India, the second-largest country in the world in terms of economy, having a gross domestic product (GDP) of 2.6 lakh crores USD in 2017, following with a growth rate of 8.4% in 2018-19, might look a groove and well-oiled machine type of a country but there's hardly any truth in it. India, just like any other developing nation in the world has to face scores of hurdles while progressing forward and achieving its targets. The economic hurdles, for instance, non repayment of loans to the banks by the public, fall in foreign exchange, devaluation of domestic currency in the international market, scams, etc. are some examples of economic hurdles. So to tackle these kinds of problems, the government or the specified authority must take some diligent steps, so that the march towards the goal of the nation is not disrupted. In recent years, there’s had been uniformity in the instances of economic hurdles.

This article has dealt with the two most common economic hurdles in India, i.e. fugitive economic offenders and non-performing assets, following with the author's remark on "whether there's a need for banking reforms or not ?

The sole purpose of the study on the topic stated above is to discover the nature of the given economic problems and the steps taken by the government to deal with it. The study has stretched itself to the changes in the trends of the problem and response of the Indian legislature at various tenures of government. The author had put stress on various loopholes and shortcomings in the policies and reforms brought by the government. At last, the writer has concluded with his opinion regarding, reforms and changes which are ‘need of the hour’ in the banking sector to deal with fugitive economic offender and rising NPAs.

Who is a fugitive economic offender?

According to the section 4 of the FEOA 2018, a fugitive economic offender is any individual against whom a warrant of arrest concerning a scheduled offense has been issued by any court in India, who:
i) Leaves or has left India to avoid criminal prosecution; or
ii) Refuses to return to India to face criminal prosecution.

How a person is declared an offender?
A director, appointed by the central govt., will have to apply to a special court to declare a person as a ‘fugitive economic offender.’ Under clause (2) of Section 6, the application must contain reasons, information about his whereabouts, list of properties owned by him (in or outside India), and names of stakeholders.

How do they affect the system?
Let's assume there is a person X who operates two or three business ventures and takes loans regularly to meet his business ends. So he takes a loan from a bank but this time does not repay and flee the country and refuses to come back to India. The money which X took away was the hard-earned money of the general public which was kept in the banks as deposits.

What are the major steps taken by the government of India?
The Govt. of India in 2017 proposed a bill in the parliament i.e. ‘fugitive economic offenders bill 2017’ which was passed by the parliament along with the President's consent and became law in July 2018.

What is the intention of fugitive economic offender?

The intention of the fugitive economic offender is mala fide in nature. Their sole aim is to deceive the public, government and various authorities (according to the case). As per the facts, most of the offenders are big businessmen who procure funds through banks or by issuing public bills or by promising public of higher returns and fail to perform their obligations. There are also some cases concerning willful defaulters. As per RBI guidelines, "a willful default has occurred if the borrower has not met the repayment obligations even having the capacity to do so."

What is the scope of FEOA 2018?

The bill aims at establishing the ‘rule of law' concerning the fugitive economic offenders as they would be compelled to come to India to face prosecution for scheduled offenses (offenses which are listed in the FEOA 2002).

This act would be beneficial for the victim parties which could be any bank, co-operatives, financial institution, and the general public as it would achieve higher recovery from financial defaults committed by such fugitive economic offenders, improving the financial health of such institutions. It is expected that the special courts to be created for expeditious confiscation of the proceeds of the crime, in India or abroad, would coerce the fugitive to return to India to submit to the jurisdiction of the courts in India to face the law in respect of scheduled offenses.

Non-performing assets (NPAs) in India:-

"A non-performing asset is a part of loans or advances granted by a bank to any individual or business enterprise on which payment of the principal or interest amount has not been made for 90 days." It is a categorization of loans in the books, any loan on which payment is due for 90 days (as per RBI) is referred to as Non-performing asset. As the word says ‘non-performing' it means the ‘asset' (which is principal added interest) which is not performing or not acting in the desired manner.

There are 3 types of NPAs:-

1. Substandard asset - loan in which payment is due for 90 days to 12 months.
2. Doubtful asset - loan in which payment is due for more than 12 months but less than 18 months.
3. lost asset - loan in which payment is due for more than 36 months + 90 initial days.

