Congress questioned the latest Reserve Bank of India (RBI) instructions to the banks allowing for “technical write-offs” for accounts categorised as wilful defaults and allowing such accounts to take fresh loans after a cooling-off period. Party’s general secretary Jairam Ramesh demanded to know if the Narendra Modi-led Central Government pressurised the apex bank to frame these new directions.
On June 8, RBI issued instructions under ‘Framework for Compromise Settlements and Technical Write-offs’ that allows the banks and other financial entities to “undertake compromise settlements or technical write-offs in respect of accounts categorised as wilful defaulters or fraud without prejudice to the criminal proceeding underway against such debtors.” It also permits such accounts to take fresh loans after a 12-month “cooling period”.
Quoting the new instructions, Mr. Ramesh accused Mr. Modi of always being eager to bend rules to help his “friends in a few large business groups”.
He also pointed out that the apex bank issued instructions going against pleas opposing this policy from All India Bank Officer’s Confederation and All India Bank Employees Association which together represent six lakh bank employees. The new policy, the groups have stated, will “lead to erosion of public trust in the banking sector but also undermine the confidence of depositors.”
“They warn that ‘such leniency serves to perpetuate a culture of non-compliance and moral hazard, leaving banks and their employees bearing the brunt of the losses’,” Mr. Ramesh said.
Mr. Ramesh pointed out that banking frauds have risen 17-fold from ₹34,993 crore in 2005-14 to ₹5.89 lakh crore in 2015-23. The banks have written off loans worth ₹10 lakh crore between 2017-18 and 2021-22.
The instructions came despite the RBI itself clearly stating that “wilful defaulters would not be allowed to access capital markets or take fresh loans”.
As recently as May 29, 2023, the RBI Governor warned about the many ways in which defaulters and fraudsters conceal the true status of distressed loans.
“The RBI must immediately repeal its instructions and prevent banks from settling with wilful defaulters and fraudsters. The RBI must clarify why it thought these instructions were necessary at this time, despite its repeated warnings and instructions to the contrary. The RBI must reveal if there was any pressure from the Modi Government to issue these instructions,” Mr. Ramesh said.
