Wilful Defaulter

Why in News?

Recently, RBI notified a new circular

About

A wilful defaulter is a borrower who refuses to repay loans despite having the capacity to pay up. A fraudster is one who intentionally cheats the bank with false documents/information and misappropriates the money.

• RBI had clearly instructed the banks through circular that “borrowers who have committed frauds/malfeasance/wilful default will remain ineligible for restructuring”.
• However, RBI modified the circular. Now wilful defaulters and companies involved in fraud can go for a compromise settlement or technical write offs by banks and non-banking finance companies.
• The central bank has also directed banks to fix a minimum cooling period of at least 12 months before making fresh exposures to borrowers who had undergone compromise settlements.

 

Impact of Such Move

• There are concerns that allowing compromise settlements may encourage big fraudsters and defaulters.
• The Public sector banks account for a major share of the total Gross NPAs. The NPAs of Public sector banks constitute around 72% of the total, with the Private Sector Banks, Foreign Banks & Small Financial Institutions accounting for the rest. PSBs are recapitalised by Govt. Which leads to loss of public money.
• The DRT, Ernakulam observed a case where a settlement was reached, but the bank failed to obtain the consent decree and concealed the settlement from the DRT for an extended period. This diluting the importance of Asset Reconstruction Company as well as IBC.

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act Banks utilize Sarfaesi Act as an effective tool for bad loans (Non Performing Asset) recovery. The Sarfaesi Act is effective only against secured loans where banks can enforce the underlying security. Following are the main objectives of the Sarfaesi Act. Provides the legal framework for securitization activities in India. It gives the procedures for the transfer of NPAs to asset reconstruction companies for the reconstruction of the assets. Enforces the security interest without Court’s intervention. Gives powers to banks and financial institutions to take over the immovable property that is pledged to enforce the recovery of debt. Major feature of Sarfaesi is that it promotes the setting up of asset reconstruction companies (ARCs) and asset securitization companies (SCs) to deal with NPAs accumulated with the banks and financial institutions. The Act provides three alternative methods for recovery of non-performing assets, namely: Securitisation Securitization is the practice of pooling together various types of debt instruments (assets) such as mortgages and other consumer loans and selling them as bonds to investors. Asset Reconstruction Asset reconstruction is the activity of converting a bad or non-performing asset into performing asset with the help of Asset reconstruction companies. Enforcement of Security without the intervention of the Court. If the borrower defaults, the bank may enforce security interests by: Take possession of the security; Sale or lease or assign the right over the security; Appoint Manager to manage the security; Ask any debtors of the borrower to pay any sum due to the borrower.

 

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New Atlantic Declaration

Why in News?

UK and USA signed “The Atlantic Declaration: A Framework for a Twenty-First Century US-UK Economic Partnership”.

• Declared as the first of its kind, the declaration and its action plans are expected to promote a “new type of innovative partnership” to cover all areas of cooperation including technology, economy and trade.
• While deepening the trade and investment relations, the declaration is also expected to strengthen the UK-US cooperation in sectors like defence, health, space, and science.

 

The core ideals of the UK-US relations can be traced back to the Atlantic Charter of 1941 which was signed by Winston Churchill and Franklin Roosevelt. This Charter set out their common goals for the post-war world and laid foundation for their “special relations”.

 

US-UK are cooperating in multiple areas – continuing support to Ukraine, strengthening NATO, implementing AUKUS—it is a trilateral security pact between Australia, the United Kingdom, and the US—and advanced coordination under the US-UK Indo-Pacific Dialogue.

Need

• The US and the UK are facing new international challenges including from “authoritarian states” such as China and Russia.
• The world has changed in the past 80 years – disruptive technologies, non-state actions and transnational issues like climate change.

 

Action Plan for a Twenty-First Century U.S.-UK Economic Partnership (ADAPT)

It aims to spearhead the economic relations to reflect today’s challenges, and identifies five pillars of cooperation-

1. Ensuring US-UK leadership in critical and emerging technologies—as these technologies are shaping national security—the emphasis is laid on innovative 5G and 6G solutions, artificial intelligence (AI), and collaborative Research & Development on semiconductors.
2. Advancing cooperation on economic security and technology protection toolkits and supply chains.
3. Partnering on an inclusive and responsible digital transformation.
4. Building the clean energy economy of the future.
5. Further strengthening our alliance across defence, health security, and space.