What are the causes of rising NPAs?
From the 1991 Indian economic crisis to its status of the third-largest economy in the world, the Indian banking sector has grown significantly in terms of economic development but the problem of rising NPAs is still a setback for the Indian economy.

# The following are some causes of rising NPAs in India:-

a) Willful defaulting:-
It is a situation where the borrower has the required capacity to pay the dues but decides not to. It is seen in frequent no. of cases in recent years. The most popular Vijay Malaya 9000cr. scam is an example of willful defaulting. The business tycoon owns more than sufficient property (in and outside India) to pay back the debt but he chooses not to do so. Another example is an industrialist Mr. Pushpesh Baid, who is involved in 700cr. scam at Allahabad bank. The steel player has numerous industries in India and abroad but he deliberately abstains from doing so. Both of these are under investigation and soon their properties would be confiscated and the debt would be paid by auctioning off their properties.

b) Lenient lending norms
lenient lending norms by the lender is one of the reasons for rising NPAs in India. It is a failure on the part of banks that they do not check the financial status of the borrower. If the amount lent, is for a business venture, then the systematic study of the market and the status of an enterprise is a necessary step. Also, the overestimation of the financial status and credit rating by banks to famous personalities and business ventures adds to this problem.

c) Credit distribution mismanagement
The process of credit lending plays the most important role in the banking sector. Even though there are proper guidelines of RBI to every sphere of banking, banks fail to comply with the same and hence leading to NPAs. the best example is Nirav Modi scam in which Punjab national bank’s Brady House branch in Mumbai issued Letter of Understandings to his diamond firm without taking any collateral as security which is the reason why the said bank could not cover its debt and faced losses.

Steps taken by the govt. in last decades to combat NPAs

1. The Recovery of Debts due to Banks and Financial institutions Act, 1993(RDDBFI):-
This act was passed after the New Economic Policy was adopted by the Indian govt. of Liberalization, Privatization, and Globalization. The Act was passed by the UPA govt. headed by the then Prime Minister P.V.Narsimha Rao. Under this act, any debts secured or unsecured may be recovered by the Debt recovery tribunal. The recovery officers authorized to recover the debt by attaching and selling the assets, arresting the debtor, etc.

2. Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act,2002 (SARFAESI):-
This act was passed by the then NDA govt headed by Prime Minister Atal Bihari Vajpayee. The Act provided that if the borrower failed to discharge his liability then the banks without the intervention of the courts can recover the secured assets.

3. Prevention of Money Laundering Act, 2002:-
In 1992, Harshad Mehta scam or better known as Security Market Scam siphoned off Rs.1000 cr. from the Indian banking system which necessitated the govt. to come up with legislation which would act as a watchdog in the Indian banking system. So, in 2002 the then NDA govt. brought the PMLA bill which they managed to pass in both the houses with ease hence framing it into law.

According to PMLA 2002, any person found guilty of the offense of money laundering would face rigorous punishment of 3 years to 7 years.

The following are the objectives of PMLA:-
a) to prevent and control money laundering.
b) to confiscate and seize the property obtained from the laundered money, and
c) to deal with any other issue connected with money laundering in India.

Some salient features of PMLA 2002
i)Punishment for money laundering - the act empowers the special court to reward any person found guilty of any offense mentioned under the paragraph 2 of Part A of the schedule (offenses under the Narcotics Drugs and Psychotropic substance act, 1985), the maximum punishment for the offense may extend to 10 years instead of 7 years.

ii) Powers to confiscate the property - the government authority can appoint any appropriate authority who can provisionally attach property believed to be ‘proceeds of the crime’ for 180 days, such an order first has to be confirmed by an independent Adjudicating Authority.

iii) Adjudicating Authority - it is the authority appointed by the central govt. through a notification to exercise, jurisdiction, powers, and authority conferred under PMLA. It decides whether any property attached or seized is involved in money laundering or not.

iv) burden of proof - a person, who is accused of having committed the offense of money laundering, has to prove that alleged proceeds of crime are lawful property.

v) Appellate Tribunal – an appellate tribunal is a judicial body appointed by Govt. of India. It is given the power to hear appeals against the orders of the adjudicating authority and any other authority under the act.

