1. Wilful default: RBI tightens noose on promoters

Wilful default: RBI tightens noose on promoters

Tightening norms for identifying wilful defaulters, the Reserve Bank of India (RBI) has allowed banks to consider a promoter...

By: | Published: April 24, 2015 12:27 AM

Tightening norms for identifying wilful defaulters, the Reserve Bank of India (RBI) has allowed banks to consider a promoter of a company as a wilful defaulter even if the said person is not a whole-time director of the firm.

As per earlier rules, a bank couldn’t label a non-whole-time director of a company as a wilful defaulter unless there was conclusive evidence that the individual was aware of the wilful default by the company and had not objected to it.

“The above exception will not apply to a promoter director even if not a whole-time director,” the RBI said in a notification on Thursday.

All other rules for wilful defaulters declaration and intervention will remain the same. Early last year, the central bank had issued guidelines to banks, empowering them to declare errant borrowers who deliberately default on loans as wilful defaulters and, thereby, cutting off any incremental funding to such companies.

According to the RBI, a wilful default occurs when a defaulting borrower doesn’t honour an obligation, despite having the capacity to pay, or siphoning off funds and disposing of assets without the knowledge of the bank. The rules came in the wake of mounting bad loans in banks’ books and rising cases of deliberate default by big companies.

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