The Reserve Bank of India (RBI) has issued a directive to lenders, instructing them to scrutinize wilful defaulters in all Non-Performing Assets (NPA) accounts with outstanding amounts of Rs 25 lakh and above. The process must be completed within six months.
The RBI’s master direction on wilful defaulters, released on Tuesday, outlines stringent measures and consequences for borrowers who deliberately fail to meet their financial obligations. A borrower may be classified as a wilful defaulter if they have the capacity to repay but do not, divert or siphon funds, or dispose of secured assets without the lender’s approval.
“If the Identification Committee is satisfied that an event of wilful default has occurred, it shall issue a show-cause notice to borrower/ guarantor/ promoter/ director/ persons who are in charge and responsible for the management of the affairs of the entity, and call for the submissions from them within 21 days of issuance of show cause notice. Lenders shall disclose to them all materials and information on which show cause notice is based,” the master directions said.
The primary aim of the directions is to establish a transparent and non-discriminatory procedure, upholding the principles of natural justice in classifying borrowers as wilful defaulters. The RBI mandates that an identification committee must review the evidence of wilful default. If satisfied, the committee should issue a show-cause notice to the borrower or responsible parties.
The identification process should consider the borrowers’ track record and not be based on isolated incidents. The RBI’s directions also call for a system to disseminate credit information about wilful defaulters, cautioning lenders against extending further institutional finance to them.
Penal measures
Penal measures outlined by the RBI include a prohibition on granting additional credit facilities to wilful defaulters or any associated entities. This restriction will remain effective for one year after the defaulter’s name is removed from the List of Wilful Defaulters (LWD). Additionally, no credit facility should be provided for new ventures associated with a wilful defaulter for five years after their removal from the LWD.
Wilful defaulters and their associated entities are also ineligible for restructuring of credit facilities. Regulated entities must submit information about large defaulters, with outstanding amounts of Rs one crore and above, to credit information companies (CICs). This submission should include lists of both suit-filed and non-suit-filed accounts classified as doubtful or loss.
