Will media now pursue names of big defaulters?

 

For years reporters came up against a legal wall – the names of bank loan defaulters could not be revealed under the various banking laws. Banking secrecy was virtually equated with national security. Applications made under the Right to Information Act by ordinary people were routinely frustrated by invoking the bogey of security.

In the absence of information, newspapers continued to write inadequate reports on the Non-Performing Assets (NPAs) of banks (the official term for loans which are not returned) which work under the watchful eye of the regulator, the Reserve Bank of India.

Journalists who worked harder and cultivated sources got the occasional big breaking story. At times, news trickled out when the Finance Ministry or banks wanted to shame a company or two. On other occasions, political rivalries would result in the leaking of names, though it has to be said that virtually the entire political class, except perhaps the Left parties, is behind powerful corporates who raise debt and then armtwist bank managements into restructuring sticky loans. 

On the eve of the New Year, The Supreme Court has, in a sparkling order, done its bit for transparency in this country. It has upheld several orders of a Central Information Commissioner, Shailesh Gandhi, in RTI appeals against the information officers of banks or of the RBI who had refused to divulge information on scandals, inspection reports, the plain bald levels of NPAs, or of what action, if any, had been taken against defaulters. The Reserve Bank of India had appealed to the Supreme Court against those orders.

All the cases heard by the Supreme Court were originally filed by ordinary people, except perhaps one which was filed by the well-known RTI activist, S. C. Agarwal. 

The Court weighed the arguments in favour of secrecy against the arguments in favour of the public interest and called the RBI’s bluff on what is called the `fiduciary relationship’ between the RBI and the banks. In paragraph 60 of the judgment, the Supreme Court says: ``The RBI is supposed to uphold the public interest and not the interest of individual banks. The RBI is clearly not in any fiduciary relationship with any bank. It has no legal duty to maximize the benefit of any public sector or private sector bank, and thus there is no relationship of ‘trust’ between them. The RBI has a statutory duty to uphold the interest of the public at large, the depositors, the country’s economy and the banking sector.’’

And further, in paragraph 62: ``The exemption contained in Section 8(1)(e) (of the RTI Act) applies to exceptional cases and only with regard to certain pieces of information, for which disclosure is unwarranted or undesirable. If information is available with a regulatory agency not in a fiduciary relationship, there is no reason to withhold the disclosure of the same. However, where information is required by mandate of law to be provided to an authority, it cannot be said that such information is being provided in a fiduciary relationship.’’ 

Is this going to be the proverbial Pandora’s Box?

The Supreme Court order is a shot in the arm for the RTI community but more so for the media.

Journalists now need to get cracking, and some of them sure will. Quoting old figures from a Credit Suisse report will not do. 

The RBI will not volunteer information. RTI applications will have to be filed and uncomfortable questions will have to be asked of the RBI itself because there are complicit bank directors and officers who have either been bribed or browbeaten into giving these jaw-dropping loans.

The shock is not in the figures but the manner in which the loans are processed and revived over and over again even though there is little hope of recovery. One time settlements of big amounts of loans are being done with waivers of interest and even part of the capital amount. One source in the industry says that the Central Bureau of Investigation should keep an eye on retiring senior officers, including managing directors of banks. And if they get into private consultancies, the CBI must watch the bank from which they retired even more closely.

Reporters who have been denied information on even Foreign Direct Investment when they sought it under the RTI, now have the tools to pin responsibility. It could be a Pandora’s Box for the sector. Bankers are saying off the record that the scene is as bleak as it can possibly get. How much good money has been thrown after bad? Nobody seems to know. Though the total level of NPAs in the system is around three trillion rupees, other phenomena like the one described in this Firstpost.com story by Dinesh Unnikrishnan makes one even more worried. 

Loans that are turning bad fast 

He writes, "Most analysts are puzzled on another point - the substantial jump in the amount of loans in the Special Mention Accounts-2 (SMA-2) of banks in the last few quarters. SMA-2 are loans where repayment is due over 60 days. This structure came into place when the RBI brought in rules for early identification of stress in India’s banking system.

What this means is that the chunk of loans that are on the verge of turning bad have risen substantially this year. One reason why SMA-2 has swelled to this extent is that there are several habitual late payers in the banking sector. Technically, these loans are standard but not far from falling into the NPA category. Under the RBI norms, a loan is tagged as NPA only when interest payments are overdue on the 91st day. 

How big is SMA-2? 

