The Reserve Bank of India (RBI) on 30 July 2024 issued a master direction to address the issues of identification and treatment of wilful and large defaulters.
Key points
- The guidelines will be applicable to banks, non-banking financial companies (NBFCs), and financial institutions such as the Export-Import Bank of India (Exim Bank) and the National Bank for Agriculture and Rural Development (Nabard).
- A wilful defaulter is borrower or a guarantor who has committed wilful default and the outstanding amount is ₹25 lakh and above.
- Large defaulter” means a defaulter with an outstanding amount of Rs 1 crore and above, and where suit has been filed; or whose account has been classified as doubtful or loss.
- It requires banks to declare a borrower as wilful defaulter within six months of the account being classified as a non-performing asset (NPA).
- The procedure includes evidence of wilful default being examined by an “Identification Committee” and the former’s proposal along with the written representation received from the borrower to be considered by the “Review Committee”.
- The new guidelines have also granted borrowers the right to a personal hearing before the review panel. Previously, the decision to hold the hearing was at the discretion of the committee, but it is now mandatory to hear the borrower.
- The penal measures that will be implemented against wilful defaulters include: no additional credit facility to be granted by any lender to a such a borrower or any entity with which the borrower is associated; and bar on additional credit facility to a wilful defaulter or any entity with which a wilful defaulter is associated to be effective for a period of one year after the name of wilful defaulter has been removed from the List of Wilful Defaulters (LWD) by the lender.
