Indian banking saw a 40% increase in wilful defaults in two years

Lenders' books showed wilful default accounts of $41.3 billion in December 2022
Indian banking saw a 40% increase in wilful defaults in two years
Photo: Anindito Mukherjee (Reuters)
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Indian banks have managed to bring down non-performing loans (NPA) in two years, but their wilful defaults rose by 38.5%, or $11.4 billion.

There were 15,778 wilful default accounts worth $41.3 billion as of December 2022, compared with 14,206 accounts involving $34.1 billion a year ago, The Indian Express reported today (March 15) citing Transunion CIBIL. In December 2020, there were 12,911 accounts for $29.8 billion.

The State Bank of India (SBI) holds accounts of 1,883 wilful defaulters ($9.6 billion), followed by Punjab National Bank ($4.6 billion) and Union Bank of India ($4.27 billion), according to CIBIL data. While public sector banks held 85% of the wilful defaults, private banks reported 1,523 accounts for $3.3 billion as of December 2022.

A wilful defaulter is a borrower unwilling to meet debt obligations despite having the capacity. Such an entity takes undue advantage of legal and governance loopholes, although they have been sued by their lenders.

Fugitive diamantaire Mehul Choksi, who defaulted on loans worth $951 million, tops the list. Other big names on it include ABG Shipyard, Rotomac Global, Era Infra Engineering, and Rei Agro.

“This (higher wilful default number) has nothing to do with the present. This is all a catch-up of the past. So, it is not for the defaults today but it is the default of the past and where recovery and insolvency actions are still going on,” the newspaper quoted a bank official.

NPA stress on Indian banks

A loan turns into an NPA if there is no repayment of interest or principal for a period of 90 days.

The net NPA ratio of Indian banks fell to 1.3% in September 2022 (pdf), marking its lowest level in a decade, according to the Reserve Bank of India’s latest Financial Stability Report. This was primarily because bad loans in the corporate loan portfolio improved.

This trend is likely to continue. Gross NPAs of Indian banks, which also include wilful defaults, are expected to fall to 4% by the end of March next year, according to a joint study conducted by Assocham and Crisil Ratings.

“The twin balance sheet problem has largely been addressed, creating a situation where the credit growth has started to move up significantly,” Deepak Sood, secretary general of Assocham, told the Deccan Herald.