The RBI has revealed a list of 30 major willful defaulters that together owe banks over ₹50,000 crore. Fugitive diamantaire Mehul Choksi’s three firms, including Gitanjali Gems (₹5,000 crore), figure in the list, besides Vijay Mallya’s Kingfisher Airlines (₹2,500 crore). Other names include Ruchi Soya, Rotomac Global and ABG Shipyard, all of which have been under the scanner of investigative agencies for alleged misappropriations. As of December 2018, India had over 11,000 willful defaulters with total outstanding of ₹1.61 lakh crore.

The Reserve Bank has given a list of 30 defaulting companies and details of the total outstanding dues on them but has not stated how much amount is a bad loan. According to the RBI list, Gitanjali Gems topped the list with an amount of Rs 5044 crore, while Diamond Power Infrastructure stood at the last position with Rs 869 crore. Apart from Gitanjali Gems, the list also includes names of Rotomac Global, Zoom Developers, Deccan Chronicle Holdings, Winsome Diamonds, REI Agro, Siddhi Vinayak Logistics and Kudos Chemie. All these companies or their promoters have also been cracked by the CBI or ED in the last five years.

The willful defaulters list also includes the names of several other companies. However, it is not clear whether any wrongdoing has been done by their promoters. Such companies include ABG Shipyard, Ruchi Soya Industries, Hanung Toys and Textiles, S Kumars Nationwide and KS Ols Limited. Explain that in December 2017, IDBI Bank declared Ruchi Soya Industries a defaulter. Some of these companies are allegedly part of the list given by former RBI Governor Raghuram Rajan to the Prime Minister’s Office. Rajan had allegedly given a list to the PMO for the purpose of prompt action by the investigating agencies in the case of bank fraud.

The important point is: accountability ?
How to achieve the same ?

Indian Banks lost Rs 1.76 Lakh Crore to 416 loan defaulters in the last 3 Years. To recover this, in 3 years banks have collected 10,500 crore  from common man by charging ATM withdrawal & Minimum Balance fees. Basically, Banks are recovering their own losses by increasing fines on common man.

There’s no questioning the fact that SMEs are integral to the fabric of the Indian economy.However, there’s huge scope for further advancement within the sector. Currently, a lack of finance is the primary hurdle, one that has interfered with infrastructure expansion, automation, digitisation, innovation and skill development.

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Explain that in December 2017, IDBI Bank declared Ruchi Soya Industries a defaulter. Some of these companies are allegedly part of the list given by former RBI Governor Raghuram Rajan to the Prime Minister’s Office. Rajan had allegedly given a list to the PMO for the purpose of prompt action by the investigating agencies in the case of bank fraud.

It was on Aug 28, 2018 when IL&FS Fin Services first defaulted on repayment of Commercial Papers but repaid them 2 days after the due date. Then in the first week of September, it defaulted on ₹10bn repayment of term loan and another ₹5bn owed to SIDBI. Since then, many such defaults have happened. Almost every week there was a new company whose name emerged for having defaulted on its repayment. For some reason or the other, the cookie kept crumbling. It was like the Domino effect. Corporate Governance was the prime reason.

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NBFCs have recognised this gap and become more than willing to disburse small-ticket loans. As per data by the RBI pertaining to 2018, NBFC loans and advances amounted to a whopping Rs.19,842 billion. Moreover, as per a 2017 report by MAPE Advisory Group, 5% of SME lending requirements that aren’t fulfilled will equate to an opportunity of $15 billion by 2020.

But for a brief period of exuberance when Modi Govt was re-elected, Indian stock prices have never recovered. With global issues mounting as well, the market is under a bear grip now for quite some time. The budget announcement on July 5th worsened the situation, which could not be helped by continuous positive-inteded steps by FM recently. It’s been a year now. Cleaning takes time, but how long, will be dependent on intentions and execution of concerned entities. Now almost everyone awaits the cycle to turn, with smart ones timely lapping up quality stocks in this gloom period.

The main way NBFCs are redefining SME credit is through their employment of Artificial Intelligence and Machine Learning. Lending to SMEs has always been approached with a certain degree of caution owing to defaults with loan recovery and non-performing assets. With artificial intelligence (AI), machine learning (ML), and data analysis forming the basis of credit assessment, NBFCs are being able to offer loans that keep the asset-liability cycle in check.

The size of outstanding education loans given by the Indian banks is shrinking. As of latest data in Aug 2019 end, educations loans stood at 68500 cr INR, down 1.9% y/y. This was the 21st time in 22 months that education loans were down on an annual basis period. This is somewhat contradicting to the latest RBI household expenditure statistics of FY18-19 that Education now accounts for ~7% of total household expenditure and this expense is growing ~15% CAGR.

This statistical observation points out following three things:

(a) The consumer inflation basket posed by RBI may not be accounting for the Education category appropriately. In addition, household education expenses are getting fill with a combination of (1) utilizing savings and (2) taking smaller domination loans.

(b) Bank Credit to young Indians started falling off from mid 2013 (when rupee depreciated to 68 levels) and have never recovered since then. As of Dec 2018, credit growth for education loans is (-)2.4%. Defaults on loans due to lack of adequate repayments may have led to it.

(c) The noise about benefiting from the great Indian ‘Demographic demand” remains fractured due to lack of number of high quality jobs available and thereby making banks reluctant to offer higher denominated loans in this category.