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Apr.-June 17 Vol. 7 No. 2 GIF 0.565 ISSN-2249-9512 Journal of Management Value & Ethics
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Critical Analysis of Suit-Filed Wilful Defaulters Data In India
Lakshmi Karthik1, Arvind Shrivastava2, M. Subramanyam3
ABSTRACT
This paper is an attempt to critically examine the secondary data set of suit filed wilful defaulters of India, for
the period 2002-2016. The exposures are analysed borrower, credit institution and state-wise. The study reveals
steady increase in the outstanding amount of these defaulters since 2010. The total amount of default is
Rs.759140 million (12.40% of the total gross non-performing assets) as at the end of March 2016. Top 15
borrowers form more than 20% of this total. During the period, 117 credit institutions have reported names of
around 13300 borrowers. Nationalised banks have maximum amount outstanding followed by SBI and its
associates and Private Sector banks.
This analysis demonstrates strong positive correlation between gross advances, gross non-performing assets
of the credit institutions and suit filed wilful defaulters. The geographical distribution of the loan amount disbursed
majority of
of the credit institutions around 5-6 borrowers contribute to 40-50% of the total outstanding amount of default.
elong to Gems and Jewellery Sector, real estate and infrastructure group
Key Words: Corporate default, suit-filed Wilful Defaulters, CIBIL Data, Credit Institutions lending, India.
I. Introduction
er of borrowers had been receiving the attention of
the Government of India, (GoI) Reserve Bank of India, (RBI) and credit institutions since 1990. In 1990, RBI
ontrol of the
borrowers and to enforce financial discipline. In 1994, RBI framed a Scheme of Disclosure of information
with two main objectives:
(a) to alert credit institutions and to put them on guard against borrowers who have defaulted in
1Lakshmi Karthik is working as Deputy General Manager in the Department of Banking Regulation, Reserve Bank of India.
Lakshmi Karthik completed this project as a research scholar with Gitam School of International Business.
(lakshmikarthik66@gmail.com)
2Dr. Arvind Shrivastava is presently working as Assistant General Manager in the Department of Information Technology,
Reserve Bank of India. (arvind1aug@gmail.com)
3Dr. M. Subramanyam, Professor, Corporate Finance, Gitam School of International Business, Gitam University,
Visakhapatnam, India. (submahadev@gmail.com)
The views expressed in this paper are those of the authors only and do not reflect the views of the Reserve Bank of India or
any other institution in particular.
Apr.-June 17 Vol. 7 No. 2 GIF 0.565 ISSN-2249-9512 Journal of Management Value & Ethics
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(b)
The relevance of this study at this juncture, is very crucial for credit risk management of the financial
institutions in India. Today, the mounting bad loans have changed the entire risk landscape of the credit
institutions. The sharp rise in the quantum of non-performing assets has not only affected the financial
health of these institutions but has marked its impact on the economy as well. In this background, analysis
inquent, is of paramount
importance. These defaulters have basically not utilized the funds for which it was extended to and rather
diverted or siphoned of the public funds. It is interesting to note that India is the only country which discerns
between
the lenders against such defaulters.
The mat
Commission (CVC) by the GoI in 1998. In exercise of the powers conferred on the CVC under Section
The landmark circular on wilful defaulters and action there-against was issued by RBI on May 30, 2002.
-
wilful default would be deemed to have occurred when a unit has defaulted in meeting its payment
(a) It had the capacity to honour the said obligations.
(b) It had not utilised the finance for the purpose lent but has diverted the same for other purposes.
(c) It had siphoned off the funds - neither utilised for the purpose availed nor are funds available in
the form of other assets.
(d) It had disposed of or removed the movable fixed assets or immovable property given by it for the
purpose of securing a term loan.
Further, RBI had also directed penal measures to be applied to the borrowers identified as wilful
defaulters. It had instructed the credit institutions that no additional facilities should be granted and that
these wilful defaulters should be debarred from institutional finance for a period of five years. The direction
also states that the lenders may initiate criminal proceedings, wherever necessary. As a deterrent measure
it was also decided that the wilful defaulters should not be given access to the capital markets.