4. Fugitive Economic Offenders Act, 2018:-
Background
In 2016, the very popular business tycoon in India Mr.VIjay Mallya, (the chairman of the world's largest liquor manufacturer company ‘United spirits’) came in light for defaulting Rs. 9000cr. to Indian banks. The first FIR was lodged by the SBI officials who had suffered a wash of Rs1600cr which were lent to him for business purposes. Following with, complaints getting registered by other banking players in India like IDBI, who had lent Rs900cr to kingfisher (airline company owned by Mallya). The tycoon, on the other hand, was relaxed and planned to move out of the country and somehow managed to flee to the United Kingdom.

The NDA govt. was a bit shaken as the media started pointing out the fault of the Govt. and the RBI for not having adequate legislation to combat these types of situations. In March 2017, the fugitive economic bill was presented before the parliament. The discussions on the bill continued as the sessions passed, and then another scam came into light which was more heavier than the previous one. Rs12000cr Nirav Modi scam had shaken the Indian banking system completely and immense necessity was felt among the masses of the new law. The FEOA was passed in the monsoon session of 2018, which was widely appreciated in domestic as well as international levels.

Features of the Fugitive Economic Offenders Act, 2018
i) wide range of offenses:- a person can be qualified as an economic offender, by committing any offense mentioned in several acts such as Negotiable Instruments Act, 1881; the Reserve Bank of India Act 1934, Central Excise Act, 1944; the Customs Act, 1962; the Prohibition of Benami Property Transaction Act, 1988; the Prevention of Money Laundering Act, 2002; and the Indian Penal Code, 1860.

ii) Judicial declaration:- The Director, appointed by the central govt., will have to apply to a special court to declare a person as a ‘fugitive economic offender.' Under clause (2) of section 6, the application must contain reasons, information about his whereabouts, list of properties owned by him (in or outside India), and names of stakeholders.

iii) Attachment of Property:- The authorized officer or Director, not below the rank of Deputy Director, may with the permission of the Special Court, attach any property mentioned in the application under section 4 by an order in writing in such manner as may be prescribed.

iv) Power of Director and other officers:- The Director or any other officer, shall for section 4, have the same powers as are vested in a civil court under the code of civil procedure, 1908 while trying a suit in respect of the following matters, namely:-
a) discovery and inspection.
b) enforcing the attendance on any person, including any officer of a reporting entity and examining him on oath.
c) compelling the production of records.
d) receiving evidence on affidavits.
e) issuing commissions for the examination of witnesses and documents, and

Current Status of Economic Offenders in India:-
In India, the cases of Economic Offenses are generally given to the top central investigating agencies like CBI and ED. The jurisdiction of both agencies is different and accurate. In the monsoon session of the Parliament 2018, the opposition parties asked the ruling party the data on economic fugitive offenders and they came up with two separate lists of cases being investigated by ED and CBI.

Cases being investigated by Enforcement Directorate: (Annexure 1)

S.No	Name Of The Offender	Occupation	Defaulted Amount	Victims	Offense
1	Vijay Mallya	Liquor And Airlines	9000 cr	SBI And IDBI	Fraud And Cheating
2	Jatin Mehta	Diamonds	6800 cr	Punjab National Bank	Fraud And Cheating
3	Lalit Modi	IPL Former Chairman	1700 cr	BCCI	Money Laundering
4	Nirav Modi	Diamonds	1200 cr	Punjab National Bank	Fraud And Cheating
5	Mehul Choksi	Diamonds	1200 cr	Punjab National Bank	Fraud And Cheating
6	Ritesh Jain	Diamonds	1500 cr	Government of India	Money Laundering
7	Sanjay Bhandara	Arms Dealer (Rafale Deal)	63000cr	Taxpayers	Money Laundering
8	Nitin Sandesara	Biotechnologist	5000cr	Government of India	Money Laundering
9	Chetan Sandesara	Biotechnologist	5000cr	Government of India	Money Laundering
10	Dharminder Singh	Hawala Dealer	N/A	Government of India	Money Laundering
11	Ashish Jobanputre	Textiles	800cr	State Bank of India	Default
12	Priti Jobanputre	Textiles	800cr	State Bank of India	Default

Cases being investigated by CBI: (Annexure 2)

