RBI revises norms on wilful defaulters, seeks public comments

RBI

The Reserve Bank of India (RBI) on 21 September said the central bank proposes to revise norms concerning wilful defaulters and large defaulters after a review of existing norms and based on feedback from various shareholders.

A wilful defaulter is a defaulter who wouldn't pay back the money to banks despite having the means to do so.

The draft master direction proposes to expand the scope for banks which can classify borrowers as wilful defaulters, broaden the definition of wilful default and refine the identification process.

Also, the draft norms mandate a review and finalisation on wilful default aspects within six months of an account being classified as a non-performing asset, the RBI said.

Further, it also addresses the treatment of wilful default loans sold to Assets Reconstruction Companies and their status under the Insolvency and Bankruptcy Code.

The directions also aim to put in place a system to disseminate credit information about wilful defaulters for cautioning lenders to ensure that further institutional finance is not made available to them.

The directions said the provisions regarding large defaulters shall apply to all entities regulated by the Reserve Bank, irrespective of whether they fall within the definition of ‘lender’ as provided in the Directions or not.

The directions further said the evidence of wilful default shall be examined by an Identification Committee and after identification if the committee is satisfied  that an event of wilful default has occurred, it shall issue a show-cause notice to borrower who are in charge and responsible for the management of the affairs of the entity, and call for the submissions.

The process of identification also have certain other directions for the identification committee.

The lender shall examine the ‘wilful default’ aspect in all accounts with
outstanding amount of Rs 25 lakh and above or as may be notified by Reserve Bank of India from time to time, and complete the process of classification/ declaring the borrower as a wilful defaulter within six months of the account being classified as non-performing assets (NPA), directions said.