THIS WAS A CONTROVERSY that the Reserve Bank of India (RBI) could have well done without. On June 8, the country’s central bank issued a circular to commercial banks, according to which wilful defaulters—those who choose not to honour their obligations to banks despite the ability to do so—could get into a compromise settlement with banks and finance companies and seek write-offs from these lenders. Further, the RBI directed banks to fix a minimum cooling period of at least a year before considering fresh exposure to borrowers who had undergone compromise settlements. Though the RBI was at pains later to clarify that this was not a fresh directive, the timing of the new circular and its purpose left the general public unconvinced. The RBI also said that the circular was meant to be a “general prescription” for defaulters, and excluded wilful defaulters and fraudsters, but many feared that the new framework made it easier for wilful defaulters to obtain new loans after a year of executing a compromise settlement.` `
What led to the confusion and the criticism perhapsof crores of rupees—including the likes of the ‘big three’ absconders, industrialist Vijay Mallya and diamantaires Nirav Modi and Mehul Choksi—fresh in public memory, the backlash that the RBI circular attracted came as no surprise.
