Should all corporate defaulters be named and shamed? Not really, says Reserve Bank of India (RBI) governor Raghuram Rajan.
Of late, the central government has been under pressure to submit before the supreme court names of companies and promoters who have defaulted on repayments. Rajan, however, thinks it isn’t a great idea unless they are wilful defaulters—not repaying banks despite being capable of it or using the borrowed funds for purposes other than for which they had borrowed.
Blanket shaming will only hamper entrepreneurship and “chill the business activity” in the country, according to Rajan. That is why RBI wrote to the supreme court to reconsider it’s order to name the defaulters, Rajan said. He was speaking at a press conference on Tuesday (April 5) after announcing the monetary policy.
Rajan explained the rationale behind RBI’s plea.
“Some of you here might have defaulted on your credit card payment, unknowingly, but will you like your name to be declared publicly every time you miss a payment?” he asked reporters.
“The act of default happens in business, and sometimes it isn’t the promoter’s fault. The demand is sometimes low or the courts rule on stopping some projects. The reasons are varied. I get at least one letter everyday from a promoter saying that he/she wasn’t responsible for the default,” Rajan said.
In situations of default, he said, it isn’t right to publicly name the promoter without going into why it happened. “There are many minor details that a layman might not understand. We have no problem if the wilful defaulters’ list is published,” he said.
Lately, corporate defaulters—promoters specifically—have drawn flak for their companies’ unpaid debt. The latest case to make headlines was that of the Vijay Mallya-owned Kingfisher Airlines. The defunct airline has failed to repay over Rs9,000 crore owed to banks. Mallya—declared a wilful defaulter—has allegedly “fled” India, though he has rejected the accusation.