Banks denied access to wealth tax returns of defaulting borrowers

The efforts of banks trying to gather information on the wealth tax returns filed by their borrowers, who deliberately defaulted on loans, appear to have run into a stone wall.

Though the details of wealth in the hands of defaulters (as stated in the wealth tax returns) could be useful for recovery of dues, the income tax authorities do not share the same with banks even under the Right to Information Act.

This issue was flagged at a recent meeting of public sector bank chiefs with Finance Minister P Chidambaram.

A borrower who deliberately defaults on loans is classified as wilful defaulter by banks if, among others, he/she does not pay the dues despite adequate cash flow and strong net worth; and diverts/siphons off funds to the detriment of his unit.

Often, borrowers who deliberately default on loans only partially declare the immovable and movable assets they own at the time of taking a loan.

Once the loan goes bad and recovery proceedings are initiated, banks find that the assets have already been pledged, sold, disposed of, charged, encumbered or alienated.

It is in such cases that the wealth tax returns could prove handy, allowing banks to go after the unencumbered assets of defaulting borrowers.

A wealth tax return has details pertaining to immovable assets (buildings, urban land and agricultural land) and movable assets (cash in hand, gold, silver, platinum or other precious metals, motorcars and yachts, among others).

A senior State of Bank India official said “When revenue authorities have free access to cash transaction reports filed by banks, why can’t banks be given access to the wealth tax returns of defaulting borrowers?

“We have fiduciary responsibility towards the public as we are dealing with their savings. So, in public interest, the revenue authorities should allow us to peruse the returns filed by loan defaulters.”

The Department of Financial Services is expected to take up this plea of bankers with the Department of Revenue.

The issue of resolving bad loans, including those on account of wilful defaults, assumes urgency as such loans in gross terms have jumped 42 per cent (or by ₹65,298 crore) in the first nine months of the current financial year to ₹2,21,188 crore as at December-end 2013 in the case of public sector banks.

Currently, banks engage the services of private detectives or legal firms to dig out the details of assets (over and above those already pledged with them) of defaulting borrowers. If the revenue authorities readily provide wealth tax return details, banks need not incur expenditure on hiring private detectives/legal firms.

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