09-Aug-2010

Transparency On Bank NPAs

The Finance Minister seems to believe that disclosing the names of corporate borrowers who have defaulted on their loans is not desirable. His reasoning:
The disclosure of their names in a public forum (such as Parliament) will make the banking industry more sick, Mr Mukherjee told the Lok Sabha on Friday. He also highlighted the aspect of confidentiality clauses (in loan agreements) coming in the way of releasing the names of defaulters.
“If this (disclosing names) is done, a person will be declared insolvent even before the Court declares them (defaulters) as insolvent. And whatever possibility of recovering money from them will go. It will be depositors' money that will be lost (if we disclose)”, he said.
There must be some stage in the default process when the bank writes off a loan. Why not disclose the names along with the defaulted amount at that point? As for the confidentiality agreement - why is it there in the first place?

The gross NPA numbers are quite large: NPA write-off by new private banks up four-fold. Approximately Rs 75,000 crores, private and public banks taken together.

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