Guarantor to be tagged wilful defaulter if obligations not met

Tightening noose around loan defaulters, the Reserve Bank today said guarantors, who refuse to fulfil their obligations to banks despite having adequate resources, will also be treated as wilful defaulters.
Once branded a wilful defaulter, a person or entity cannot access institutional credit. Such a person cannot hold office of director.
"In case the...Guarantor refuses to comply with the demand made by the creditor/banker, despite having sufficient means to make payment of the dues, such guarantor would also be treated as a wilful defaulter," an RBI circular said.
However, this will be applicable prospectively and not to cases where guarantees were taken prior to the circular.

"Banks/Financial Institutions may ensure that this position is made known to all prospective guarantors at the time of accepting guarantees," the central bank said.
Elaborating, RBI said where a banker has made a claim on the guarantor on account of the default made by the principal debtor, the liability of the guarantor is immediate.

A guarantor could be individual or a company.
Also, in cases where guarantees furnished by the companies within the Group on behalf of the wilfully defaulting units are not honoured when invoked by the banks and financial institutions, such Group companies should also be reckoned as wilful defaulters, the circular said.

With an aim to deal firmly with wilful defaults in payment of bank loans like Kingfisher, the government is also planning to come out with a separate legislation in the next session of Parliament.
Recently, United Bank of India declared Kingfisher Airlines, its promoter Vijay Mallya and three other directors as wilful defaulter citing alleged diversion of funds. IDBI Bank is also considering similar action and is serving out a 15-day notice period on non-payment of dues.