CVC now targets bank defaulters

CVC now targets bank defaulters
ENS ECONOMIC BUREAU

MUMBAI, FEB 15: After creating a sensation by making the names of the corrupt bureaucrats public, Central Vigilance Commissioner (CVC) N Vittal has now turned his attention to banks. He has asked the Reserve Bank of India to permit banks to make the names of willful defaulters public in an effort to clean up the banking system and introduce transparency.

Banks have been groaning under the weight of massive non-performing assets (NPAs) and their performance has been severely affected by corporate defaults. The collective NPAs of all banks currently stand at a whopping Rs 58,000 crore. Banks like SBI, Indian Bank, Uco Bank and United Bank have run up NPAs following massive defaults by corporates. The issue has already been taken up with RBI deputy governor S P Talwar, Vittal said at the inauguration of Union Bank of India's wide area network (WAN) on Tuesday.

"There is no reason why banks cannot make the names of willful defaulters public," Vittal said. The RBI has reportedly conveyed to the CVC that such ameasure cannot be implemented in the near future as it would require changes to the Banking Regulation Act. The secrecy clause of the Act bars banks from revealing the identity of borrowers, even though they are willful defaulters. The commissioner said that he was examining the legal opinions on this.

"I have called upon bank chiefs to exchange information on willful defaulters," Vittal said, adding "such a measure will ensure that some borrowers do not go around cheating banks".

As of now, banks don't disclose the names of loan defaulters. Banks are allowed to disclose the names of defaulters against whom suits have been filed in the court. Some banks have even given more loans to defaulters, making a mockery of prudent lending standards. Reserve Bank officials have in the recent past hinted at enabling banks to reveal names of defaulters, even if there is no litigation taking place. There has been little progress on this front, since there are legal issues to be settled before allowing such a measure.Bank unions are also in favour of publishing the names of defaulters. When the Confederation of Indian Industry (CII) recently came out with a report proposing closure of three weak public sector banks - Indian Bank, Uco Bank and United Bank of India - bank unions opposed any such move and threatened to retaliate by revealing the names of loan defaulters from the corporate sector.

Vittal said lack of transparency and delay were responsible for shielding the corrupt in the system. "In a criminal court case, the names of the accused are known even though they are innocent till proved guilty. Why should the names of persons facing departmental inquiry be kept secret?" he asked, referring to the recent controversy about making the names IAS and IPS officers public before they were proved guilty.

He said the move highlighted the fact that even after several years, chargesheets had not been issued in some departmental inquiry cases. This indicated the inefficiency of the departments or an intention to protectthose facing charges, he added. On the CVC directive to banks to computerise at least 70 per cent of their operations, he said it would check frauds.

"The banking sector is still not as open to competition as some other sectors. The choice appears to be between annihilation and becoming bankrupt by not adopting information technology," he felt. He mooted a bank-wide digital nervous system and interconnection between branches to put financial transactions online.

Banks could also piggy back on the network infrastructure of other organisations like ONGC and SAIL, instead of making an upfront investment, Vittal said. He commended the Union Bank of India plan to connect all its branches on a a wide area network. The bank has already set up local area networks at 53 administrative offices and introduced intra-office e-mail.

It has now received Department of Telecom Services approval to link all its offices and 200 branches on a 64 Kbps fibre optic link. It is also testing an internet banking product withretail and corporate banking features.