Check for Willful Default in Bad Loans Exceeding Rs 25 Lakh
By : Falaknaaz Syed
Update: 2024-07-30 16:22 GMT
MUMBAI: The Reserve Bank of India (RBI) on Tuesday issued new directives for lenders to address willful defaulters. The regulator directed lenders to examine the ‘willful default’ aspect in all Non-Performing Assets (NPA) accounts with outstanding amount of Rs 25 lakh and above, and to complete the classification process within six months of the account being classified as an NPA if willful default is observed in the internal preliminary screening.
A wilful default by a borrower shall be deemed to have occurred when the borrower defaults in meeting payment/ repayment obligations to the lender incase the borrower has the capacity to honour the said obligations but has diverted the funds availed under the credit facility, has disposed of assets provided for the purpose of securing the credit facility without the approval of the lender; has failed in its commitment to the lender to infuse equity despite having the ability to infuse the equity. Similarly, a willful default by a guarantor shall be deemed to have occurred if the guarantor does not honour the guarantee when invoked by the lender, despite having sufficient means to make payment of the dues.
A willful defaulter would be a borrower or a guarantor who has committed wilful default and the outstanding amount is Rs 25 lakh and above.
The RBI has mandated a structured mechanism for identifying and classifying wilful defaulters. This process involves an examination by an Identification Committee, which must review the borrower's track record to ensure that the default was intentional and deliberate. If willful default is suspected, a show-cause notice is issued to the borrower, guarantor, promoter, or director, allowing them 21 days to respond, providing an opportunity to present their case. The decision to classify an individual or entity as a wilful defaulter rests with a Review Committee, which will consider the recommendations of the Identification Committee, the submissions made by the borrower, and any written representations and personal hearing before taking the final call.
As the above classification process is an in-house proceeding, the borrower/ guarantor/ promoter/ director/ persons in charge and responsible for the management of affairs shall not have the right to be represented by a lawyer, the RBI said.
These Directions will come into force after 90 days from their issuance on Tuesday, said the central bank.
The norms also elaborated the penal charges that would include not providing any additional credit facility to a wilful defaulter or any entity with which a wilful defaulter is associated for a period of one year. Similarly, “no credit facility shall be granted by any lender for 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 wilful defaulter has been removed from the list of willful defaulters by the lender,” said the central bank.
A willful defaulter would be a borrower or a guarantor who has committed wilful default and the outstanding amount is Rs 25 lakh and above.
The RBI has mandated a structured mechanism for identifying and classifying wilful defaulters. This process involves an examination by an Identification Committee, which must review the borrower's track record to ensure that the default was intentional and deliberate. If willful default is suspected, a show-cause notice is issued to the borrower, guarantor, promoter, or director, allowing them 21 days to respond, providing an opportunity to present their case. The decision to classify an individual or entity as a wilful defaulter rests with a Review Committee, which will consider the recommendations of the Identification Committee, the submissions made by the borrower, and any written representations and personal hearing before taking the final call.
As the above classification process is an in-house proceeding, the borrower/ guarantor/ promoter/ director/ persons in charge and responsible for the management of affairs shall not have the right to be represented by a lawyer, the RBI said.
These Directions will come into force after 90 days from their issuance on Tuesday, said the central bank.
The norms also elaborated the penal charges that would include not providing any additional credit facility to a wilful defaulter or any entity with which a wilful defaulter is associated for a period of one year. Similarly, “no credit facility shall be granted by any lender for 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 wilful defaulter has been removed from the list of willful defaulters by the lender,” said the central bank.