The Big Banking Defaulters

Subiksha Anand · Jun 21, 2025

amit2011 said:
The Big Banking Defaulters

By: Amit Bhushan Date: 24th June 2017

With some actions proposed now for select defaulters under the Insolvency and Bankruptcy Code, all eyes seem to be on how the NCLT deal would with these large defaulters. Wild speculations about how would it impact ‘politics’ as well as ‘hair-cuts’ are on in the commercial news media and the discussions are being kept at the superficial level on who managed to get away with how much (speculation) and perhaps who got what (speculation) as the proceedings go on. How would or should banking be impacted as a result of learning from these large default cases is no ones’ worry because the politics perhaps may not want process to take over resolution of the default cases. As it is, it required a central bank nudge to go for such resolution rather than bank proceeding to NCLT as a process. Basically, if such cases are put through such measures as a process than the erring bankers and promoters will be under pressure to avoid defaulter’s tag which put perhaps cut off the supply of bank credit for these promoter groups including the other companies of the promoters. However by being able to avoid such tagging, the lines of borrowing for such promoters is kept open, allowing the problems to fester and become big, which than requires still more political heft to handle defaults.

As it is the politicians, once in power are status quo-ist rather than ‘change seekers’ with promoters of large projects indulging them in every which manner to curry favours. Help from banks to keep the tap of credit on helps these promoters to further build upon the nexus to keep ever-greening their borrowings and pushing new projects. This leads to swelling of loans to the same promoters, accentuating problems and political netas further avoiding the possibility of unravelling bigger mess while at the same time not leaving an opportunity to curry favours. Now with time bound default case resolution (in principle), a bevy of legal and asset restructuring experts are around to proffer their services and viewpoints to those who care. While the outcome of the kick started process is still awaited, however the intensity of debate to question the competency of authorities on judgment seat, as well as the navigators viz. legal and asset reconstruction experts, industry experts as well as possibility of overall loss to banking system being speculated to be much more than arriving at compromise with promoters; is already on. There is limited insights on how so many bankers failed to assess viability of the projects of these groups, and how better modelling could be done in future. Let’s see the ‘Game’ evolve….

Amit Bhushan’s article, "The Big Banking Defaulters", opens a window into one of the most complex and consequential financial issues in modern India—the murky web of corporate default, political complicity, and banking opacity. It’s not just a case of companies going bust; it’s a systemic issue reflecting deep-rooted governance failures, institutional inertia, and a political economy that too often protects power over prudence.

At the heart of this article is a damning critique: default is not just financial misfortune—it is frequently a result of deliberate negligence, willful ignorance, and in some cases, collusion. The fact that the Reserve Bank of India (RBI) had to push banks into taking big defaulters to the National Company Law Tribunal (NCLT) rather than banks initiating the process on their own speaks volumes. It reveals not only the hesitancy of banks to act but also an entrenched culture of “don’t rock the boat,” likely borne out of political pressures and crony capitalism.

The core message is painfully clear: the system enables the defaulter more than it disciplines them. By avoiding formal tagging of defaulters, promoters have historically kept access to fresh credit lines open—effectively using public sector banks as an ATM for unsound businesses. This behavior isn’t random. As Bhushan notes, promoters and politicians operate in a symbiotic relationship, with mutual benefits being extracted in backdoor channels, even while the front door is riddled with losses that taxpayers eventually have to bear.

But what’s even more troubling is the lack of meaningful introspection within the banking sector itself. The fact that the system produced so many bad loans to the same group of promoters raises critical questions:

Were these loans backed by sound project reports?
Were risk models outdated or overridden?
Were due diligence protocols compromised under pressure?
And most importantly, why has no comprehensive post-mortem been undertaken for accountability?

The Insolvency and Bankruptcy Code (IBC), especially after the RBI’s nudge, was seen as a potential turning point. A time-bound resolution mechanism brought hope that bad loans would be resolved more transparently and with greater speed. But Bhushan correctly points out that we have quickly slid into speculation about haircuts, deal-making, and legal wizardry, rather than focusing on long-term banking reforms.

We must ask: Will the IBC simply become another tool in the elite’s toolkit to negotiate better terms for themselves? Or will it genuinely reset the expectations of corporate governance in India? If it’s just another forum to restructure debt without fixing the rot in the system, we may once again be treating symptoms while letting the disease fester.

What’s needed—and sorely lacking—is a cultural shift in Indian banking. Lending decisions must become data-driven, transparent, and accountable, especially for large loans. There must be real consequences for willful defaulters and colluding bank officials. And regulators must institutionalize red flags that can prevent ballooning defaults before they explode into national headlines.

Finally, Bhushan’s commentary on the “Game” evolving is both ominous and accurate. We’re watching a financial drama unfold with high-profile characters, legal maneuvers, and opaque backroom decisions—but the real casualty is trust in the banking system. Unless the system is overhauled to genuinely discourage risky lending and political influence, the next cycle of bad loans may already be underway, incubated under the same old practices.

In summary, The Big Banking Defaulters is not just a critique—it’s a wake-up call. And if India wants to avoid repeating this debacle every decade, the game must not just evolve; it must be reprogrammed.

Gayatri Dutta · Sunday at 7:31 AM

The concerns raised here are valid and highlight a deeper systemic problem — the focus on political optics and sensationalism rather than meaningful reform in banking practices. While the Insolvency and Bankruptcy Code (IBC) aimed to shift the culture from “promoter-friendly” to “creditor-in-control,” its actual implementation is being sidetracked by speculation, lobbying, and political hesitancy.

The media’s obsession with “who lost what” or “who walked away” misses the bigger picture: What went wrong in the credit system? Why did banks lend repeatedly to the same promoter groups despite red flags? These questions rarely feature in mainstream discourse. That’s problematic, because unless the banking system learns from past lending failures — poor project appraisal, political interference, and lack of accountability — the cycle of bad loans will continue.

We also agree that tagging defaulters matters. If promoter groups can continue accessing credit despite major defaults, the system rewards failure and encourages evergreening — keeping bad loans alive through fresh ones. This not only distorts bank balance sheets but also blocks credit for genuinely productive borrowers.

The IBC was supposed to be a process-driven resolution tool, yet it took RBI intervention to push banks to use it. That reveals institutional reluctance and political discomfort with letting market mechanisms run their course. What’s missing in the current discourse is a sharper focus on strengthening risk models, accountability for bankers, and building a credit culture that values due diligence over connections.

So yes, the ‘game’ is evolving — but whether it becomes a rule-based financial system or stays a politically managed crisis-management routine is still uncertain.

Simran Rai · 2025-06-30T18:46:59+0530

This is an extremely relevant and thought-provoking post that highlights the deep-rooted issues in our banking and financial ecosystem. The focus on speculative discussions by mainstream media — who gained, who escaped — rather than addressing the systemic failures in risk assessment is indeed disappointing. The fact that banks required a regulatory nudge to move towards the Insolvency and Bankruptcy Code (IBC) reflects how entrenched the promoter-banker-political nexus had become. It is unfortunate that for years, evergreening of loans allowed bad debts to swell unchecked, ultimately harming the economy and taxpayers.
You rightly pointed out that very little focus is placed on understanding how credit appraisal mechanisms failed so massively. Shouldn't the spotlight now shift towards improving due diligence, project viability assessments, and accountability within banks? While the IBC is a step forward, unless these systemic issues are addressed, the cycle may repeat. Let’s hope this is the start of genuine reform rather than another temporary patch.

The Big Banking Defaulters