Guarantor can also be named wilful defaulter: RBI

RBI rule, applicable prospectively, also for non-group guarantors

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The Reserve Bank of India (RBI) on Tuesday clarified that individuals or corporate entities acting as guarantors to loans could also be identified as wilful defaulters for refusing to clear the dues despite having the means to do so.

“If guarantees, given by group companies on behalf of a firm that defaults wilfully, are not honoured when invoked by banks or financial institutions, such group companies should also be reckoned as wilful defaulters,” RBI said.

If an individual serving on the board of a firm is declared a wilful defaulter, any company on whose board he serves as a member cannot avail of bank loans. This rule is also applicable in the cases where guarantors are not directors of the borrowing company or are non-group entities or individuals.

TIGHTER RULES

• If an individual on the board of a firm is tagged a wilful defaulter, even another firm on whose board he serves cannot avail of bank loans
• The rule is applicable prospectively, also on guarantors who are not directors or are non-group entities
• A borrower can also be declared wilful defaulter for using funds for purposes other than that for which a loan was taken

“Where a banker has made a claim on the guarantor because of a default by the principal debtor, the guarantor’s liability is immediate. If this guarantor refuses to comply with the demand by the creditor or banker, despite having sufficient means to clear the dues, such a guarantor will also be treated as a wilful defaulter,” RBI said. However, the rule is to be effective prospectively, so will not apply to the cases where guarantees were given before the issue of the circular.

RBI also clarified that banks could declare individuals as well as business enterprises — whether incorporated or not — wilful defaulters, if a borrower defaulted on payment despite having the capacity to repay. A borrowing entity or individual could also be declared a wilful defaulter if it was found that the borrowed funds were used for purposes other than that for which the loan was availed of.

Kolkata-based United Bank of India (UBI) recently declared Vijay Mallya, chairman of the grounded Kingfisher Airlines, for non-repayment. Some other banks on whose loans Kingfisher Airlines defaulted are also considering similar steps. UBI has also slapped a wilful defaulter notice on United Breweries Holdings, a guarantor to loans taken by Kingfisher Airlines.

The finance ministry is also planning to amend the SARFAESI Act to include penal provisions for wilful default in Parliament’s winter session.

Now, SBI slaps a wilful defaulter notice on KFA
Days after United Bank declared Kingfisher Airlines, its chairman Vijay Mallya and three other directors wilful defaulters, State Bank of India, the country’s largest bank, on Tuesday said it had also sent a notice. “We have already sent a notice to KFA (to declare it a wilful defaulter). There is a mandatory time that needs to be given to it to respond and that time is currently on,” said SBI Chairperson Arundhati Bhattacharya.