Tweaking wilful defaulter definition to cover directors: Raghuram Rajan

Written by PTI | Mumbai | Updated: Sep 30 2014, 20:54pm hrs
Raghuram RajanRaghuram Rajan today said the Reserve Bank is in the process of redefining the definition of "wilful defaulters". (PTI)
Governor Raghuram Rajan today said the Reserve Bank is in the process of redefining the definition of "wilful defaulters" so as to bring the directors of defaulting companies under its ambit.

"The (Calcutta High) Court had some questions about whether all directors could be declared wilful defaulters and we have looked at that.

"We are in the process of modifying the definition so that the directors, if seen, as culpable in actively participating or being grossly negligent of wilful default," Rajan said at the customary post-policy interactions with the media.

According to the current definition, a wilful defaulter is somebody who has essentially not used the fund for the purpose it has been borrowed or when he has not repaid when he can do so; when he has siphoned off the funds or when he disposed of the assets pledged for availing of loan without the bank's knowledge.

Recently, United Bank of India declared Kingfisher Airlines as well as some three of its directors as wilful defaulters. The decision of the single bench, that accepted the bank's position, was later stayed by a division of the Calcutta High Court last weekend.

Talking about the norms for non-cooperative defaulters, Rajan said the guidelines have been formulated to tackle those borrowers who resist repaying at every corner and hold up the entire repayment process.

He said in such cases, the recourse to legal remedy, allowable by the laws from a prudential perspective, imposes a cost to the system because banks cannot get their money using the existing laws such as the Sarfesi Act.

"Therefore, in those situations where there is a deliberate attempt to delay the process of recovery after due process is being followed, can we find a way of declaring these borrowers as non-cooperatives," Rajan said.

On the rising NPAs levels in the system, Rajan said the central bank is following the issue very closely and banks have been asked to take timely action to deal with the matter.

In the banking system, NPAs rose to 4.1 per cent as of the June quarter, while the total stressed assets including the recast loans rose close to 11 per cent.

When asked about the progress of the joint lenders' forum, RBI deputy governor S S Mundra said there has been some reduction in the number of accounts and the underlying amount in the cases are being taken up at the forum.

He said the definition on non-cooperative defaulter is not a legal definition but a regulatory definition, which will mean that higher capital provisioning will be required in further lending to these borrowers.

It can be noted that the RBI move comes in the wake of Kingfisher Airlines along with its three of its directors being declared as wilful defaulters by United Bank of India and the latter filing a writ petition in the Calcutta High Court against the bank and others, challenging the constitutional validity of the RBI Master Circular on wilful defaulters.

The ex-parte decision of the grievance redressal committee constituted by United Bank declaring Kingfisher and three of its directors as wilful defaulters was also challenged.

On September 1, United Bank tagged Kingfisher, its chairman Vijay Mallya and three directors- A K Ganguly, Subhash Gupte and Ravi Nedungadi-as wilful defaulters. On September 2, the airline was denied relief by the Supreme Court.

A two-judge bench of the Supreme Court had said the special leave petition filed by the now crippled airline to block the decision by United Bank's grievance redressal committee had become "infructuous" in the eyes of the law.

Kingfisher Airlines owes about Rs 7,600 crore to a consortium of 17 banks led by State Bank. In February 2013, bankers publicly stated they had lost faith in the management's ability to revive the company and started the process to recall their loans.

Kingfisher has not flown since October 2012.

The airline early this month had also moved the Bombay High Court against the Union finance ministry and SBI for a notice served on it last month alleging the airline had wilfully defaulted on payment. The case is yet to be heard by the court.