RBI tightens regulations for ‘non-cooperative’ borrowers

The cut-off limit for rogue borrowers is Rs 5 crore advances.

With lenders getting pushed to a corner by soaring non-performing assets (NPAs), the Reserve Bank of India (RBI) has allowed banks to classify defaulters, who deliberately stonewall efforts to recover their dues, as non-cooperative, which will stop further fund flow to such borrowers.

The RBI has revised the definition of non-cooperative borrower to include all those who have the ability to pay but still thwart lenders’ efforts to recover dues, including by not providing necessary information. In a notification on Monday, the RBI has asked banks to set up a committee to identify such borrowers and a review panel to declare them as non-cooperative borrowers. This new category is in addition to the wilful defaulters.

Banks are now fighting for recovery of around Rs 40,000 crore involving over 5,000 accounts of wilful defaulters in 2013-14 as against Rs 25,500 crore in over 3,800 accounts in March 2013. All these cases are now in the courts. Total non-performing assets of banks are around Rs 2.3 lakh crore.

The cut-off limit for classifying borrowers as non-cooperative would be those borrowers having aggregate fund-based and non-fund based facilities of Rs 5 crore from a bank. A non-cooperative borrower, in the case of a company, will include, besides the company, its promoters and directors. However, independent directors and directors nominated by the government and the lending institutions are excluded from this definition. Individual borrowers will also come under the new norms.

If any particular entity is reported as non-cooperative, any fresh exposure to such a borrower will by implication entail greater risk necessitating higher provisioning.

The RBI has said the decision to classify the borrower as non-cooperative borrower should be entrusted to a committee of functionaries headed by an executive director and consisting of two other senior officers of the rank of general managers or deputy general managers as decided by the board of the concerned bank.

If the committee concludes that the borrower is non-cooperative, it should issue a show cause notice — and the promoter or whole-time directors in the case of companies — and call for his submission. After considering his submission, the bank should issue an order recording the borrower to be non-cooperative and the reasons for the same.

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The order of the committee should be reviewed by a panel headed by the chairman or CEO and MD and consisting, in addition, of two independent directors of the bank and the order should become final only after it is confirmed by the review committee. The boards of banks should review on a half-yearly basis the status of the borrowers.