Major wilful defaulters revealed: RBI finally discloses details under RTI

For over ten years, the RBI has denied RTI applicants this information arguing that it would be against the economic interests of the country.

Four years after the Supreme Court first directed the Reserve Bank of India (RBI) to disclose a list of India’s wilful defaulters, the central bank has finally complied.
In response to a Right to Information (RTI) application filed by The Wire in May 2019, the RBI has released a list of 30 major wilful defaulters.

For over ten years, the RBI has denied RTI applicants this information arguing that it would be against the economic interests of the country and its ‘fiduciary relationship’ with the banks disallows it from doing so.

While the Central bank has been reluctant to release this data, individual banks and lenders have always generated information on wilful defaulters in the form of suits filed for recovery of their dues. This data has, over the years, been collated by TransUnion Cibil.

According to the Central bank’s response though, three companies belonging to fugitive diamantaire Mehul Choksi are amongst the 30 major wilful defaulters that the Indian banking system is currently grappling with.

Total funded advances outstanding to these 30 companies – along with the amount the banks have written off so far – adds up to over Rs 50,000 crore.

To put this in perspective, as of December 2018, over 11,000 companies had willfully defaulted on amounts worth over Rs 1.61 lakh crore, according to TransUnion Cibil data.

The wilful defaulter data released by the RBI comes from a large centralised banking system database called ‘CRILC’ – the Central Repository of Information on Large Credits. This is a pool of data on the credit information of all borrowers who have an exposure of Rs 5 crore and above. CRILC has in the last three years been particularly useful as a data-sharing mechanism between banks as well, to identify errant borrowers and ensure they don’t try to cheat the system.

From February 2019, banks have had the option in CRILC to categorise whether a borrower is a wilful defaulter or not.

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How opportunistic behavior can worsen India's $200 bn-plus bad loan crisis

A capital-constrained economy like India can't afford a jungle raj in finance.

Snatch-and-grab is the new hallmark of Indian finance. As a banker friend in Mumbai put it to me only half-jokingly, a unit of "grabbed" cash collateral in hand is worth more than two units of hypothetical receivables.

Yet this is no laughing matter. Not only is opportunistic behavior going to worsen India’s $200 billion-plus bad loan crisis, but now that everyone from the government’s sleuths to the courts are joining the melee, the ensuing chaos will limit the recovery for lenders and threaten depositors.

Rajnish Kumar, chairman of State Bank of India, sat down for a chat with me at the Bloomberg Equality Summit in Mumbai this week. He had highlighted the problem last month by blaming what he called the selfishness of one bank for a default by Altico Capital India Ltd., a nonbank lender to property builders. When asked why his HDFC Bank Ltd. had choked Altico by helping itself to the money the shadow financier had raised elsewhere and parked with him, Aditya Puri, the managing director of India’s most valuable lender, replied: “What is out-of- turn? It is my security and I will exercise it.”

Now the regulator, the Reserve Bank of India, will decide whether Kumar’s unhappiness is a case of sour grapes or if Puri did indeed cross a line. For State Bank of India, Altico is just one of the several instances where the taxpayer-funded bank has been at the receiving end.

SBI didn’t drag tycoon Anil Ambani’s Reliance Communications Ltd. to an in-court bankruptcy process, hoping instead that Ambani would be able to sell assets to his brother Mukesh, India’s richest man, out of court. Ericsson AB, an operational creditor, pursued the opposite strategy and got itself a very decent court-enforced settlement by invoking the younger Ambani’s personal guarantee.

More recently, SBI’s Kumar received a fresh blow when India’s enforcement directorate, tasked to fight economic crime, attached the assets of insolvent Bhushan Power & Steel Ltd. on suspicion of money laundering by its previous management. Both the new owner, who won control of Bhushan during bankruptcy, and Kumar, who’s waiting for his check, are impatient. Yet, thanks to the enforcement directorate, the $2.8 billion sale has now been put on hold by an adjudicating authority.