That’s the tricky part. Banks do not share the data on SMA-2 loans, says Vaibhav Agrawal, vice-president, research at Angel Broking Ltd. Ambit Capital, in a recent report on ICICI Bank, also mentioned the problem of loans that fall in the SMA-2 category. The amount of loans that were falling behind in payments, but were still classified as standard loans, nearly doubled in the last fiscal year, increasing the risk of higher bad loans in the future, said the Ambit report.

“The delinquency breakup of the standard loan book suggests that early delinquencies (31-90 day due) have almost doubled from 3.6 percent of loans as of 2013-14 to 6.4 percent of loans as at 2014-15,” Ambit has said in the report. ICICI is just one case. There are many other banks where the SMA-2 loan book has been ballooning this year….Banking analysts are largely clueless on the SMA-2 situation since banks refuse to fully share the numbers pertaining to this category with them.’’

RBI governor Raghuram Rajan’s``war’’ on NPAs will see more mergers and acquisitions, Bloomberg Business tells us. "The volume of deals in India will jump from a five-year high as banks, racing to meet a 2017 deadline to tidy up the books, seek to dispose of their holdings in distressed companies, M&A advisers say. Lenders have already started converting the debt owed by 10 firms into equity ever since Rajan introduced the strategic debt recovery mechanism in June. They have 18 months to find suitors and sign sale deeds."

How stories on defaulters are killed 

Consider a sample of the kind of cases in which the RBI/banks refused to reveal information and for which they got a rap on the knuckles by the Supreme Court. In one case, the RTI applicant had sought the details of the audit results of the Makarpura Industrial Estate Co-operative Bank, its inspection reports and action taken reports. The applicant also sought reports of all cooperative banks gone into liquidation, and action taken against directors and managers for recovery of public funds.

In another case, the applicant sought information on the Finance Minister’s statement to Parliament on banks having violated FEMA guidelines. One applicant sought information on loan defaulters, others on the fines imposed on banks and information on specific banks involved in currency derivative operations where Indian exporters have lost money. 

Any reporter on the beat knows the kind of clout that banks and their borrowers wield. One banking editor in a prominent pink paper killed a story on an investigation into the takeover of the Bank of Rajasthan by businessman P. K. Tayal’s group. Tayal came to the newspaper’s office soon after he learnt that they had the story and made quite a show.

The story was killed without giving the reporter any reasons. Days later, when the newspaper carried a supplement to mark an anniversary of the bank the  same reporter was sent to do interviews for this supplement. 

A prominent public sector bank refused to recover a loan from a prominent businessman from south India because the esteemed borrower said he didn’t have the money to pay up, even though he was an MP and travelled to Delhi whenever required on his private jet to attend Parliament. Until, that is, some independent directors asked the bank managers: Why in God’s name were those loans being rolled over for so long? Not surprisingly, this story too was killed by a so-called `bold’ newspaper.

Naming and shaming defaulters – but who is interested?

Vishwas Utagi, senior vice president of the left wing All India Bank Employees Association (AIBEA) says that, since 1995, the AIBEA has taken out huge morchas to Parliament to highlight the issue of bad loans, held 60 small and big strikes, and defied the secrecy laws to bring out a list of defaulters. Its latest list is dated June 2015. An earlier one, issued in 2013, listed 400 top loan defaulters.

The AIBEA, by its actions,  dared the RBI to move against the association’s members, who had released names of defaulters, since they were all bank employees and the secrecy laws applied to them also, but there was hardly any action. In short, the bogey of secrecy is being used to protect defaulters much like the threat of alleged contempt of court is used to curb journalists.  

After the AIBEA’s lists were released, newspapers did not do detailed  stories on them, as one would have expected. ``The response of the press is always lukewarm. They take our bytes, but then don't show them. The reporting, especially on TV, is always selective,'' says Utagi.

He recalls that J J  Irani, chairman of the erstwhile TISCO, sued Tarkeshwar Chakraborty of the AIBEA for defamation over a press conference in 1995 where Chakraborty and A. B. Bardhan, former secretary general of the CPI, named TISCO as one of the top loan defaulters.   

Utagi says the annual financial inspection reports (of the RBI) for each bank must be made public. ``Several people in the boards (of directors) of the banks will have no face to show,'' he says. 

Journalists know that some banks, including some big names, are chronically weak in financial prudence. Their names show up in scandals again and again. But the media jumps in only when the fraud is discovered. The Supreme Court ruling has changed all that. Now over to us….