RBI's new norms on wilful defaulters to come into effect from Nov 1

The Reserve Bank of India has asked lenders to examine wilful defaulters in all Non-Performing Assets (NPA) accounts with an outstanding amount of Rs 25 lakh and above and said the process should be completed in six months. The new norms will come into force after 90 days, that is, from November 1, 2024.

The master direction on wilful defaulters issued by the regulator on Tuesday outlined the measures and consequences for those borrowers who deliberately default on their financial obligations.

A borrower can be identified as a wilful defaulter when the borrower has the capacity to pay but has not honoured the obligation, or has diverted, siphoned funds, or disposed of assets that were provided for securing loans without the approval of the lender, among others.

The primary objective of the directions was to provide for a non-discriminatory and transparent procedure, keeping in mind the principles of natural justice, for classifying a borrower as a wilful defaulter.

The RBI said an identification committee should examine the evidence of wilful default. If the panel is satisfied about the event of wilful default, it should issue a show-cause notice to the borrower/guarantor/promoter/director/persons responsible for the management of the affairs of the entity.

The identification of the wilful default should be made keeping in view the track record of the borrowers and should not be decided on the basis of isolated transactions/incidents.

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

Elaborating on penal measures against wilful defaulters, the RBI said no additional credit facility should be granted to a wilful defaulter or any entity with which a wilful defaulter is associated.

The norms said the lenders shall formulate a non-discriminatory board-approved policy that clearly sets out the criteria based on which the photographs of persons classified and declared as wilful defaulters shall be published.

The bar on additional credit facilities to a wilful defaulter or any entity with which a wilful defaulter is associated shall be effective for one year after the wilful defaulter’s name has been removed from the List of Wilful Defaulters (LWD).

No credit facility should be granted by any lender for the floating of new ventures to a wilful defaulter or any entity with which a wilful defaulter is associated for a period of five years after the name of the wilful defaulter has been removed from the LWD by the lender, it said.

“Wilful defaulters or any entity with which a wilful defaulter is associated shall not be eligible for restructuring of credit facilities,” the RBI said.

Regulated entities should submit information about large defaulters, those with an outstanding amount of Rs one crore and above, to credit information companies (CICs). Such filing should cover a list of suit-filed accounts and a list of non-suit-filed accounts classified as doubtful or loss.