The Reserve Bank of India (RBI) on Thursday proposed comprehensive changes in the rules regarding those who deliberately do not repay loans. It has been 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. On Thursday, the RBI also suggested that banks should set up a review committee and allow the borrower a 15-day notice to make a written representation, as well as a chance for an in-person hearing if needed.
According to reports, once an account is identified as defaulting wilfully, banks will not grant additional credit until a year has passed and the tag is taken off. Along with this, no loan restructuring facility will be offered to such borrowers.
The regulatory bank also told credit information companies to share information on willful defaulters with all lenders. Wilful defaulters are people who have the means to pay a bank’s dues but choose not to or divert bank funds improperly, according to the central bank.
The new norm proposes that non-banking finance companies (NBFCs) should also be allowed to tag accounts using the same parameters, and the amount in the case of a wilful default must be Rs 25 lakh and above. According to RBI, lenders would need to complete an investigation into a defaulting account to determine or rule out a willful default before transferring it to another lender or an asset reconstruction facility. The borrowers who are in charge of and accountable for the administration of the affairs of the company must be informed of the plan to label them as wilful defaulters and the justifications for it.
Reports suggest that if the wilful defaulter is a person, all entities in which he is associated as a promoter, director or as one in charge and responsible for the management of the affairs of the entity shall be deemed to be associated. If the company is a wilful defaulter, its subsidiaries, joint ventures and other such associated firms will be termed wilful defaulters too.
The Reserve Bank has asked for suggestions on the draft master direction by October 31.