Bank unions call RBI’s compromised settlement offer for wilful defaulters detrimental
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Mumbai: Banking industry unions have voiced their strong opposition to the recent decision made by the Reserve Bank of India (RBI) to permit banks to settle loans with wilful defaulters through compromise settlements.
The All India Bank Officers' Confederation (AIBOC) and All India Bank Employees Association (AIBEA), representing a collective total of 600,000 bank employees, expressed concern that the RBI's move could compromise the integrity of the banking system and undermine efforts to combat wilful defaulters effectively.
As prominent stakeholders in the banking industry, the unions have consistently advocated for stringent measures to address the issue of wilful defaulters. They firmly believe that allowing compromise settlements for accounts classified as fraud or wilful defaulters not only contradicts principles of justice and accountability but also rewards unscrupulous borrowers.
They fear that such a decision sends a distressing message to honest borrowers who diligently fulfil their financial obligations.
The RBI had previously made it clear in its 'Prudential Framework for Resolution of Stressed Assets' issued in June 2019 that borrowers who engaged in fraud, malfeasance, or wilful default would remain ineligible for restructuring.
The sudden alteration of this framework to grant compromise settlements to wilful defaulters has come as a shock to AIBEA and AIBOC. They assert that it not only erodes public trust in the banking sector but also undermines depositor confidence.
The circular issued by the RBI on June 8, 2023, allows banks to undertake compromise settlements or technical write-offs for accounts categorized as wilful defaulters or fraud, while criminal proceedings against these debtors remain unaffected.
However, the unions argue that this leniency fosters an environment where individuals and entities capable of repaying their debts choose to evade responsibility without facing appropriate consequences. They warn that such indulgence perpetuates a culture of non-compliance and moral hazard, leaving banks and their employees to bear the brunt of the losses.
AIBEA and AIBOC emphasize the significant impact that wilful defaults have on the financial stability of banks and the overall economy. They contend that by permitting compromise settlements for wilful defaulters, the RBI is effectively condoning their wrongful actions and burdening ordinary citizens and hardworking bank employees with the consequences. Furthermore, the unions raise concerns regarding the authorization granted to bank boards to exercise leniency as they see fit in granting compromise settlements for wilful defaulters.