Wilful defaulters must be identified within 6 months

The Reserve Bank of India (RBI) on Thursday said lenders would have to examine all aspects relating to wilful default on accounts with outstanding dues of Rs 25 lakh or more and identify wilful defaulters within six months of a loan becoming a non-performing asset (NPA).

The regulator on Thursday released draft norms on wilful and large defaulters. It has allowed non-banking finance companies and cooperative banks to identify them. A wilful defaulter is a borrower or a guarantor who has defaulted without being constrained to do and the outstanding amount is Rs 25 lakh and above.

A large defaulter is one whose amount in default is Rs 1 crore and above. For calculating the cut-off point of Rs 1 crore, the unapplied interest, if any, should be included. For an account that is on the list of wilful defaulters and has been resolved either through the Insolvency and Bankruptcy Code or the RBI’s norms, resulting in a change in management and control of the entity or business enterprise, the name of such a defaulter should be removed from the list, the draft norms said.

If a wilful defaulter has entered into a settlement with the lender, the name of the defaulter should be removed from the list only when the borrower has paid the amount due. The name should not be removed for part-payment.

“The compromise settlement with the wilful defaulter shall be in terms of the board approved policy of the lender. Such policy shall include guidelines on staff accountability examination, reporting of the compromise/ settlement to the board, higher upfront payment if any, etc,” the norms said.  

The compromise settlement shall be without prejudice to the continuation of the legal proceedings, including criminal proceedings, against the wilful defaulter.

The RBI said the instructions on wilful defaulters had been revised after a review and after having considered judgments/orders of the Supreme Court and high courts. Representations/suggestions from banks and other stakeholders were received in this regard. These directions will come into force 90 days after placing them on the website of the RBI.

The draft norms suggest evidence of wilful default be examined by an identification committee. The identification committee should then serve a show-cause notice to the borrower and call for submission. If the committee is satisfied that wilful default has been committed it should make a proposal to the review committee for classification as a wilful defaulter by giving the reasons in writing.

The norms said lenders could consider taking criminal action against such defaulters. Wilful defaulters are debarred from any institutional finance.

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

The draft norms said the wilful defaulters would not be eligible for restructuring credit facilities.

The instructions on the guarantor will apply with effect from September 9, 2014, and not to cases where guarantees were taken prior to this date. “Lenders shall ensure that this position is made known to all prospective guarantors at the time of accepting guarantees,” the RBI said.

On the guarantor of the borrower who has been identified as a wilful defaulter, the RBI said when a default happened in making payment/repayment by the principal debtor, the lender would be able to proceed against the guarantor even without exhausting the remedies against the principal debtor.

In the case of defaulted loans sold to the other lenders and asset reconstruction companies, the norms mandated that lenders should complete the investigation from a wilful default angle in every case before transferring the credit facility to other transferees.

The RBI said such a sale to other lenders or asset reconstruction companies should not be treated as recovery.

The norms said all regulated entities of the RBI should submit information to credit information companies in the case of large defaulters and wilful defaulters at monthly intervals.

There should be a list of “suit filed” and “non-suit filed” accounts of large and wilful defaulters.

“Suit-filed accounts” mean those where RBI-regulated entities have approached courts or tribunals for recovering dues.

The RBI has sought comments and feedback on the draft norms from regulated entities and other stakeholders by October 31.