The Reserve Bank of India’s final rules on treatment of wilful and large defaulters will require banks to examine the ‘wilful default’ aspect in all non-performing assets accounts with outstanding amount of Rs 25 lakh or more, the central bank said. No additional credit facility will be accorded by any lender to a wilful defaulter or any entity with which a wilful defaulter is associated.
The RBI has given 90 days to banks to comply with the final wilful defaulter guidelines. The rules mandate that the data be shared with credit information companies (CIC) to counter wilful defaulters’ fraud practices. Upon identifying a wilful default, a committee shall issue a show-cause notice to borrower, guarantor, promoter, director or persons who are in charge and call for submissions within 21 days. A personal hearing to the wilful defaulter entity or person should also be extended.
If wilful default is observed in the internal preliminary screening, lenders shall complete the process of declaring the borrower as a wilful defaulter within six months of the account being classified as non-performing assets (NPA). Once declared as a wilful defaulter, lenders may initiate criminal proceedings against the borrower, publish their photographs in public forum, impose penalty on the borrower and disallow borrower from receiving any additional loans by any lenders. “The bar on additional credit facility to a wilful defaulter or any entity with which a wilful defaulter is associated shall be effective for a period of one year after the name of wilful defaulter has been removed from the List of Wilful Defaulters (LWD) by the lender,” the RBI said.
Lenders shall also incorporate a covenant in the agreement while extending credit facility to a borrower that it shall not induct a person whose name appears in the LWD on its board or as a person in charge and responsible for the management of the affairs of the entity. They must also send the list of suit filed against accounts of large defaulters and non-suit filled accounts of large defaulters to CICs, who have been separately mandated to publish this data on their website. “Before transferring a defaulted loan with outstanding of Rs 25 lakh and above, irrespective of its classification as NPA, to other transferees, the lender must internally conduct a comprehensive investigation from a wilful default perspective,” the RBI said.