MUMBAI: Tightening the screws on defaulters, the government has empowered chiefs of public sector banks (PSBs) to directly issue instructions to restrain defaulters from fleeing the country. The home ministry has made changes to rules, enabling banks to request issuance of lookout circulars against suspects even if first information reports are still to be filed.
“This will empower banks and add to the set of measures against defaulters,” said Central Bank of India MD CEO Pallav Mohapatra. Defaulters have been facing the heat with the passage of the Insolvency and Bankruptcy Code (IBC) as they now risk losing their business. The Fugitive Economic Offenders Bill aims to prevent defaulters who owe banks over Rs 100 crore from fleeing the country.
According to Mohapatra, until now banks had to obtain court orders for this. “In recent times, when filing a petition to recover loans in default, banks invariably file an application for impounding the defaulter’s passport. The courts have also been restraining defaulters from leaving the country,” said Mohapatra.
With banks empowered to issue directions restraining travel, it now becomes the responsibility of the authorities to prevent the borrowers from leaving the country.
According to a senior banker, one problem that banks have faced in the past is that many borrowers have held multiple passports although this is not legal for Indian citizens. Also, some large borrowers are non-resident Indians and there are countries that allow citizens to hold multiple passports. In March, the government had directed banks to obtain passport details of borrowers.
The move comes after revelations earlier this year that as many as 31 business people facing CBI investigations have fled the country. These include Nirav Modi, Mehul Choksi and Vijay Mallya.
In August, the government-appointed committee headed by financial services secretary Rajiv Kumar had recommended that wilful defaulters with loans exceeding Rs 50 crore should be prevented from travelling abroad without prior approval. Members of the committee included representatives from the RBI, ED and CBI. The panel had suggested that Section 10 of the Indian Passport Act be amended to treat defaulters as financial and economic risk in public interest.