In June 2002, RBI instructed the credit institutions to submit the list of suit-filed accounts of wilful
defaulters of Rs.2.5 million and above on quarterly basis to TransUnion CIBIL Limited, (CIBIL)
(Formerly: Credit Information Bureau (India) Limited). Further, dissemination of credit information in respect
of these defaulters in the financial system was entrusted to CIBIL and accordingly such data is made
available by the bureau in their website (www.cibil.com) since March 2002. However, it must be noted that
the information disseminated, is as reported by the credit institutions to CIBIL.
An attempt has been made to examine and analyse the suit-filed wilful defau
the credit policies of the lending institutions, the geographical representation of such defaulters and the trend
of the outstanding amount in respect of such defaulters. The findings of this study will be of immense
Apr.-June 17 Vol. 7 No. 2 GIF 0.565 ISSN-2249-9512 Journal of Management Value & Ethics
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importance to draft policy prescriptions by the Government and the regulator. As this study is one of the first
of its kind with this unique data set, no comparable findings are available in the earlier literatures.
The paper is organised as follows. The second section discusses the relevant literature. Data source,
coverage, data quality and the methodology are explained in section III. Major findings of the study are
explained in section IV and the final section provides concluding observations.
II. Literature Review
2.1 Background
The credit risk management in the banking sector and reasons for rising non-performing assets in India
has been an important research topic during the last three decades and produced ongoing debate in the
literature of banking finance. However, descriptive analysis of the data on wilful defaults has received very
limited attention in the literatures.
As there were limitations in the literature available on the subject, a short survey on the existing
practices in other countries was taken up with few banks in India which are having international presence
and also with credit information companies in India as they also have location overseas. They confirmed
that there are no regulations or guidelines prescribed by any regulators on wilful defaulters in any of their
overseas locations that correspond to those which are in place in India. Other countries do not grant
statutor
law to address the issue of defaults. Therefore, unlike India where there is a mechanism for identification of
a wilful defaulter by the credit institutions, major steps undertaken by the credit institutions in other countries
are predominantly as under:
(a) Credit institutions assess the possibility of establishing fraud against the defaulting company and/or
its senior management/board of directors and where sufficient grounds exist, they approach the local
authorities for investigation into the matter and prosecution thereafter. On the basis of the
investigation report, these credit institutions may also consider filing a civil suit against the
individuals involved in the fraud and gain recourse against their personal assets.
(b) The credit institutions initiate liquidation proceedings against the defaulting companies pursuant to
which the liquidator can commence investigation into the conduct of senior management and if
applicable, proceedings may also be initiated against the managerial personnel in their personal
capacity.
(c) Filing a suit against the defaulter for lifting of the corporate veil in order to establish liability.
Further, it has also been established that the credit report in other countries will only show the delinquency
important to note that the options listed above entail high standards of proof.
2.2 Studies on wilful defaults
The studies related to wilful defaults, the concept which is unique to India, has been very few and most
of them corroborate the rise in wilful defaults with the rise in the non-performing assets of the banks. Aghian
(1999) has argued that there are a few factors that determine the success of peer monitoring in maintaining
high repayment rates. The author has demonstrated that a joint responsibility agreement discourages the
Apr.-June 17 Vol. 7 No. 2 GIF 0.565 ISSN-2249-9512 Journal of Management Value & Ethics
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wilful defaults because the relationships amongst the group members are embedded. Moreover, the
borrowers can also impose social sanctions upon wilfully defaulting members. The author, therefore,
supports the view that formal lending institutions should encourage group lending with joint responsibility to
reduce wilful defaults. Amongst the various exogenous factors studied by Sanjeev (2007) the wilful default of
borrowers emerges as one of the most critical factor which influences the increase of bad loans in the Indian
commercial banking system, the other being the economic down turn. Bardhan and Mukherjee (2013) have
underreports its true financial position and defaults willfully. Goel and Pathak (2014) have conducted a study
on the factors affecting the repayment performance of borrowers within the limited sample of District Central
Cooperative Banks in Punjab and have stated that in 27.04% of the cases the irregularity in repayment was
made by seeing others who did not repay i.e. the negative demonstration effect. Mishra (2014) has reported
in his case study of Dasrathpur Block of Jajpur District in Odisha that more number of wilful defaulters
belongs to higher income group. The studies cited above have generally covered a specific bank or a
specific geography and therefore in this paper an attempt has been made to comprehensively analyse the
complete data set, as available.
