Rai defends corporates, says not all defaults are criminal

Chairman of the newly-established Banks Board Bureau, Vinod Rai, who is the former Comptroller and auditor General of India, on Wednesday tried to defend corporate delinquencies, stating that not all loan defaults are ''wilful'' and cannot be classified as criminal acts.

Also, the former CAG, who was in the forefront of the expose of the spectrum scam, and the coal scam, said the stressed assets problems should not be stretched as it may make lenders more risk-averse and affect fresh lending.

''The banking sector has seen considerable stress in recent years. However, we should not allow the cacophony of uninformed voices to debilitate the decision-making capability of bank executives,'' Rai said while addressing students of the National institute of Bank Management, Pune.

''After the Southeast Asian crisis, Indian banks underwent very challenging times, but emerged stronger. Quite often the problems are creations of the global economy. Nevertheless, these need not be magnified to create an alarmist situation leading to a backlash wherein banks become risk-averse whether in lending afresh or settling old cases.''

Rai said not all defaults are wilful and not all lending activities, even if they are aimed at salvaging some stressed accounts, can be branded corrupt practices.

''Defaults merely amount to a breach of contract and hence are not necessarily criminal in nature. It would attract criminal prosecution only if fraudulent or dishonest intention is established. Thus defaults occurring on account of a downturn in the economy or adverse external factors cannot be construed as cheating or borrowing with a mala fide intent.''

Rai also talked of the fear psychosis among bankers of being hounded by vigilance officials when executives take decisions to advance loans or conclude settlements of stressed loans, adding that there is no intention of any agency to launch any kind of witch hunt. ''In fact, the attempt will always be to defend transparent and well-considered decisions taken in good faith, which went awry for conditions beyond the control of the lender or the borrower.''