s central bank defines wilful defaulters as those who take loans with the deliberate intent not to pay them back, unlike people who might have genuinely fallen into debt. 

Banking expert Hemindra Hazari explained that wilful defaults typically mean that the borrower has committed fraud – siphoning off the funds for personal use or diverting them towards unproductive activities.

“If banks have such a high proportion of wilful defaulters today, it shows that they did poor appraisals of the borrowers or projects during loan approval and did not properly monitor the use of funds after that. It is a sign that the banks are either very incompetent or very corrupt,” he said. 

A third of outstanding loans to wilful defaulters in 2022 was owed by 50 big defaulters, including billionaires who fled the country when banks revealed their fraud, the central bank has disclosed.

Among the first to flee was Jatin Mehta, the founder of Winsome Diamonds and Jewellery, which is seventh on a list of bad borrowers in terms of loan size. He flew to the United Kingdom with his wife and two sons in 2013.

India’s Central Bureau of Investigations has charged Mehta over the swindling of 15 banks. UK courts also found evidence of “major international fraud” of US$1 billion (S$1.36 billion). But 14 Indian lending banks refused to participate in the international litigation and did not submit proof of fraud.

A probe by Indian financial website Moneycontrol found that Mehta continues to be a free man, with the UK courts allowing him to spend £50,000 (S$83,000) every five weeks as living expenses.

In December 2022, India’s Finance Ministry created a furore in Parliament when it revealed that the top 10 wilful defaulters owe 408 billion rupees to banks. The biggest defaulters are absconding billionaires and several of India’s oldest companies. 

Mr Thomas Franco, former general secretary of the All India Bank Officers’ Confederation, said bank practice is for education, home and personal loans to be given against collateral, property and salary, respectively. But banks typically give “large corporate loans – even over a billion rupees – not against security, but based on the company’s performance on the balance sheet and earnings projected”.

“In many cases, the projected figures are inflated,” he added.

This also explains why banks can recover only a minimal portion of the loans by seizing the defaulters’ assets, “because in corporate loans, often, few assets are pledged in the first place”, he said. 

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