{"id":248827,"date":"2023-06-20T19:39:00","date_gmt":"2023-06-20T14:09:00","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=248827"},"modified":"2023-06-20T19:39:00","modified_gmt":"2023-06-20T14:09:00","slug":"on-defaulters-rbi-prioritises-public-interest","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/on-defaulters-rbi-prioritises-public-interest\/","title":{"rendered":"On defaulters, RBI prioritises public interest"},"content":{"rendered":"\n

Source<\/strong>– The post is based on the article \u201cOn defaulters, RBI prioritises public interest\u201d <\/strong>published in \u201cThe Indian Express\u201d <\/strong>on 20th June 2023<\/strong>.<\/p>\n

Syllabus: <\/strong>GS3- Indian economy and mobilisation of resources<\/p>\n

Relevance- <\/strong>Issues related to banking system<\/p>\n

News- <\/strong>On June 8, the Reserve Bank of India set out a framework for bank settlements with defaulters.<\/p>\n

Why should banks settle with defaulters?<\/strong><\/h2>\n

When there is a default, the primary objective of a bank is to recover as much of the loan as possible. Various options <\/strong>might be available to the bank.<\/p>\n

The bank decides the best strategy based purely on commercial judgement.<\/strong><\/p>\n

Why is it wrong to think that the RBI has permitted something unusual?<\/strong><\/h2>\n

One-time settlements <\/strong>are part and parcel of the business of banking. The RBI has simply given a formal regulatory structure <\/strong>to a standard banking practice.<\/strong><\/p>\n

Some of these settlements can indeed be with wilful and fraudulent defaulters<\/strong>. When trying to recover a loan, a bank should not make any distinction between wilful, and fraudulent default. <\/strong>It is up to the bank to decide whether a settlement is a better and quicker option. <\/strong>The sole motivation behind such a decision should be to maximise recovery.<\/strong><\/p>\n

The RBI circular makes it clear that banks can file cases against fraudulent or wilful defaulters.<\/strong><\/p>\n

As per circular, banks will undertake settlements \u201cwithout prejudice to the criminal proceeding <\/strong>underway against such debtors\u201d. In other words, the circular does not condone any crime.<\/strong><\/p>\n

What are some valid concerns raised by this circular?<\/strong><\/h2>\n

Government control over public sector banks<\/strong>– The settlement process <\/strong>might be misused to favour politically connected defaulters <\/strong>at the cost of the banks\u2019 commercial interests. It is the responsibility of RBI to allow commercially prudent decisions <\/strong>and prevent politically motivated <\/strong>ones.<\/p>\n

There is ample evidence that private sector banks have been settling with wilful defaulters. So, questions arise about the need for this circular<\/strong>.<\/p>\n

The answer possibly lies in the fact that two-thirds of the Indian banking system is owned by the government. The RBI circular gives these banks regulatory cover for settlement-related decisions.<\/strong><\/p>\n

Therefore, the circular merely levels the playing field<\/strong>. But the need for such a circular underscores the distortions <\/strong>that the Indian banking system suffers from government ownership of banks.<\/strong><\/p>\n

Regulatory governance<\/strong>– A year ago, the RBI recommended that the RBI place all draft instructions on its website for stakeholder comments<\/strong>. Exceptions should be made only in special circumstances.<\/p>\n

There do not appear to have been any special circumstances <\/strong>surrounding the RBI circular related to settlement. There were no issues related to financial stability, or fiduciary duty, or confidentiality.<\/strong><\/p>\n

At the same time, the circular is of great public interest <\/strong>since it applies to entities against whom criminal proceedings are underway.<\/p>\n

Hence, the draft circular <\/strong>should have been placed on the RBI\u2019s website for public consultation <\/strong>along with a discussion pape<\/strong>r clearly explaining its rationale.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Source– The post is based on the article \u201cOn defaulters, RBI prioritises public interest\u201d published in \u201cThe Indian Express\u201d on 20th June 2023. Syllabus: GS3- Indian economy and mobilisation of resources Relevance- Issues related to banking system News- On June 8, the Reserve Bank of India set out a framework for bank settlements with defaulters.… Continue reading On defaulters, RBI prioritises public interest<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10500],"class_list":["post-248827","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-indian-express","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1700316030},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/248827","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=248827"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/248827\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=248827"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=248827"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=248827"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}