Not all defaults are criminal in nature: Rai

MUMBAI: Not all loan defaults are “wilful” and stressed assets problems should not be magnified as it may make lenders more risk-averse towards fresh lending, Banks Board Bureau chairman Vinod Rai said on Wednesday.

“The banking sector has seen considerable stress in recent years. However, we should not allow the cacophony of uninformed voices to debilitate the decision-making capability of bank executives,” Rai said while addressing students of the National institute of Bank Management, Pune. “After the Southeast Asian crisis, Indian banks underwent very challenging times, but emerged stronger. Quite often the problems are creations of the global economy. Nevertheless, these need not be magnified to create an alarmist situation leading to a backlash wherein banks become risk-averse whether in lending afresh or settling old cases.”

A former Comptroller and Auditor General, Rai, said not all defaults are wilful and not all lending activities, even if it is to salvage some stressed accounts, can be branded as corrupt practices. “Defaults merely amount to a breach of contract and hence are not necessarily criminal in nature. It would attract criminal prosecution only if fraudulent or dishonest intention is established. Thus defaults occurring on account of a downturn in the economy or adverse external factors cannot be construed as cheating or borrowing with a malafide intent.”

On the fear psychosis among bankers of being hounded by vigilance officials when executives take decisions to advance loans or conclude settlements of stressed loans, Rai said there is no intention of any agency to launch any kind of witch hunt. “In fact, the attempt will always be to defend transparent and well-considered decisions taken in good faith, which went awry for conditions beyond the control of the lender or the borrower. ”