People’s Commission demands withdrawal of RBI circular on loan write-offs

Contrary to the government claims, loan write-offs by government and private banks have shown a phenomenal increase, according to People’s Commission on Public Sector and Public Services (People’s Commission).
The People’s Commission is a body comprising eminent academics, jurists, erstwhile administrators, trade unionists and social activists.
Opposing the Reserve Bank of India’s (RBI) statement on allowing compromise settlement of loans with fraudsters and wilful defaulters the People’s Commission said fraud and wilful default are criminal offences.
In a statement the People’s Commission said: “Write-offs by public sector banks increased from Rs7,187 crore in 2013 to Rs119,713 crore in 2022. Among these public sector banks, the State Bank of India has in the last 10 years written off the highest total amount, at Rs297,196 crore. It is followed by Punjab National Bank at Rs92,511 crore, the Bank of Baroda at Rs75,429 crore and the Bank of India at Rs 53,961 crore.”
In the case of private banks, the total write-offs increased from Rs 4,115.02 crore in 2013 to Rs 53,087.03 crore in March 2022.
“The total write-offs by public sector banks and private sector banks in the 2021-22 financial year stands at Rs1,72,800 crore, which is much higher than the amount allocated to any of the three key social sectors namely MGNREGA, Health or Education in 2023-24,” the People’s Commission added.
“When it comes to bank frauds, the track record of the last few years is alarming. They rose nearly 17-fold from Rs34,993 crore in the 2005-14 period to Rs5.89 lakh crore in the 2015-23 period. That is nearly a 17-fold increase,” the People’s Commission said.
A criminal offence committed by a borrower in terms of misappropriating the funds borrowed on the basis of false statements cannot be wished away by the executive instructions issued by RBI. Such instructions are not legally sustainable. In a way, such instructions also amount to abetting criminal offences, the People’s Commission said.
The body has urged RBI to withdraw its circular immediately as it can issue instructions only in the larger interest of the public or in the interest of the depositors, an objective explicitly stated in the banking regulation legislation.
“RBI’s circular being neither in the public interest nor in the depositor’s interest is violative of the relevant legislation,” the People’s Commission said.
“RBI must not become a party to giving such a golden handshake to fraudsters and wilful defaulters in the name of conferring discretionary powers on the respective banks, as it sets a wrong precedent,” the statement notes.
Last month RBI said banks can be allowed for write-offs and compromise settlements for even frauds and wilful defaulters “without prejudice to the criminal proceedings underway against such debtors.”