RBI norm to help credit companies act swift on wilful defaulters

Written by Arun S | New Delhi | Updated: Jun 7 2014, 00:58am hrs
RBIThe idea is ensure information about wilful defaulters reach all credit institutions.
The RBI will soon issue guidelines for banks and credit institutions to report data on wilful defaulters on a real-time basis, including in cases where lenders have filed suit against borrowers and in non-suit filed cases, directly to credit information companies (CIC) such as CIBIL and to Sebi.

The idea is ensure information about wilful defaulters reach all credit institutions and the concerned regulators on a real-time basis, without any delay. Reporting to Sebi is to ensure the promoters of such entities are prevented from raising money through the capital market route.

Credit institutions, which will be asked to follow the new guidelines include banks, financial institutions (FI), non-banking finance companies, housing finance companies, urban cooperative banks, regional rural banks and state financial corporations.

At present, only banks and FIs submit information, and that too on a quarterly basis, to the RBI a list of defaulters of Rs 1 crore and above (only non-suit filed accounts, that is cases where suits have not been filed but were classified as doubtful / loss accounts) and the list of wilful defaulters of Rs 25 lakh and above (non-suit filed accounts). Banks and FIs also give to CIBIL information on wilful defaulters (only suit-filed cases, where lenders have filed suit against borrowers).

Doing away with this system, the new norms will mandate all credit institutions to report data regarding wilful defaulters in suit-filed and non-suit-filed cases a continuous basis directly to the CICs of which they (credit institutions) are members as well as to Sebi, official sources told FE. This is to prevent any delay in such report reaching CICs and Sebi.

The CICs currently operating in the country include CIBIL, Experian, Equifax and Highmark. The inclusion of all credit institutions besides banks and FIs is to ensure that wilful defaulters do not resort to borrowing from them after being excluded from the banking system.

The credit institutions will have to provide the current and historical data on wilful defaulters to the CICs and other authorities. The CICs then will have to ensure that the data on suit-filed cases is placed on their websites in a user-friendly manner, enabling people to search across different periods, amount of money involved and credit institutions.

The move follows similar recommendations by a panel led by the HDFC managing director Aditya Puri. In March, the RBI had called for comments/feedback from stakeholders on the report by April 30.

According to the RBI norms, a "wilful default" would be deemed to have occurred if the unit has deliberately defaulted in meeting its repayment obligations to the lender even when it has the capacity to honour the obligations, or has diverted the funds obtained from the lender for other purposes. Wilful defaults also include cases where the borrower has siphoned off the funds and the borrower has disposed of the movable fixed assets or immovable property given as collateral.

As per the RBI norms, a company declared a wilful defaulter should not be given access to finance from other lenders. Also, lenders cannot give fresh funds to the promoters of such companies for five years to start a new venture. Besides, if necessary lenders can begin criminal proceedings against the guarantors and companies or go for a management change.

Rajan meets Modi ahead of policy review

Ahead of monetary policy review on Tuesday, Reserve Bank governor Raghuram Rajan on Sunday called on Prime Minister Narendra Modi and is likely to have discussed the macro-economic situation and issues related to price rise.

The RBI's bi-monthly policy review on June 3 will be the first after Prime Minister Narendra Modi assumed office on May 26.

Last week, Rajan also met the newly appointed finance minister Arun Jaitley and had said fighting price increase is a priority, stressing that the central bank has always maintained a balance between the need to check inflation and prop up growth.

"Rajan called on Prime Minister Shri Narendra Modi at 7, Race Course Road today. It was a courtesy call," an official statement said.

The RBI may leave key interest rates unchanged in its June 3 monetary policy review as Rajan is likely to prefer containing stubborn inflation before conceding to demands for a rate cut to boost growth. PTI