(2009), Adams et al. (2009), Morse and
Tsoutsoura (2013) have demonstrated empirically that the consumer credit market has been in the forefront
in such defaults. Other major studies conducted by Deng et.al. 2000, Fay et. al. 2002, Edelberg (2004), on
be a trend for individuals to engage in
loans in order to keep personal credit (i.e. credit cards) available to them to preserve cash flow. Some
studies, Guiso et. al (2013), Gross and Souleles (2002) have considered the behavioural, emotional and
sociological factors of the borrowers which leads them to strategically default.
III. Data and Methodology
Effort has been made by extracting the data set of suit filed wilful defaulters from the website of Trans
Union CIBIL Limited (CIBIL). The data is available credit grantor-wise and State / Union Territory-wise on
-
Rs.2.5 million and above is being reported quarterly by all groups of credit institutions i.e. Financial
Institutions, Nationalised Banks, Foreign Banks, Private Sector Banks and SBI and its Associate banks. The
wilful defaulters identified by the institutions represent public limited companies (both listed and unlisted),
private limited companies, other associates, firms and individuals.
This study has been undertaken of the above said data, for the entire period from March 2002 to March
2016. Data has been extracted from all the groups of the credit institutions which have reported during this
period. They are 117 in number. There has been complete coverage geographically too as institutions
belonging to all States and Union Territories have been covered for analysis. Hence, attempt has been
made to critically analyse the suit-
To give an overview, during this period, 198719 records have been reported by the credit institutions to
s per CIBIL data implies the number of times
the credit institutions report the outstanding of the borrowers, the periodicity of which is quarterly. This has
been culled out and generated in a uniform format for all the quarters for necessary compilation. The data
Apr.-June 17 Vol. 7 No. 2 GIF 0.565 ISSN-2249-9512 Journal of Management Value & Ethics
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has been compiled in a structured format selecting majority of the details like name of the credit institution,
quarter. The data also contain
company and their directors, which were not used in the present study.
3.1 Data quality and completeness:
The methodology adopted by the credit institutions in identifying and reviewing the wilful defaulters is as
per the regulatory prescriptions laid down by Reserve Bank of India, from time to time. Hence, the accuracy,
completeness and veracity of the data reported are the responsibility of the concerned credit institution.
However, while scrutinizing the data there were certain conspicuous anomalies observed in the data
reported by the institutions, for example data reported in absolute numbers or in thousands or crores,
instead of reporting in lacs as stipulated by RBI, which have been corrected after comparing the same with
the data reported during the previous and subsequent quarters.
There were also inconsistencies observed in grouping the branches of these institutions under a
particular State or Union Territory. For the sake of this study, these have been grouped together as per the
current status of the States and Union Territories in India. Further, with regard to the names of the
defaulters, it was observed that the same borrower have been spelt differently by different credit institutions
or by different branches of the same credit institution. Hence, the incorrect and incomplete data required
rectifications, with multiple iterations.
The study has been taken up with the data received in the bureau up to September 2016. It is observed
that few credit institutions have reported / corrected the data pertaining to the earlier periods, which have not
been factored into as the findings are not significantly altered.
IV. Major findings of the Study
4.1 Analysis of Credit Institutions
During the period March 2002 to March 2016, 117 credit institutions have reported 198719 records of
suit-filed wilful defaulters (SF_WD)
Table: 1 Details of records reported by credit institutions
Name of the Group Number of Institutions
Number of records
Financial Institutions
15
6965
Foreign Banks
36
4600
Nationalised Banks
20
104312
Private Sector Banks
38
36255
SBI and its Associate banks
8
46587
Grand Total
117
198719
(Source: www.cibil.com)
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As is evident from Table 1, the maximum number of records is reported by the nationalised banks which
constitute 52.49% of the total, followed by SBI and its Associate banks constituting 23.44% and Private
Sector banks, 18.25%.
