Even as businessman Vijay Mallya has become the face of bad debt in the Indian banking sector, the fact is that he is only one of the players in an inefficient system that has effectively robbed citizens and taxpayers of hard-earned money.

Newslaundry has obtained and assessed the Reserve Bank of India’s Wilful Defaulters and Defaulting Borrowers List, which places the total defaults in the banking system at a staggering Rs 5 lakh crore, as of 24 December, 2015. The list presents corporate bad loans accounted for since 2005 against which banks have not moved the courts — in banking parlance they are dubbed as ‘non-suit filed accounts’.

The top 10 corporate defaulters, according to RBI’s list, owe over Rs 56,000 crore to banks and financial institutions. To put this in perspective, this amount is just shy of the budget of West Bengal for the 2016-2017 fiscal year (which stands at close to Rs 57,000 crore).

Most of these defaults are to state-owned banks and insurance companies — specifically Life Insurance Corporation of India and General Insurance Corporation of India. The majority of the top 10 defaulters are either state-owned companies or firms with promoters with some political connections. Which means this is public money at stake.

It must be noted, however, that RBI’s Wilful Defaulters and Defaulting Borrowers List is only a part of the non-performing asset, or NPA, puzzle. According to Credit Information Bureau (India), wilful defaults against which civil suits have been filed for recovery amount to Rs 56,521 crore. If we add these amounts, total NPAs stand at about Rs 5.5 lakh crore. Of this, only Rs 1.5 lakh crore (both suit and non-suit filed accounts) are termed wilful defaults by banks. (This does not account for restructured loans.) Considering how wilful defaults are only a fraction of the total bad loans, it begs the question of whether we need to stress on the distinction between ‘wilful’ and ‘non-wilful’ defaults while addressing the NPA issue.

The list assessed by Newslaundry is part of RBI’s ‘Negative List’ and is updated quarterly to be circulated among banks across the country. It is, in principle, a sort of ‘watch-out-for-these-borrowers’ list that banks can look up before extending a loan. It accounts for defaults above Rs 25 lakh since 2005 and was last updated on 24 December, 2015.

Newslaundry took into account defaults of above Rs 500 crore and above from the list to look at the top 10 defaulters. Using the RBI’s list, Newslaundry will present a five-part series on the NPA issue that will include the names of top 10 defaulting borrowers that have not been made public yet, banks with highest exposure and the curious case of LIC featuring on the list.

Key Highlights of the list*

*According to our source, NA is a technical write-off but is not classified as such. The source stated that these are loans that banks don’t hope to recover.

We reached out to RBI with a set of questions on the list and have not received a response yet. The story will be updated if and when we receive a reply.

More transparency, more accountability

The RBI has submitted a list of defaulters to the Supreme Court and has argued that the names of defaulters should not be made public. Many in the banking sector have argued for keeping defaulter names under wraps (here, here and here).

We don’t agree. We have decided to make the defaulters’ names public. It is the public’s money and the public has a right to know what is happening with their money. (Read Newslaundry’s detailed reasoning for making this list public here).

The RBI has argued in the Supreme Court that a confidentiality clause in the RBI Act of 1934 prohibits it from making any credit information public. The RBI also pointed to a “fiduciary relationship” that it holds in its dealing with the banking sector. However, this was an argument that Supreme Court Justices MY Eqbal and C Nagappan dismissed in December 2015:

“RBI is clearly not in any fiduciary relationship with any bank…RBI has a statutory duty to uphold the interest of the public at large, the depositors, the country’s economy and the banking sector.”

People in favour of disclosing these names generally take the view that it is important to “name and shame” the individuals and companies, especially wilful defaulters that are “subverting the banking system.” They ignore the fact that the banking system has been subverted not just by unethical promoters. Politicians who use PSU banks as their personal treasurers, a paternalistic RBI that has been slow to embrace depositors and taxpayers as equal – if not greater – stakeholders in the financial system and the banks themselves who have been ignoring their internal risk management systems, have done far more to damage the credibility of Indian finance than a few crooks. It can be argued that the Mallyas of the world would not have been able to thrive the way they have in a more robust system.

It should also be noted that default is not criminal or even morally wrong. It is not illegal to make bad business decisions. It is also not shameful for a business to fail. General Motors in the US filed for bankruptcy in 2009 after a government bailout only to be re-listed in 2010 on the NYSE. It is a lack of information and the general opacity surrounding Indian bank credit that has contributed to the social stigma around defaults. Improved transparency about the processes and systems that regulate defaulting could potentially make it easier to recover these losses.

Newslaundry is not in the naming and shaming business. This series attempts to bring to light information on the NPA crisis that has so far either been shrouded by jargon or has simply not been available. More information is always better.

Read our story on the top 10 corporate defaulters and how much they owe banks and financial institutions here.