The non-performing assets (NPAs), a consequence of reckless lending by banks, has been a huge legacy problem in India. With bad loans amounting to nearly Rs 10 lakh crore, India has earned the dubious distinction of ranking fifth in the world among the nations with high NPAs. The solution lies not in mutual finger-pointing by political parties but in undertaking a comprehensive structural reform. Former RBI Governor Raghuram Rajan deserves credit for initiating an earnest exercise to clean up the books and hold the banks accountable. Against this backdrop, the Central Information Commission’s recent directive to the RBI to reveal the names of wilful loan defaulters is a welcome move. It will let citizens know who all had failed to repay the loans to the banks. After all, it is the public money that is given to corporate borrowers and bad loans impose a heavy cost on the economy. This piece of information is also material to the share prices of listed companies that are in distress, and will enable an investor to take a call on whether to hold her investments. Though hesitant initially, the RBI has now sought time till November 26 to put the names of wilful defaulters in public domain. This will enable citizens to have access to the information. Central Information Commissioner (CIC) Sridhar Acharyulu has rightly ruled that it would be illegal for the RBI to hold information on loan defaulters and the institution is duty-bound to comply with provisions of the RTI Act.
There is no valid reason for banks to hide from the public the information about frauds eating into the vitals of the economy. Since the Supreme Court has already ruled that the RBI is clearly not in any “fiduciary relationship” with any bank, it must honour the apex court’s directive and uphold the citizens’ right to information. By RBI’s own admission, the NPAs, at the gross level, soared to 11.6% of all advances as on March 31 this year, from 10.2% in September last year. However, it has repeatedly invoked the twin grounds of potential risk to the country’s economic interest and its ‘fiduciary’ relationship with lenders to avoid sharing the information on big defaulters with RTI applicants. Being an independent statutory body, the RBI has a duty to uphold the interests of the depositors and stability of the financial sector and must act with transparency. Bad loans not only erode faith in regulatory mechanism but also drag down the economy and vitiate the investment climate. A wider systemic reform is needed to effectively address the problem of unsustainable lending and to ensure that the future credit cycles do not stress the banking system.