As bad loans mount, India gets tough on 'wilful' default

Kemrock Industries and Exports owns a golf course near its plant in western India and its chairman, Kalpesh Patel, talks of the high salaries he pays employees. Still, the company has defaulted on payments for about USD 250 million in loans and Patel's banks, frustrated that they are unable to seize assets as he fights them in court, say they want to declare him a "wilful defaulter", a fast-growing category in India as bad loans mount. Also Read: Stop lending to defaulting promoters, FinMin tells banks Patel firmly denies he is such a case, saying that the business has hit lean times but he is working to turn it around. The prevalence of so-called "wilful" defaults is symptomatic of what critics say is a loose credit culture that plagues Asia's third-biggest economy, keeping underperforming companies in business, crowding out other borrowers and leaving taxpayers on the hook to recapitalise state banks.

 The Reserve Bank of India defines a wilful defaulter as a borrower that is able but unwilling to pay, has diverted loan proceeds for other than their initially stated use, or has overstated profits in order to obtain a loan. Policymakers have voiced growing about the problem in recent months, and are urging banks to get tough. "In India, there is no stigma attached to defaulting on bank loans," said Sharad Bhatia, president, stressed assets management, at Axis Bank Allahabad Bank Allahabad Bank . "These are not small companies. They dig into money from their own company, and when we move to take charge of the assets they transfer it in the name of their friends or relative or get stay orders from courts." To declare a wilful default, a bank must set up a committee to hear the borrower's story. 

If it then determines the default is "wilful" it informs the central bank, which circulates a list of "wilful defaulters" to lenders nationwide. State lenders in particular are constrained from moving quickly to pursue dud loans by bureaucratic hurdles and a culture where it can be safer not to make a decision. Paltry legal fees - state banks pay just 40,000 rupees per corporate debt recovery - mean top lawyers have little incentive to take on cases that can drag for months or longer. Private sector banks pay many times more to ensure cases get resolved more quickly, lawyers said. "We need to become more nimble," said Arundhati Bhattacharya, chairwoman at State Bank of India, the country's largest lender. "It takes a long time to make decisions. 

The government is aware of it and we are trying to see what we can do about it." Kemrock Indus stock price On November 28, 2013, Kemrock Industries and Exports closed at Rs 16.55, up Rs 0.00, or 0.00 percent. The 52-week high of the share was Rs 110.65 and the 52-week low was Rs 14.90. The latest book value of the company is Rs 185.42 per share. At current value, the price-to-book value of the company was 0.09.

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