4.2 Analysis of outstanding amount of suit-filed w -
2016
Table: 2 Amount outstanding of SF_WD
Year Ended
Amount Outstanding
(in million)
Percentage (Increase/Decrease)
31-03-2002
62415
31-03-2003
104309
67%
31-03-2004
130044
25%
31-03-2005
103396
-20%
31-03-2006
87816
-15%
31-03-2007
84925
-3%
31-03-2008
109440
29%
31-03-2009
87257
-20%
31-03-2010
131842
51%
31-03-2011
153145
16%
31-03-2012
233263
52%
31-03-2013
254103
9%
31-03-2014
395079
55%
31-03-2015
573733
45%
31-03-2016
759140
32%
(Source: www.cibil.com)
Figure 1
Apr.-June 17 Vol. 7 No. 2 GIF 0.565 ISSN-2249-9512 Journal of Management Value & Ethics
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As is evident from Table 2, there has been steady increase in the outstanding amount of suit-filed wilful
defaulters since 2010. Further, it is observed that with downturn in the overall growth of the economy during
the last three financial years, i.e., from 2014 to 2016, there has been more number of cases of diversion and
siphoning of funds by the borrowers. This resulted in increase in the number of defaulters identified and
ons to the bureau. As can be seen there was steep increase in the
outstanding amount by 55%, 45% and 32% in the years 2014, 2015 and 2016 respectively.
On examination of the suit- d that
the total amount outstanding is to the tune of Rs.759140 million, which constitutes 12.40% of the total gross
non-performing assets of the scheduled commercial banks in India amounting to Rs.6116074 million. It is
alarming to note that top 15 borrowers form more than 20% of the total amount outstanding. The study
further demonstrates that there are around 130 borrowers having outstanding amount of more than Rs.1000
million, totalling to Rs. 397522 million and they constitute around 52% of the total outstanding amount.
4.3 Analysis of group-wise outstanding amount of suit- March 2016
Table: 3 Group-wise amounts outstanding of SF_WD
Name of the Group Amount outstanding (in million)
Co-Operative Banks
60
Financial Institutions
44454
Foreign Banks
4666
Nationalised Banks
423620
Private Sector Banks
109912
SBI and Its Associate Banks
176428
Grand Total
759140
(Source: www.cibil.com)
This paper has examined 58 credit institutions who had reported the data in March 2016. State Bank of
India is the largest bank and also has the highest number of records, (994) who are suit-filed wilful defaulters
amounting to Rs.123101 million. However, if group exposure is seen, the Nationalised banks have the
maximum amount outstanding, totalling to Rs.423620 million. Amongst the Nationalised banks, Punjab
National Bank is having the highest number of records (744) and amount outstanding to the tune of
Rs.97880 million, followed by Central Bank of India and Union Bank of India having 637 records and 618
records respectively and the amount outstanding is to the tune of Rs.37193 and Rs.33740 million
respectively. Amongst the foreign banks only Standard Chartered Bank has huge exposure of Rs.3019
million and has 25 records against them. With regard to Private Sector banks, Kotak Mahindra Bank though
has only 56 records but has very large exposure amounting to Rs.56373 million, vis-à-vis, AXIS Bank,
IndusInd Bank and Federal bank which has 279, 120 and 198 records and their outstanding amounts are
Rs.11763, Rs.9000 and Rs.8415 million respectively as at the end of March 2016.
Apr.-June 17 Vol. 7 No. 2 GIF 0.565 ISSN-2249-9512 Journal of Management Value & Ethics
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However, it is observed that the ratio of suit-
and its Associate banks is on an average of 22%, for Nationalised banks it is 16% and Private Sector banks
it is 25%. Further, in SBI and its Associates banks and in nationalised banks it is almost in a similar
spectrum whereas in Private Sector banks there are few banks which have very high amount of wilful
-à-vis their advances.
-6 borrowers
contribute to around 40-50% of the total outstanding amount of default. Also, it is observed that majority of
appears in the list of several credit institutions. Further, the analysis also confirms that most of the high
s and Jewellery Sector, real estate and infrastructure group. As big ticket
defaulters are under scanner of multiple credit institutions, it leads us to the following conclusions:
(i) At the pre-sanction stage, there is lapse in the loan appraisal process. It has been observed that
the member banks conveniently accept the independent credit appraisal or the due diligence
carried out by the consortium leader. This is also pertinent in multiple bank arrangement, as
member banks rely on the checks carried out by the institution which has major exposure. Hence,
the current scheme of sanctioning process demonstrates lacuna in the system.
