The Reserve Bank of India (RBI) Thursday proposed that lenders should classify a borrower as a “wilful defaulter” within six months of their account being declared a non-performing asset (NPA). The RBI did not earlier have a specific timeline within which such borrowers had to be identified. The revision of norms comes after a review of the instructions and consideration of various judgments and orders from the Supreme Court and High Courts, as well as representations and suggestions received from banks and other stakeholders, the central bank said. The RBI identifies wilful defaulters as those who have the ability to pay a bank's dues but do not or divert bank funds. While large defaulter means a defaulter with an outstanding amount of Rs 1 crore and above, and whose account has been classified as doubtful or loss, a wilful defaulter means a borrower or a guarantor who has committed wilful default and the outstanding amount is Rs 25 lakh and above. “The lender shall examine the ‘wilful default’ aspect in all accounts with outstanding amount of Rs 25 lakh and above or as may be notified by the RBI from time to time, and complete the process of classification/ declaring the borrower as a wilful defaulter within six (6) months of the account being classified as NPA,” the RBI’s draft norms proposed. It said the evidence of wilful default needs to be examined by an Identification Committee, to be set up by lenders. In case of publishing photographs of wilful defaulters, lenders will have to formulate a non-discriminatory board-approved policy that clearly sets out the criteria based on which the photographs of persons classified and declared as wilful defaulters will be published. The RBI also proposed that no additional credit facility be granted by any lender to a wilful defaulter or any entity with which a wilful defaulter is associated. The bar on additional credit facility shall be effective up to a year after the name of wilful defaulter has been removed from the List of Wilful Defaulters (LWD) by the lender. “In addition, no credit facility shall be granted for floating of new ventures by any lender to a wilful defaulter or any entity with which a wilful defaulter is associated for a period of five (5) years after the name of wilful defaulter has been removed from the LWD by the lender,” the RBI proposed. As per the norms, wilful defaulters will not be eligible for restructuring of credit facility. On liability of a guarantor, the draft norms said, “When a default happens in making payment or repayment by the principal debtor, the lender will be able to proceed against the guarantor even without exhausting the remedies against the principal debtor.” In cases where a lender has made a claim on the guarantor on account of the default made by the principal debtor, the liability of the guarantor is immediate. “In case the said guarantor refuses to comply with the demand made by the lender, such guarantor shall also be considered for classification as a wilful defaulter,” the RBI said. The draft norms proposed that any account included in LWD, where the lender has entered into a compromise settlement with the borrower, will be removed from the list only when the borrower has fully paid the compromise amount. It said that the lender should complete the investigation from a wilful default angle in every case before transferring the credit facility to other lenders or asset reconstruction companies (ARCs). The RBI has sought comments on the draft master direction from various stakeholders by October 31.
