The Communist Party of India (CPI) MP Binoy Viswam has written a letter to India’s Finance Minister Nirmala Sitharaman, expressing his concern about the recent circular issued by the Reserve Bank of India (RBI), which permits banks to enter into a one-time settlement with wilful defaulters. Viswam argues that the move poses significant risks to the stability of India’s financial institutions and undermines the fundamental principles of responsible lending and borrower accountability.
Viswam pointed out that the circular, which offers lenient settlement terms to individuals and entities that have deliberately evaded their repayment obligations, not only “erodes public confidence in our banking sector but also creates moral hazards by incentivizing reckless borrowing and default.” He further added that it unfairly disadvantages honest borrowers who diligently fulfill their repayment obligations, perpetuating a culture of impunity.
He also noted that a government response to an RTI query revealed a substantial increase in the reduction of NPAs due to write-offs and technical/prudential write-offs/AUC in recent years. Thus, it undermines the principle of holding wilful defaulters accountable for their actions and raises questions about the effectiveness of such measures in promoting accountability and deterrence against wilful defaulters.
Allowing wilful defaulters to negotiate settlements that may not adequately recover the outstanding loan amount is seen as a measure that should be discarded on moral and financial grounds.” The policy fails to differentiate between genuine borrowers facing financial hardship and those intentionally evading repayment, undermining the integrity of the banking system. Therefore, it is imperative to prioritize the rights and interests of responsible borrowers who contribute to the growth and stability of India’s economy.