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How Amazon, Flipkart and Mukesh Ambani can help save India's banks

Amazon Flipkart claimed record sales during the recently concluded six-day online shopping bonanza.

Business Standard : A common refrain you hear in India is, “There’s no credit in the market.”

The despondence cuts across industries as diverse as real estate, autos and road construction. An 88 per cent slump in the flow of funds to the commercial sector between April and September shows that the producers’ unease is justified.

However, one credit tap is starting to gurgle, giving some cause for optimism. Pocket-sized loans are feeding online consumption, with demand coming from smaller cities and towns. The amounts are still tiny, but as digital spending grows, financing it has the power to turn the page on Indian lenders’ underwriting of soured corporate loans: the source of a $200 billion sigh of collective agony.

Amazon.com Inc. and Walmart Inc.’s Flipkart Online Services Pvt claimed record sales during the recently concluded six-day online shopping bonanza that marks the start of the Indian festival season. Although nowhere close to Alibaba Group Holding Ltd.’s $31 billion Singles’ Day promotion in China, the Indian version of Black Friday has grown fivefold to $3 billion in four years, according to a review of this year’s sales by RedSeer, a consulting firm. Add the spending between now and Diwali, the Hindu festival of lights, and Forrester Research reckons the total for a month of online purchases may fall just shy of $5 billion.

Although the 30 per cent growth this year was slower than in the previous three, it’s a strong outcome in a weak economy. Both of India’s leading e-commerce marketplaces cited small towns – and credit – for their success. Flipkart says Tier 3 cities ordered 100 per cent more goods this year. The share of transactions using credit options grew by 70 per cent, with a majority of these people living outside of big cities. Amazon revealed that three out of four customers who availed themselves of financing came from Tier 2 and 3 cities; significantly, every second buyer who used credit did so for the first time.

All this is hardly unique to India. China’s e-commerce boom saw an explosion of microloans, with millennials buying hamburgers on credit and the buy-now-pay-later habit picking up in Indonesia. What makes India interesting is the possibility that soon even physical retail will embrace digital in-store credit – minus plastic.

A mobile-payment app with pay-later options at physical stores will be an important innovation. For all its expansion, e-commerce will account for only 7 per cent of India’s $1.2 trillion retail sales by 2021, according to Deloitte.

Can a land bank be the solution to India's huge shadow bank crisis?

India's banks are rapidly losing faith in the shadow financiers that lend to property builders.

When a well-capitalized shadow bank’s credit rating goes from A+ to D in 10 days, it shows how fragile lending to India’s builders has become. It also highlights the policy error of not addressing the root of the problem: land.

In June, three months before the unexpected default by Altico Capital India Ltd., I proposed a land bank that would buy stalled property projects from struggling developers. The bank would pay with government-backed debt securities, which the builders would use to repay loans.

To see how this could prevent liquidity problems from cascading into solvency issues, consider the Altico default. The Clearwater Capital Partners-backed firm missed a measly $2.8 million interest payment after its tight but manageable repayment schedule of $135 million became a squeeze at $233 million in the financial year that started April 1. The 63 cents of equity behind every dollar Altico owed to its creditors was of little help. Spooked by its $900 million-plus loan book for residential and commercial real-estate projects, two lenders exercised put options or reset the interest rates so high that they had to be prepaid.

India’s banks are rapidly losing faith in the shadow financiers that lend to property builders. A year after the collapse of IL&FS Group, a specialist infrastructure financier, the crisis of confidence is getting worse. Indiabulls Housing Finance Ltd. shares fell as much 38% on Monday after the central bank imposed lending restrictions on Lakshmi Vilas Bank Ltd., a deposit-taking institution the financier has been trying to merge with to bolster its funding sources.

The nervousness with shadow banks isn’t about the quality of their retail loans, which are still fairly resilient. It’s their lumpy advances that are worrying investors. Dewan Housing Finance Corp., which defaulted in June, underwrites mortgages, but it also has $5 billion of exposure to developers. As banks try to restructure Dewan, a contentious issue is the haircut they’ll have to take if the lender is forced to sell its builder loan book at a deep discount.

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