RBI issues directions on treatment of wilful and large defaulters

The Reserve Bank of India (RBI) issued the RBI (Treatment of Wilful Defaulters and Large Defaulters) Directions, 2024. 

The Directions provide a procedure for the classification of a borrower as wilful defaulter by lenders. 

 

Key features:

Wilful defaulter:  A wilful defaulter refers to:

(i) a borrower or a guarantor who has committed wilful default of at least Rs 25 lakh or above as notified by RBI,

(ii) promoters and directors associated at the time of default if the defaulter is a company, and

(iii) persons in charge of and responsible for management of the affairs of an entity other than companies.  

Large defaulter refers to a defaulter with an outstanding amount of at least one crore rupees and whose account has been categorised as a doubtful or loss account.

 

Wilful default

Wilful default by a borrower will be deemed to have occurred when he defaults in meeting repayment obligations to the lender. 

In addition, at least one of the specified conditions needs to be fulfilled.   These include:

(i) default despite having the capacity to honour the obligations,

(ii) diversion or siphoning off of funds availed from the lender, or

(iii) disposal of assets given for securing the credit without the lender’s knowledge. 

Wilful default by a guarantor will be deemed to have occurred if he does not honour the guarantee despite having the ability to do so.

 

Identification of wilful defaulters 

The evidence of wilful default will be examined by an identification committee (comprising one whole time director as chairperson and two senior officials) set up by the lender. 

If the committee is satisfied that wilful default has occurred, it will issue a show-cause notice to the borrower.

The borrower will be given an opportunity to submit a representation to a review committee set up by the lender (comprising the chief executive officer as chairperson and two independent directors). 

The review committee will provide the borrower an opportunity of a personal hearing.  It will pass the order regarding the classification.

 

Source: TH, PRS