IDBI Bank Ltd, which has received multiple bailouts in the past few years, is the latest to join the list of lenders that wrote off tens of thousand crore rupees as bad loans. The Bank was re-categorised as a private sector lender in January 2019 after the Life Insurance Corporation of India (LIC) increased its stake to 51% in the lender. During the past seven years, IDBI Bank wrote off total bad loans worth Rs45,693 crore but could recover just 8% of it after spending more than Rs29 crore, as the analysis of annual reports of the Bank shows. The analysis is done by well-known activist Vivek Velankar as per response from IDBI Bank under the Right to Information (RTI) Act.
The government has repeatedly infused large sums of money to bailout the Bank and help it meet capital adequacy requirements; this in addition to LIC acquiring a 51% stake in a bailout move.
IDBI Bank flatly refused to share information on loans of Rs100 crore and above that were written off, the names of these borrowers and the money recovered from these big defaulters with the activist.
Rather than furnishing information about the written off debts, IDBI Bank directed the RTI activist to find out details for himself from the Bank’s annual reports for it. Mr Velankar did that and found that during FY13-14 to FY19-20, IDBI Bank wrote off bad loans of Rs45,693 crore, including technical or prudential write-offs and loans written off other than technical or prudential. The Bank recovered just Rs3,704 in the same period crore for which it incurred an expense of Rs29.34 crore.
(Source: Vivek Velankar, Pune)
As on March 2020, IDBI Bank has shown Rs40,313.95 crore as the written off amount, of which it had recovered Rs1,247.60 during the fiscal year. The annual report, however, does not mention the period during which this amount has been accumulated.
What is even stranger is the reply given by IDBI Bank to Mr Velankar about sharing information on loan accounts worth Rs100 crore and more that were written off. In its reply to the RTI, the lender says, "Sought information is disproportionately diverting the resources of the Bank; Hence the same is exempted from disclosure under section 7(9) of the RTI Act."
Further, IDBI Bank ought to have published on its website the names of big defaulters whose loans of Rs100 crore and above have been written off. Yet, in its reply the Bank told Mr Velankar, "The information sought is pertaining to the customers/ borrowers of the bank, which is in the nature of commercial confidence and also held such information by the bank in its fiduciary relationship, and hence the same is exempted from disclosure under section (8)(1)(d) and 8(1)(e) of RTI Act. Further, there is no larger public interest that warrants disclosure of such information under RTI Act."
However, much of this information has also been published by the All India Bank Depositors Association (AIBEA), and, yet, IDBI Bank’s sympathies seem to lie with the big defaulters.
The amounts written off by the IDBI Bank eat into its profits and cause a range of charges to be slapped on ordinary depositors. Yet, the Bank asserts that there is no larger public interest involved, even though it relates directly to money in the form of savings accounts and deposits made by common people.
Yet, almost all PSBs (public sector banks) hide behind the so-called fiduciary relations, overlooking the judgement given by the Supreme Court. In November 2015, a division bench of justice MY Eqbal and justice C Nagappan had held that the Reserve Bank of India (RBI) cannot withhold information citing 'fiduciary relations' under the RTI Act. (Read: RBI cannot withhold information under RTI citing ‘fiduciary relations’: SC
"In the instant case, the RBI does not place itself in a fiduciary relationship with the financial institutions (though, in word it puts itself to be in that position) because, the reports of the inspections, statements of the bank, information related to the business obtained by the RBI are not under the pretext of confidence or trust. In this case neither the RBI nor the Banks act in the interest of each other. By attaching an additional 'fiduciary' label to the statutory duty, the regulatory authorities have intentionally or unintentionally created an in terrorem effect," the apex court had said.
All banks are mandated to furnish information to RBI on bad loans, loans written off and recovery on a periodic basis as part of the statutory requirements. Under such a situation, banks cannot even use the clause of fiduciary relation to deny information under the RTI Act, since this information that they have, had already been submitted to the RBI as a statutory obligation.
As the Supreme Court had rightly pointed out, RBI and the banks have sidestepped the general public’s demand to give the requisite information on the pretext of 'fiduciary relationship' and 'economic interest'. This attitude of the RBI will only attract more suspicion and disbelief in them. RBI as a regulatory authority should work to make the banks accountable to their actions, the apex court had said.
Mr Velankar, president of the Pune-based Sajag Nagrik Manch, also says the same thing. He says, "If this information is in commercial confidence or held under fiduciary relation, then how did SBI share the names of its top 225 defaulters, whose loans were written off? Or does the definition of commercial confidence or fiduciary relations change with every bank? Moreover, why do the names and loan amounts written off by these big defaulters need to be kept a secret?"
"When a common borrower defaults, the same bank publishes his name and all the details through advertisements in newspapers. Why do they want to keep the names of bigger defaulters hidden? Why don’t the 'confidentiality' and 'fiduciary relation' clauses apply while publicising the names of the common borrowers?" he asks.
Technically speaking, when debts are written off, they are removed as assets from the balance sheet because the bank does not expect to recover payment.
This practice is frowned upon by experts but is routinely done by banks as part of their tax management clean-up process. The beneficiaries are invariably some of our biggest industrialist defaulters.
In contrast, when a bad debt is written down, some of the bad debt value remains as an asset because the bank expects to recover it. However, as SBI, BoB, BoM and UBI have shown, most of the times, there is no recovery or negligible recovery for the amounts written off.
As reported by Moneylife, Union Bank of India wrote off bad debt worth Rs26,072.81 crore between FY11-12 and FY19-20 (this information pertains only to loans of over Rs100 crore).
A few months ago, there were a lot of heated arguments about written off loans of big defaulters. In April, the Reserve Bank of India (RBI) had said that Indian banks have technically written off a staggering amount of Rs68,607 crore due from 50 top wilful defaulters, including absconding diamantaire Mehul Choksi. RBI had revealed this information in reply to an RTI query filed by Saket Gokhale.
However, at that time, everyone from the government, including the Union finance ministry and supporters of the government had insisted that technical write-off does not mean waiving off loans and efforts are on for the recovery of these written off loans.
Meanwhile, State-run lenders continue to write off huge amounts of bad loans without any real effort on recovery. All this happens, as Mr Velaknar has rightly pointed out, due to lack of checks and balances in banks by the regulator and the concerned authorities. In the end, it is the common bank customer who pays for all this financial manipulation and bad book-keeping, either through increased charges for every service or by receiving lower interest rates from the lenders on deposits or savings account.