Where loan defaulters can’t enrol children to elite schools: Punishing errant borrowers

The draft Bank Company (Amendment) Act, approved by cabinet on Tuesday, has a number of provisions to punish wilful loan defaulters financially, as well as socially. But how are such defaulters treated in different countries of the world?

Willful loan defaulters are those who intentionally refuse to repay their loans or who have the ability to repay but choose not to do so.

In India, wilful defaulters may be declared as such by the banks or financial institutions that have extended the loans, and their names may be published in a public database of defaulters. This can have serious consequences for their credit scores and ability to obtain loans in the future. In some cases, legal action may also be taken against them, including criminal charges.

In the United States wilful loan defaulters may be sued by their creditors or lenders, and if they are found to be in default, a judgement may be entered against them. This could result in wage garnishment, property seizure, or other measures to collect the debt.

China penalised loan defaulters by putting restrictions on enjoying different social benefits that regular citizens are entitled to. Loan defaulters are unable to purchase air tickets, purchase tickets of high-speed trains, or serve as executive or representative of corporate entities. This blacklist contains many political bodies, legislative and government staff, of China. There are no exceptions in this punishment. They cannot even buy any real estate.

Malaysia also took punitive action against loan defaulters. Defaulters in Malaysia are not allowed to leave the country.

Speaking to The Business Standard, Dr Zahid Hussain, former lead economist, World Bank's Dhaka office, said, "I have heard the issue of banning wilful defaulters from travelling abroad has come up in the amendment. Along with this, these defaulters should be subjected to social pressure, including deprivation of various facilities.

"In many countries, including China, the children of such defaulters cannot enrol in elite schools. We have to go that way. A ban on foreign travel alone does not seem sufficient although we have not seen much enforcement of these policies."