RBI Proposes Timely Classification of "Wilful Defaulters" Amidst Norm Revisions

• 23 Sep 2023

The Reserve Bank of India (RBI) has recently introduced a proposal suggesting that borrowers be categorized as "wilful defaulters" within six months of their accounts being designated as non-performing assets (NPAs).

Key Points

• Review and Consideration: The RBI's revision of norms follows a comprehensive review of instructions and a consideration of Supreme Court and High Court judgments, in addition to feedback and suggestions received from banks and stakeholders.
• Defining Wilful Defaulters: The RBI identifies wilful defaulters as individuals who possess the means to repay a bank's dues but deliberately fail to do so or divert bank funds.
• While a large defaulter is one with an outstanding amount of Rs 1 crore or more, classified as doubtful or loss, a wilful defaulter refers to a borrower or guarantor who commits wilful default with an outstanding amount of Rs 25 lakh or more.
• Timely Classification: The proposed norms dictate that lenders examine the "wilful default" aspect in all accounts with outstanding amounts of Rs 25 lakh and above, or as notified by the RBI.
• The classification process to label a borrower as a wilful defaulter must be completed within six months of the account being declared an NPA.
• Identification Committee: To ascertain evidence of wilful default, an Identification Committee will be established by lenders.
• Publication of Defaulters' Photographs: In cases where lenders intend to publish photographs of wilful defaulters, they must formulate a non-discriminatory, board-approved policy outlining the criteria for publishing photographs of individuals classified as wilful defaulters.
• Restrictions on Credit Facility: The RBI also proposes that no additional credit facility should be extended by any lender to a wilful defaulter or any entity associated with a wilful defaulter.
• Exclusion from Credit Restructuring: As per the proposed norms, wilful defaulters will not be eligible for credit facility restructuring.