S.No	Name of The Offender	Occupation	Amount Defaulted	Victim	Charges	Extradited Country
1	Vijay Mallya	liquor and airlines	9000cr	SBI and IDBI	Willful Default	U.K
2	Soumit Jena	mining	530cr	bank depositors	Agreement Default	Unknown
3	Vijay Patel	business	n/a	bank depositors	Default	Unknown
4	Sunil Rupani	jeweller	n/a	Dena bank	Fraud	Unknown
5	Pushpesh Baid	industrialist	700cr	Allahabad bank	Willful Default	Unknown
6	Surendra Singh	real estate	100 cr	buyers	Agreement Default	Unknown
7	Angad Singh	business	n/a	banks	Cheating	Unknown
8	Harsahib Singh	business	n/a	banks	Cheating And Fraud	Unknown
9	Harleen Kaur	business	n/a	banks	Cheating And Fraud	Unknown
10	Ashish Jobanputra	textile	800 cr	State Bank of India	Fraud	Unknown
11	Jatin Mehta	diamond	n/a	banks	Fraud	Unknown
12	Nirav Modi	diamond	12000cr	PNB	Fraud	U.K
13	Mehul Choksi	diamond	12000cr	PNB	Fraud	Antigua and Dubai
14	Neeshal Modi	diamond	12000cr	PNB	Fraud	Unknown
15	Ami Nirav Modi	diamond	12000cr	PNB	Fraud	Unknown
16	Chetan Sandesara	biotechnologist	5000cr	Govt of India	Money Laundering	Nigeria
17	Dipti Sandesara	biotechnologist	5000cr	Govt of India	Money Laundering	Nigeria
18	Nitin Sandesara	biotechnologist	5000cr	Govt of India	Money Laundering	Nigeria
19	Sabhya Seth	jeweller	400cr	Oriental Bank	Fraud	Unknown
20	Nilesh Parekh	jeweller	400cr	Oriental Bank	Fraud	Unknown
21	Umesh Parekh	jeweller	400cr	Oriental Bank	Fraud	Unknown
22	Sunny Kalra	business	N/A	PNB	Fraud	Unknown
23	Aarti Kalra	business	N/A	PNB	Fraud	Unknown
24	Sanjay Kalra	business	N/A	PNB	Fraud	Unknown
25	Varsha Kalra	business	N/A	PNB	Fraud	Unknown
26	Hemant Gandhi	business	N/A	Govt of India	Tax Evasion	Unknown
27	Ishwarbhai Bhat	business	N/A	Govt of India	Tax Evasion	Unknown
28	M.G.Chandrashekhar	Scientist (ISRO)	N/A	Govt of India	Money Laundering	Unknown
29	Cheriya Sudeer	business	N/A	Taxpayers	Money Laundering	Unknown
30	Nausha Kadeejath	investor	N/A	General Public	Agreement Default	Unknown

Steps taken to deal with NPAs by the Govt. in the last couple of decades Since 1991, the govt. of India felt the need for some powerful legislation to deal with the problem of NPAs. The following points would deal with some major steps taken by the govt. of India to put stress on rising NPAs:-

1. Narasimhan Committee (I) – The Finance Ministry of the govt. of India set up this committee to analyze India’s banking sector and to recommend regulations and legislations to make it more effective, competent, and efficient. Two committees were set up under the chairmanship of M.Narsimham, who was the 13th Governor of Reserve Bank of India. Who submitted the first report in 1991 known as Narsimham committee-I (1991) report and the other report submitted in 1998 known as the Narsimham committee-II(1998). The recommendations made by the report were very appreciated in the Indian Banking Sector.

Following were the recommendations made by the Narsimham report:
a) Autonomy in banking.
b) Reform in the role of RBI.
c) Stronger banking system.
d) Non-performing Assets.

2. SARFAESI Act:- refer to page no.5

3. Debt Recovery Tribunal:-These Tribunals were passed under the RDBBFI, 1993 to facilitate the debt recovery involving the banks and other financial institutions. The appeals against the orders passed by the DRTs lied before the Debt Recovery Appellate Tribunal (DRAT).

4. Lok Adalats:This authority was constituted under the Legal Services Authority Act, 1987. The main aim of this act was to provide free legal service to the weaker sections of the society along with the settlement of disputes amicably.

Current scenario
1. Govt. introduced the concept of Bad Banks. These are the new version of Asset reconstruction Companies (ACR).

