Defining the term 'wilful', legally  

The government, reportedly, has prepared the draft of yet another bill to amend the Bank Company Act. This, if adopted by Parliament, will be the eighth amendment to the law that was enacted in 1991.

Some new provisions will be added to the all-important piece of legislation that regulates the operations of the country's banking industry. Notable among those, according to newspaper reports, will be the ones that would define who are the 'wilful' loan defaulters and provide for punitive measures against them. There will also be a new provision for liquidation of weak and errant banks.

The word 'wilful' has been in use for over three and a half decades in the media and other relevant documents while discussing the non-performing loans (NPLs). As the size of the NPLs has grown bigger and bigger over time, the use of the term has been frequent. The central bank has defined 'substandard', 'doubtful' and 'bad' loans, but not the word 'wilful' or 'delinquent' used as qualifying adjectives before the bank borrowers. Hopefully, there will be legal recognition of the word.

But defining a borrower 'wilful' will not be easy, it seems. The track record of a borrower might be used in defining him/her as a 'wilful' defaulter. But questions might crop up why the banks have lent funds to such borrowers.

Whether a borrower defaulting on loan repayment is wilful or not is not an important issue. What turns out to be important for a lending institution is whether it is getting back its funds on time from borrowers. Its interests get equally affected when so-called good borrowers cannot repay loans. True, good borrowers deserve a few concessions once or twice. Over-indulgence, however, might encourage them to become 'wilful' defaulters.

Then again, there is strong scepticism about the application of the term, 'wilful', with certain borrowers who are powerful, politically or otherwise. Such branding did not happen in all those years. It is unlikely to happen even when the word 'wilful' gets legal recognition.

What remains important is 'niyat' (intent) on the part of both borrower and lender. The reasons for the volume of NPL becoming bigger by the day have been a problem with that very intention of a section of borrowers and the operators of banks. The banking sector regulator and the government will also have to bear a part of the blame.

The problems that a section of banks, including the state-owned ones, is encountering are huge. What comes out in the media or at seminars and workshops could be only the tip of the iceberg. An in-depth and independent audit of the quality of assets of banks and advances made by them might bring out something unnerving. 

Another term frequently used in the matters of NPL is the bank-client relationship. The term has come into play frequently in the recent past while offering concessions to the defaulting borrowers beyond the existing rules. This has only aggravated the situation concerning the classified loans and encouraged indiscipline in the sector.

It is good that the government has felt the need for incorporating the provision of liquidation of problem banks into the Bank Company Act. Already, there might be a few strong candidates, both in the private and public sectors, for going through such a process. Whether that will happen soon remains a big question.   

Although belated, there should be a proper assessment of the economy, in terms of banks and relevant other financial institutions.

The country's economy has expanded notably, and the UN body's recommendation for the country's graduation to a developing nation status remains a testimony to that fact. But the question that needs to be asked: do we need so many banks, non-bank financial institutions, and insurance companies? 'Too many cooks spoil the broth' is a befitting adage in this case.

It is important to bring the unbanked people, primarily in rural areas, under the formal banking network. But was it necessary to raise the number of banks to over 60 to achieve that aim? Ignoring the advice of economists and the feeble opposition from the central bank, the government has patronised the entry of new banks one after another in recent years.

But, for offering banking service to the vast majority of rural people, what was needed most is innovation. The agent-banking is an innovative banking operation at the least cost. The private banks which were once reluctant to come to rural areas have gone there through agent banking extensively. With an affordable number of banks, the country could have achieved this breakthrough.

Now the government is contemplating a few amendments to the Bank Company Act to straighten things up in the banking sector. All concerned would expect that it would apply the new provisions for the betterment of the country's banking sector. 

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