An error in reporting wilful defaulters to credit information company TransUnion Cibil by AU Small Finance Bank (SFB), because of duplication of outstanding loans, has led to a 10-fold rise in the bank’s wilful defaults. Data from TransUnion Cibil shows that the Jaipur-based small finance bank’s wilful defaults jumped to ₹179 crore in the September quarter of FY19 from ₹18 crore in the June quarter. However, a look at the geography-wise disaggregated data shows that every director and co-borrower has wrongly been shown to have the same individual outstanding loan as the company, thus leading to the hugely inflated number.
A wilful defaulter is a borrower who has defaulted in repaying loans to lenders even when it has the capacity to do so or if it has not utilized the loan for the specific purposes for which finance was availed of and has instead diverted the funds for other purposes. Other criteria include syphoning-off of funds and disposing of or removing movable fixed assets or immovable property for securing a term loan without the knowledge of the lender.
For instance, in Madhya Pradesh, Gopi Pipe House owes AU SFB, ₹4.6 crore, but data shows each of the two other co-borrowers also owes ₹4.6 crore individually. This gives the impression the wilful defaulter’s outstanding loans are ₹13.8 crore, instead of ₹4.6 crore. In another instance, wilful defaulter Kotecha Industries Ltd owes ₹3 crore, but its directors are shown to owe ₹3 crore each as well, leading to an inflated number of ₹15 crore.
In an emailed response, Sunil Parnami, chief of M&A and investor relations at Au SFB, said the bank was only trying to comply with RBI’s directives when it reported borrowers and co-borrowers, along with the entity. “(The RBI directives) require that once a person is declared a wilful defaulter, many sanctions are imposed on them like no further lending, no directorship, (and commencing) criminal action against them,” said Parnami.