Bank Unions AIBOC, AIBEA Oppose RBI's Decision To Allow Compromise Settlement for Wilful Defaulters
Moneylife Digital Team 13 June 2023
Criticising the move by Reserve Bank of India (RBI) to allow banks and lenders to settle loans of wilful defaulters under compromise settlement, the All India Bank Officers' Confederation  (AIBOC) and All India Bank Employees Association (AIBEA) call it a detrimental step that may compromise the integrity of the banking system and undermine the efforts to combat wilful defaulters effectively. AIBOC and AIBEA have urged RBI to review and withdraw its decision and instead focus on implementing robust measures to hold wilful defaulters accountable for their actions. 
 
In a joint release, the bank unions representing over 600K (thousand) employees say, "It is worth noting that wilful defaulters significantly impact the financial stability of banks and the overall economy. By allowing them to settle their loans under the compromise, the RBI is essentially condoning their wrongful actions and placing the burden of their misdeeds on the shoulders of ordinary citizens and hardworking bank employees."
 
Last week, RBI released a framework for compromise settlements and technical write-offs. Among others, the framework allows regulated entities (REs) to undertake compromise settlements or technical write-offs regarding accounts categorised as wilful defaulters or fraud without prejudice to the criminal proceedings against such debtors.
 
RBI says that for undertaking compromise settlements with the borrowers and technical write-offs, REs should implement board-approved policies. "Compromise settlement for this purpose shall refer to any negotiated arrangement with the borrower to fully settle the claims of the RE against the borrower in cash; it may entail some sacrifice of the amount due from the borrower on the part of the REs with the corresponding waiver of claims of the RE against the borrower to that extent."
 
"Technical write-off for this purpose shall refer to cases where the non-performing assets remain outstanding at borrowers' loan account level but are written-off (fully or partially) by the RE only for accounting purposes, without involving any waiver of claims against the borrower, and without prejudice to the recovery of the same," the framework says.
 
However, both AIBOC and AIBEA say as key stakeholders in the banking industry, they have always advocated for strict measures to address the issue of wilful defaulters. "We firmly believe that allowing compromise settlement for accounts classified as fraud or wilful defaulters is an affront to the principles of justice and accountability. It not only rewards unscrupulous borrowers but also sends a distressing message to honest borrowers who strive to meet their financial obligations," the bank unions say.
 
In February 2016, the Parliamentary standing committee on finance recommended the accountability of nominee directors of RBI and the finance ministry on the bank boards as well as the chairman and managing directors (CMDs) or MDs of banks. However, the list of top wilful defaulters, as suggested by the standing committee, is yet to be published. 
 
For all compromise settlements and technical write-offs, RBI says, the (RE) board-approved policy should comprehensively lay down the process to be followed with specific guidance on the necessary conditions precedent, such as minimum ageing and deterioration in collateral value. "The policies should also put in place a graded framework for the examination of staff accountability in such cases with reasonable thresholds and timelines as may be decided by the board."
 
However, AIBOC and AIBEA point out that none of the boards of these banks has employees or officer directors appointed by the government. "Despite the statutory and regulatory provisions, the government is yet to appoint the workmen and officer directors on bank boards. Many other vacancies in the banks' boards are also kept unfilled. Are these crucial posts kept unfilled deliberately so that the truncated boards can approve all these compromise proposals without any opposition?" the unions ask.
 
"We urge the RBI to prioritise the protection of the interests of honest borrowers and depositors who rely on the integrity of the banking system. The banking sector plays a crucial role in the nation's economic growth and any compromise undermining its stability and credibility is undesirable," AIBOC and AIBEA say.
Comments
motivatorstrong
1 year ago
Mr RBI GOVERNOR, BY ENCOURAGING SUCH COMPROMISES, THE NEW START-UOS R BOUND TO GET RICH MILLIONAIRES AT V COMMONAN" COST, WHILST U GET YR SHARE UNDER N ANV THE TABLE,U R AHSOLUTE LOOTER LIKE GIJAH MXLLTA, JYST PUPPET OV GOBDA GOBDU GOBDI
yerramr
1 year ago
As per RBI guidelines in the Master Circular on Wilful Defaulters, Banks should constitute a high-level committee to give opportunity to the defaulter that he was not a wilful defaulter. There are very few cases where this happened. There are number of cases where banks whimsically declared a defaulter as wilful defaulter, particularly, if the collaterals are adequate. If they are really the wilful defaulters, why should the banks wait to take action legally and recover the dues? There is a catch. The present guidelines requiring settlement of dues of wilful defaulters follows the procrastination on the part of the banks. Better late than never.
chakrabortyubi
1 year ago
This is nothing but routine exercise of Unions in issuing statement.
The said practices being practiced since long along with other evil acts at the cost of national exchequer and people's money. The stakeholder and the regulator are also party in undermining stability and credibility of country's PSBs.
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