The Reserve Bank of India (RBI) may want at least three top lenders in a consortium to declare a borrower a wilful defaulter before penal measures become applicable and the case is taken up by an appellate authority, banking industry officials say. They believe the regulator might take such a step to prevent banks with a relatively small exposure from classifying any borrower a wilful defaulter as a pressure tactic.
“At present, even if one bank puts the wilful defaulter tag on a borrower, all other banks stop lending to that borrower,” said
CVR Rajendran, chairman and managing director, Andhra Bank.
The chairman of another public sector bank, who did not wish to be named, said some private sector banks with a small exposure had classified borrowers as wilful defaulters, leaving others in the consortium no option but to follow suit.
“It might be better if banks with bigger exposures take a decision on whether the borrower should be classifed a wilful defaulter. They have the wherewithal to probe the case and can take a collective decision,” a senior banker said.
According to an RBI circular on wilful defaults, no additional funds should be granted by any bank once the borrower is listed a wilful defaulter. Also, once a borrower is declared a wilful defaulter, it stretches the recovery process since the borrower gets some time to appeal against the bank’s judgement.
A borrower is termed a wilful defaulter if he has defaulted in meeting the repayment obligations even when he has the capacity to do so, or has not utilised the money for the specific purposes for which finance was availed of, but diverted the funds for other purposes. Banks have to report cases of wilful defaults to the RBI in cases where the outstanding is R25 lakh or more.
According to Credit Information Bureau (CIBIL), as on March 31, 2013, the total outstanding under the wilful defaulter category of R25 lakh and above is of R8,778 crore.
Typically, if a lender feels that a borrower is intentionally delaying repayment, the top team looks into the issue. If the three-member team believes it should declare the borrower a wilful defaulter, it documents its findings with supportive evidence and informs the borrower. The borrower has around 15 days to respond and appeal to the Grievance Redressal Committee, headed by the chairman of the bank.
“The bank sends a notice to the borrower, to which he should reply in two weeks’ time, defending his stand,” said MS Raghavan, chairman and managing director,
Asset quality at banks has deteriorated in the last couple of years — at the end of March, 2014, loans worth R2,50,715 crore were non-performing, according to Capitaline data. This led to RBI pressurising banks to take stringent action against the defaulters.
Meanwhile, in December last year, the RBI released guidelines on early detection of stressed assets, making it even more difficult for such defaulters to get additional loans.
“The banking industry has also requested the government to bring in laws so that banks can initiate criminal proceedings against defaulters,” Raghavan added.
In addition, the promoters of companies where banks have identified siphoning of funds cannot avail loans from banks or other financial institutions for floating new ventures for five years from the date the name of the wilful defaulter is recorded by the RBI. “By laying out a specific action plan to tackle such defaulters and by publishing the names of the promoters among all banks, we ensure that the promoter does not get any further loans,” a banker explained.