When it comes to writing off bad loans, especially of big defaulters, all public sector banks (PSBs) follow the same strategy and get tax benefits too. The latest in our long line of revelations is United Commercial Bank (UCO Bank) which wrote off Rs25,266 crore bad debt of while recovering just 7% or Rs1,702 crore from all defaulters. This was informed to Pune-based RTI activist Vivek Velankar who sought information for a nine-year period from FY11-12 to FY19-20.
In the past four years alone, the Bank wrote off bad loans of Rs10,361 crore belonging to big defaulters (Rs100 crore and above) and recovered just Rs529 crore or just 5%. Mr Velankar, who is also the president of the Pune-based Sajag Nagrik Manch, says, "UCO Bank does not have any information on loans written off and recovery made from big defaulters between FY11-12 and FY15-16. The bank only shared information on big defaulters for FY15-16 to FY19-20.” Of this, recovery during FY16-17 and FY17-18 has been NIL.
What is more shocking for Mr Velankar is the host of excuses given by the PSBs for refusing to part with names of big defaulters who owe them Rs100 crore and more. "Even assuming that the information about big defaulters cannot be shared by banks (this is of course, untrue as this information is part of the banks' mandatory reporting to the Reserve Bank of India-RBI, and hence cannot be denied under any section of RTI Act), how is it that every bank is citing a different section of RTI Act for such refusal? For example, Canara Bank denied me this information under section 8(1)(j), while the Punjab National Bank (PNB) cited sections (8)(1)(d), (8)(1)(j) and 8(1)(e).” he says.
UCO Bank too refused to share the list of names of defaulters’ under Section 8(1)(d) and 8(1)(e) of the RTI Act. In its reply, the lender says, "This information is exempted from disclosure under Section 8(1)(d) and 8(1)(e) of the RTI Act."
In his 2011 judgement (Decision No. CIC/SG/A/2011/002069/16018), former central information commissioner Shailesh Gandhi had ruled, “...in order to claim the exemption under Section 8(1)(d) of the RTI Act, the PIO must establish that disclosure of the information sought (which may include commercial or trade secrets, intellectual property or similar information) would result in harming the competitive position of a third party."
Section 8(1)(e) of the RTI Act exempts from disclosure "information available to a person in his fiduciary relationship, unless the competent authority is satisfied that the larger public interest warrants the disclosure of such information."
Mr Gandhi, in his judgement had said, "All relationships usually have an element of trust, but all of them cannot be classified as fiduciary. Information provided in discharge of a statutory requirement, or to obtain a job, or to get a licence, cannot be considered to have been given in a fiduciary relationship."
Even the Supreme Court, in its 2015 judgement ruled that the RBI cannot withhold information citing 'fiduciary relations' under the RTI Act. "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 Bench had said. (Read: RBI cannot withhold information under RTI citing ‘fiduciary relations’: SC)
Coming back to the UCO Bank case, an aggrieved Mr Velankar says, "When State Bank of India (SBI) can share names of big defaulters whose loans of Rs100 crore and above are written off, why can’t the other PSBs do the same? Why are these banks hiding the names of big defaulters using fictitious reasons under the RTI Act? In fact, all PSBs should have suo moto published the names of defaulters, whose loans have been written off and there is almost no recovery."
"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.
Such write-offs also debunk the aggressive posturing by the government and policy-makers about their so-called recovery efforts.
Union Bank of India too 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).
(Read: Union Bank of India Writes Off Rs26,027 Crore as Bad Loans in 8 years; Stalls Query on Recoveries and Big Defaulters’ Names)
Bank of Maharashtra has written off bad loans of over Rs7,402 crore in the past, while recovering a paltry 4% in over eight years through recovery efforts. The lender wrote off bad debts worth Rs7,402 crore during four out of the past eight years, while recovering just Rs253.55 crore. (Read: Bank of Maharashtra Writes Off Rs7,100 Crore Bad Loans; Recovers Just 4% in 8 Years)
From 2012 to 2020, BoB had technically written off 97 accounts with bad debts of Rs100 crore and more. These add up to Rs21,476.89 crore over eight years, while recovery in that same period is just 4.91% or Rs1,056.53 crore. (Read: Bank of Baroda Follows SBI, Writes Off Rs21,474 Crore in Bad Loans; Recovers only Rs1,057 Crore in Past 8 Years)