Wilful default cases on the rise: Banks filed suits against 36,150 NPA accounts to recover Rs 9.26 lakh cr in FY23

Banks are expected to see a significant surge in wilful defaults, as per data available on TransUnion Cibil. In September, the Reserve Bank of India (RBI) had proposed draft master directions on the treatment of wilful defaulters and large defaulters to refine the identification process. The central bank has said that a borrower will be classified as a wilful defaulter within six months of the account becoming a non-performing asset (NPA). Earlier, it did not have a specific timeline within which such borrowers had to be identified.

As per data on credit information company TransUnion Cibil, the number of wilful defaulters has gone up by nearly Rs 50,000 crore to Rs 353,874 crore involving 16,883 accounts as of March 2023 as against Rs 304,063 crore (14,899 accounts) in March 2022. About 77 per cent of the total wilful defaults are accounted by nationalised banks and SBI.

The State Bank of India (SBI) has reported 1,921 wilful default accounts, involving Rs 79,271 crore, Punjab National Bank Rs 41,353 crore, Union Bank Rs 35,623 crore, Bank of Baroda Rs 22,754 crore, and IDBI Bank Rs 24,192 crore.

Banks, all types, have filed suits against 36,150 NPA accounts to recover Rs 9.26 lakh crore as of March 2023. Many of these legacy accounts are likely to be added to the wilful default category when the RBI issues the final guidelines.

In December 2021, there were 14,202 wilful default accounts involving Rs 285,474 crore. In December 2020, there were 12,907 accounts for Rs 245,767 crore.

State Bank of India (SBI) topped the list with 1,881 wilful default accounts for Rs 79,227 crore as of December 2022, followed by PNB at Rs 38,333 crore (2,143 accounts), Union Bank of India Rs 35,561 crore (1,747 accounts), IDBI Bank Rs 23,601 crore (335 accounts) and Bank of Baroda Rs 23,879 crore (2,203 accounts), according to data from Cibil website. Public sector banks account for 85 per cent of the wilful defaults at Rs 292,865 crore.

Among private banks, Axis Bank had 607 wilful default accounts for Rs 2,005.9 crore, ICICI Bank 59 accounts for Rs 2,136.5 crore and HDFC Bank 49 accounts for Rs 505.5 crore. Private banks (excluding IDBI Bank) reported 1.822 such accounts for Rs 30,809 crore as of December 2022.

As per RBI, wilful defaulters are those who have the ability to pay a bank’s dues but do not divert bank funds.

While large defaulter means a defaulter with an outstanding amount of Rs 1 crore and above, and whose account has been classified as doubtful or loss, a wilful defaulter means a borrower or a guarantor who has committed wilful default and the outstanding amount is Rs 25 lakh and above.

In its September circular, RBI said: “The instructions on wilful defaulters have been revised after a review of the extant instructions and consideration of various judgments/ orders from the Hon’ble Supreme Court and Hon’ble High Courts, as well as representations/ suggestions received from banks and other stakeholders.”

The draft Master Direction expands the scope for Regulated Entities which can classify borrowers as wilful defaulters, broadens the definition of wilful default, refines the identification process and mandates a review and finalisation on wilful default aspects within six months of an account being classified as a non-performing asset, RBI said.

Rule applicability

The new rules are proposed to be applicable to all regulated entities, including banks, non-bank lenders including housing finance companies, Co-operative Banks, Regional Rural Banks, Local Area Banks, and All India Financial Institution (AIFI) including NABARD, SIDBI, EXIM Bank, NHB and NaBFID.

However, wilful defaulters will be eligible for compromise settlements as per a June 8, 2023 circular of the RBI.

Earlier, the Supreme Court had passed an order that made it mandatory for lenders to give borrowers a chance to represent themselves before declaring an account as fraudulent.

In August, the Finance Ministry told the Rajya Sabha that top 50 wilful defaulters owe Rs 87,295 crore to banks and financial institutions. These wilful defaulters include fugitive Mehul Choksi’s Gitanjali Gems Limited, Rishi Agarwal’s ABG Shipyard Limited, REI Agro Limited, and Era Infra Engineering Limited. Of these wilful defaulters, top 10 owe a whopping Rs 40,825 crore to scheduled commercial banks (SCBs).

Citing RBI's provisional data for FY22-23, Minister of State for Finance Dr Bhagwat Karad said that the SCBs have written off an aggregrate amount of Rs 10,57,326 crore during the last five years. "The Reserve bank of India (RBI) has apprised that the amount owed by top 50 wilful defaulters in SCBs was Rs 87,295 crore as on March 31, 2023," he was quoted as saying by PTI. Fugitive Mehul Choksi’s Gitanjali Gems is the biggest wilful defaulter as it owes Rs 8,738 crore to banks.

Gitanjali Gems is followed by Era Infra Engineering Limited (Rs 5,750 crore), REI Agro Limited (Rs 5,148 crore), ABG Shipyard Limited (Rs 4,774 crore), and Concast Steel and Power Limited (Rs 3,911 crore). Other wilful defaulters include Rotomac Global Private Limited (Rs 2,894 crore), Winsome Diamonds and Jewellery Limited (Rs 2,846 crore), Frost International Limited (Rs 2,518 crore), Shri Lakshmi Cotsyn Limited (Rs 2,180 crore), and Zoom Developers Private Limited (Rs 2,066 crore).

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