The Reserve Bank of India (RBI) has proposed that lenders should label defaulting borrowers as ‘wilful defaulters’ within six months of an account turning non-performing. The RBI now does not have a specific timeline within which such borrowers have to be identified.
In its draft master directions on treatment of wilful and large defaulters issued on Thursday, the RBI has also suggested that banks should set up a review committee and allow the borrower up to 15 days to make a written representation, as well as a chance for in-person hearing if needed.
Once an account is identified as defaulting wilfully, banks should not grant additional credit it till a year after the tag is taken off, the RBI further said.
Also, no loan restructuring facility will be offered to such borrowers.
The central bank also told credit information companies to share information on wilful defaulters with all lenders.
The central bank identifies ‘wilful defaulters’ as those who have the ability to pay a bank’s dues but do not, or divert bank funds. The regulator proposed that non-banking finance companies (NBFCs) should also be allowed to tag accounts using the same parameters. Also, the outstanding amount in the case of a wilful default must be `25 lakh and above.
The central bank also said that lenders would need to complete an investigation into a defaulting account to determine or rule out ‘wilful default’ before transferring it to another lender or an asset reconstruction facility. Such accounts will not be permitted to restructure either.
The borrowers who are in charge and responsible for the management of the affairs of the entity must be advised about the proposal to classify them as wilful defaulter along with the reasons thereof, RBI said.
If the wilful defaulter is a person, “all entities in which he is associated as promoter, or director, or as one in charge and responsible for the management of the affairs of the entity shall be deemed to be associated,” the RBI said. In case of a company being a wilful defaulter, its subsidiaries, joint ventures and other such associated firms will be termed wilful defaulters too.
Feedback from regulated entities and other stakeholders on the draft circular must be submitted by October 31.