(ii) There is evidence that the systems put in place by majority of the credit institutions during the post
disbursement stage are not very efficient and effective. There are gaps in the monitoring
mechanism and hence diversion or siphoning of funds is unearthed ex-post. It appears that the
wilful defaulters take advantage of the inefficient process and procedures adopted by these credit
institutions.
(iii) Also it is observed that some credit institutions are not proactive in identifying / declaring a
borrower as a wilful defaulter and in initiating the legal recourse against them. Hence, the borrower
takes further advantage of this time lag and is able to sell the mortgaged assets or collateral
security in the interim period.
Hence, it can be inferred from the above observations that there has been wrong selection of the
borrowers because of the herd mentality of the credit institutions. This scrutiny confirms the survey results
the rise in
NPA/stressed asset numbers are due to diversion of funds to unrelated business or fraud and periodic
independent audits on borrowers have also revealed wilful defaults as primary factor for the stress
4.4 Correlation between total credit and suit-filed wilful defaulters
A study was undertaken to examine whether any correlation exists between the total amount of credit
advanced and the amount outstanding in respect of suit-filed wilful defaulters in the credit institutions.
Therefore, comparison of suit-
amount of gross advances and non-performing assets was extracted as given in the table below:
Apr.-June 17 Vol. 7 No. 2 GIF 0.565 ISSN-2249-9512 Journal of Management Value & Ethics
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Table: 4 Credit Institutions data having highest amount of advances and NPA as on March 2015
(amount in million)
Name of the Credit
Institution
SF_WD
amount
outstanding
Gross
NPA
Gross
Advances
Ratio (%) of
GNPA to
Gross
Advances
Ratio (%) of
SF_WD to
GNPA
State Bank of India
112340
567253
13354237
4.25
20%
Bank of Baroda
11918
162614
4372803
3.72
7%
Bank of India
12356
221932
4117266
5.39
6%
ICICI Bank
1498
15094
6
3989620
3.78
1%
Punjab National Bank
60772
256948
3924221
6.55
24%
HDFC Bank
2278
32658
3678878
0.89
7%
Canara Bank
30336
130399
3349472
3.89
23%
Axis Bank
4156
38668
2840087
1.36
11%
Union Bank of India
12087
130308
2627572
4.96
9%
IDBI Bank Limited
16637
126849
2157916
5.88
13%
Grand Total
264378
1818580
44412077
4.09
14.54%
(Source: RBI website https://dbie.rbi.org.in)
Apparently, the above data revealed that only the large nationalised banks are having higher percentage
of suit-filed wilful defaulters in relation to their advances and non-performing assets. To examine this, a
Pearson correlation coefficient was computed to assess the relationship between the gross advances and
suit-filed wilful defaulters and the relationship between gross NPAs and suit-filed wilful defaulters of all the
53 credit institutions which had reported data as of March 2015. However, the results showed that there
was a strong, positive correlation of 0.67 and 0.71 between gross advances / NPAs and SF_WD data
respectively. Increases in advances and NPAs were correlated with increases in suit-filed wilful defaulters.
This finding indicates that these defaulters are widespread among all groups of banks and reflected a
phenomenon of these defaulters being in sync with the size of the credit of the institutions. A scatter plot
summarizes the results (Figure 2 & 3)
Apr.-June 17 Vol. 7 No. 2 GIF 0.565 ISSN-2249-9512 Journal of Management Value & Ethics
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4.5 Analysis of wilful defaulters by geographical distribution
This study also revealed certain inferences on the amount of suit-filed wilful defaulters outstanding as
institutions predominantly belonging to the Private Sector Bank group, sanctions the loan from the branch
situated in Maharashtra, irrespective of whichever State the borrower belongs. Hence, as per the CIBIL
data Maharashtra and other metropolitan centres indicate having the highest amount of wilful defaults.
wherein data pertaining to March 2015 indicates two States, Maharashtra and Tamil Nadu having total
amount of sanction more than the total amount of utilisation. The total amount of sanction and utilisation of
Maharashtra is Rs.19772979 million and Rs.17776398 million respectively and for Tamil Nadu the total
amount of sanction and utilisation is Rs.6491637 million and 6406311 million respectively.
