An error in reporting wilful defaulters to credit information company TransUnion Cibil by AU Small Finance Bank (SFB), because of duplication of outstanding loans, has led to a 10-fold rise in the bank’s wilful defaults.
Data from TransUnion Cibil shows that the Jaipur-based small finance bank’s wilful defaults jumped to ₹179 crore in the September quarter of FY19 from ₹18 crore in the June quarter.
However, a look at the geography-wise disaggregated data shows that every director and co-borrower has wrongly been shown to have the same individual outstanding loan as the company, thus leading to the hugely inflated number.
A wilful defaulter is a borrower who has defaulted in repaying loans to lenders even when it has the capacity to do so or if it has not utilized the loan for the specific purposes for which finance was availed of and has instead diverted the funds for other purposes. Other criteria include siphoning-off of funds and disposing of or removing movable fixed assets or immovable property for securing a term loan without the knowledge of the lender.
For instance, in Madhya Pradesh, Gopi Pipe House owes AU SFB ₹4.6 crore, but data shows each of the two other co-borrowers also owe ₹4.6 crore individually. This gives the impression the wilful defaulter’s outstanding loans are ₹13.8 crore, instead of ₹4.6 crore.
In another instance, wilful defaulter Kotecha Industries Ltd owes ₹3 crore, but its directors are shown to owe ₹3 crore each as well, leading to an inflated number of ₹15 crore. In an emailed response, Sunil Parnami, chief of M&A and investor relations at Au SFB, said the bank was only trying to comply with RBI’s directives when it reported borrowers and co-borrowers, along with the entity.
“(The RBI directives) require that once a person is declared a wilful defaulter, many sanctions are imposed on them like no further lending, no directorship, (and commencing) criminal action against them,” said Parnami.
Reporting just their names without the amount would not suffice, which is why the amount gets repeated, he said.
The bank clarified that it has reported two new borrowers of ₹21.74 crore in the September quarter and that the actual wilful defaults stood at ₹39.34 crore, instead of ₹179 crore as shown on TransUnion Cibil’s database.
An email sent to TransUnion Cibil did not elicit a response till press time.
Other lenders, data showed, have not faced this problem as they have clubbed all directors under one column and the total outstanding loan of the company in a separate one.
RBI has mandated banks to submit a list of suit-filed accounts and non-suit filed accounts of wilful defaulters of ₹25 lakh and above on a monthly or more frequent basis to credit information companies. Only a handful of lenders have submitted their wilful defaulter data for the September quarter. According to June quarter data, wilful defaults stood at ₹1.39 trillion, with State Bank of India having the largest share at ₹34,159 crore.
Identifying a wilful default is not easy. The evidence of wilful default is examined by a panel headed by an executive director and two other senior officers of the rank of general manager or deputy general manager of the bank. If the panel concludes that wilful default has occurred, it issues a show-cause notice to the borrower and calls for their submissions. After considering the submissions, it issues an order on wilful default, giving the reasons.
The order of the panel is then reviewed by another committee headed by the chairman or managing director and chief executive officer of the bank and consisting of two independent directors. The order becomes final only after it is confirmed by this review committee.