Bank unions AIBOC and AIBEA have opposed the Reserve Bank's move to allow lenders to settle loans of wilful defaulters under compromise settlement.
The RBI’s recent 'framework for compromise settlements and technical write-offs' is a detrimental step that may compromise the integrity of the banking system and undermine efforts to combat wilful defaulters effectively, unions said in a joint statement.
“As key stakeholders in the banking industry, we have always advocated for strict measures to address the issue of wilful defaulters,” the All India Bank Officers’ Confederation (AIBOC) and the All India Bank Employees’ Association (AIBEA) said in a statement.
Allowing compromise settlement for accounts classified as fraud or wilful defaulters is an affront to the principles of justice and accountability, it said, adding, it not only rewards unscrupulous borrowers, but also sends a distressing message to honest borrowers who strive to meet their financial obligations.
Now, this sudden change in the framework by the RBI to grant compromise settlements to wilful defaulters, comes as a shocker, and it will not only lead to erosion of public trust in the banking sector, but also undermines the confidence of depositors, it added.
It fosters an environment where individuals and entities with the means to repay their debts choose to evade their responsibilities without facing the appropriate consequences, it said.
Such leniency serves to perpetuate a culture of non-compliance and moral hazard, leaving banks and their employees bearing the brunt of the losses, it said, adding, it is worth noting that wilful defaulters have a significant impact on the financial stability of banks and the overall economy.
By allowing them to settle their loans under the compromise, the RBI is essentially condoning their wrongful actions and placing the burden of their misdeeds on the shoulders of ordinary citizens and hardworking bank employees, it added.
Unions called upon the RBI to review and withdraw the decision and the central bank should prioritise the protection of the interests of honest borrowers and depositors who rely on the integrity of the banking system.