To analyse this data of top 10 States having the largest amount of credit outstanding as of March 2015
(See Table 5 and 6)
Table: 5 States having the largest amount of credit outstanding
Name of the State Credit amount outstanding (in million)
Maharashtra
19772980
Delhi
9073472
Tamil Nadu
6491637
Karnataka
4292248
Gujarat
3471167
Telangana 333546
7
West Bengal
3200914
Uttar Pradesh
3054626
Kerala
2121607
Rajasthan
2029555
Total
56843673
(Source: RBI website https://dbie.rbi.org.in)
Apr.-June 17 Vol. 7 No. 2 GIF 0.565 ISSN-2249-9512 Journal of Management Value & Ethics
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Table: 6 States having the largest amount of suit-filed wilful defaulters
Name of the State Amount of SD_WD (in million)
Maharashtra
229929
Delhi
84390
West Bengal
45963
Andhra Pradesh
40985
Tamil Nadu
39977
Gujarat
23309
Karnataka
18631
Telangana
17099
Madhya Pradesh
14930
Punjab
14675
Grand Total
529888
(Source: www.cibil.com)
As is evident from the above two data sets, seven out of the top 10 States which are having the
maximum credit outstanding is also appearing as the States which are having the highest amount of suit-
filed wilful defaulters. This trend can be endorsed to most of the States in India. Hence the geographical
distribution of the loan amount disbursed and borrowers becoming wilful defaulters more or less are moving
in tandem.
A Pearson correlation coefficient was computed to assess the relationship between the credit amount
outstanding in respect of 28 States and the amount outstanding in respect of suit-filed wilful defaulters as of
March 2015. Overall, there was a strong, positive correlation of 0.88 between credit amount outstanding
and SF_WD data. Increases in credit in States were correlated with increases in suit-filed wilful defaulters.
A scatter plot summarizes the results (Figure 4).
Apr.-June 17 Vol. 7 No. 2 GIF 0.565 ISSN-2249-9512 Journal of Management Value & Ethics
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Figure 4 (Credit outstanding of States and SF_WD data)
V. Conclusion
The main aim of this paper is to analyse the secondary data set of suit filed wilful defaulters in India.
The study reveals that there has been steady increase in the outstanding amount of these defaulters since
2010. The top 15 borrowers form more than 20% of the total outstanding as at the end of March 2016.
Nationalised banks have the maximum amount outstanding followed by SBI and its associate banks and
Private Sector banks. Majority of these defaulters are having consortium or multiple lending arrangements
which establishes the herd mentality of the lenders. The inference drawn reveals that 4-5 borrowers
constitute around 50% of the total of such defaults in most of the credit institutions; hence there is an
indication of concentration of such debt. Also big ticket defaulters predominantly represent few sectors like
Gems and Jewellery Sector, real estate and infrastructure group. This study demonstrated strong positive
correlation between gross advances, gross non-performing assets of the credit institutions and suit filed
wilful defaulters. The ge
wilful defaulters also has strong positive correlation.
As per RBI (2016), the asset quality of banks deteriorated further between March and September 2016.
The gross non-performing advances ratio of the scheduled commercial banks increased to 9.1 per cent in
September 2016 from 7.8 per cent in March 2016, pushing the overall stressed advances ratio to 12.3 per
cent from 11.5 per cent.
Apr.-June 17 Vol. 7 No. 2 GIF 0.565 ISSN-2249-9512 Journal of Management Value & Ethics
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At this juncture when RBI and the Government is initiating all necessary steps to mitigate the risks of
stressed assets, it is of immense importance to corroborate the results of this analysis with the financials of
the corporate borrowers and further investigate the scope of predictability of su
institutions. There is an urgent need to employ an ex-ante approach to pre-empt identification of wilful
defaults at an early stage. This could help the credit institutions avert / minimize the high costs associated
with identification, declaration and legal recourse undertaken by filing a suit.
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