A unique way of categorizing Non-Performing Loans (NPLs) of Indian banks is wilful defaulters and others. Earlier empirical works have analyzed micro and macro factors influencing bank NPLs. This paper is a first cut analysis of wilful defaulters’ quarterly data disclosed by Credit Information of Bureau of India Limited (CIBIL) from June 2003 to March 2015. Substantial number of wilful defaulters are unlisted and private limited companies, financed largely by government owned banks and are concentrated in specific regions/states. We argue that borrowers turn to wilful defaulters not just because of adverse macro-economic factors, but also by taking advantage of weak governance structure such as ineffective functioning of economic, legal and political institutions of the country. On the scale of World Bank six factor country level governance, India ranks low on controlling corruption, improving regulator quality, government effectiveness and rule of law. Our empirical analysis supports the hypothesis that wilful loan defaults are largely caused by the above mentioned weak/poor country level governance factors. This paper identifies areas for improvement of governance and scope for strengthening of credit monitoring by banks to prevent wilful loan defaults.
A unique way of categorizing Non-Performing Loans (NPLs) of Indian banks is wilful defaulters and others. Earlier empirical works have analyzed micro and macro factors influencing bank NPLs. This paper is a first cut analysis of wilful defaulters’ quarterly data disclosed by Credit Information of Bureau of India Limited (CIBIL) from June 2003 to March 2015. Substantial number of wilful defaulters are unlisted and private limited companies, financed largely by government owned banks and are concentrated in specific regions/states. We argue that borrowers turn to wilful defaulters not just because of adverse macro-economic factors, but also by taking advantage of weak governance structure such as ineffective functioning of economic, legal and political institutions of the country. On the scale of World Bank six factor country level governance, India ranks low on controlling corruption, improving regulator quality, government effectiveness and rule of law. Our empirical analysis supports the hypothesis that wilful loan defaults are largely caused by the above mentioned weak/poor country level governance factors. This paper identifies areas for improvement of governance and scope for strengthening of credit monitoring by banks to prevent wilful loan defaults.
