Bank loan issue: RBI’s new draft norms set 6 month timeline to identify ‘wilful defaulters’

22 September 2023

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Srinagar, Sept 22: In what could compound the efforts of a large section of businesses and industrialists, with outstanding loans of Rs 25 lakh or more, in Jammu & Kashmir, the Reserve Bank of India (RBI) on Thursday released draft norms on wilful and large defaulters, which have proposed stringent measures in loan recovery from ‘wilful defaulters’.

According to the draft norms, which have been accessed by Ziraat Times, 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 new draft define a wilful defaulter as ‘a borrower or a guarantor who has defaulted without being constrained to do and the outstanding amount is Rs 25 lakh and above.’

The RBI has sought comments and feedback on the draft norms from regulated entities and other stakeholders by October 31, 2023.

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 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.