2. New small banks have been inaugurated for financial inclusion of sectors in the society which were not covered by the Banking sector, like people employed under unorganized sector (farming, micro, and small scale industries MSMEs. Disha, TSAR, RGVN, AV Financiers are some new small banks aiming at financial inclusion.

3. AQR- Asset Quality Review is a result of asset quality inspection by RBI on commercial banks. RBI randomly checks financial statements of scheduled commercial banks to have a check on the status of NPAs. But since 2011, the asset quality of scheduled commercial banks has depleted steadily. The pace accelerated witnessing the withdrawal of regulatory forbearance on restructured advances effective April 1, 2015, and asset quality review in July 2015.

This resulted in a marked increase in the NPA ratios of domestic commercial banks, basic public, and private sectors. The change in the ratios was a bit drastic- increasing from 3.4% of gross advances in March 2013 to 4.7% in March 2015 and further to 9.9% by March 2017.

4. Stressed assets- RBI on Feb 2018 issued notifications to all scheduled commercial banks (excluding regional rural banks), all India Financial institutions ( Exim Bank, NABARD, NHB, and SIDBI). The aim was to revise the framework of the ‘stressed assets'. The RBI has issued various instructions aimed at the resolution of stressed assets in the economy including the introduction of certain specific schemes at different points of time.

The RBI, in a press release report, stated that the NPAs have begun to stabilize albeit at an elevated level, capital positions have been buffered and the provision of coverage ratio has improved.

Steps must be taken in the future by the govt. to deal with NPAs
1. Strict compliance with the RBI guidelines:-
The RBI issues guidelines for the banking sector to facilitate economic progress. But some banks do not take those guidelines seriously, which results in heavy economic losses to the banks, following with adverse effects on the entire economic system. For example, as per RBI guidelines, it is necessary for a bank to take collateral as security before lending any loans, but some banks due to some reasons neglect this criterion. In very famous Nirav Modi PNB scam, the PNB’s Brady House branch had been issuing LoUs without any collateral. This unfortunately incurred PNB a loss of Rs.12000 cr.

2. Advancement of technology:-
The technological advancement is a requisite in dealing with NPAs. The technology is dynamic so it is the responsibility of the govt. and RBI to keep the banking mechanism updated. In the Nirav Modi case, the non-integration of the swift messages with the core banking system (CBS) was one of the main reasons why these fraudulent activities could not come into the light for so long.

# The Swift system doesn't transfer funds but instead, it sends payment orders between institutions accounts using Swift codes. The code is alphanumeric, in which the first two letters are bank's initials and the next two are Bank Identifier Codes (BIC).
# In India, 104 banks are the members of SWIFT cooperative and use the technology, but many of them have not integrated their swift process with their CBS.
# CBS stands for Core Banking System which acts as a headquarter of all the branches of a particular bank, having databases of all transactions of all the customers across the globe.
# Usha Subramaniyam, chairman of Indian Bank's associations, in an interview with Business Standard, said, that the RBI had asked all the banks to integrate links for Swift with their CBS by end of April 2018.
# Usha Subramaniyam who is also the Managing Director of Allahabad Bank, like many other banks, have not integrated SWIFT and CBS till now.

3. Rotation of employees:-
The employees at banks should be transferred to other positions so that chances of corruption do not arise.
PNB’s Deputy Manager was holding the seat for more than 7 years, which made his way easier to issue
fraudulent LoUs without any collateral and having access to SWIFT codes.
# In India, every bank has its own ‘personnel policy'. "The PNB's personnel policy said that an employee cannot work in the same position in a branch for more than three years." Gokulnath Shetty was at its Brady Houses branch for over seven years, From March 2010 till his retirement from the bank on May 31, 2017.

# He also took help from another employee Manoj Hemant Karat, a clerk in the branch for over 5 years. PNB has said that both of them had issued over 150 fraudulent LoUs since 2011.

Abbreviations

FEOA	Fugitive Economic Offenders Act
Govt.	Government
PNB	Punjab National Bank
N/A	Not Accounted
Cr.	Crore
LoUs	Letter of Understandings
SBI	State Bank of India
CBI	Central Bureau of Investigation
SWIFT	Society for Worldwide Interbank Financial Telecommunications
CBS	Core Banking System
USD	United States Dollars
GDP	Gross Domestic Product
MSMEs	Micro, small and medium enterprises
ED	Enforcement Directorate