RBI Issues Final Guidelines on Wilful Defaulters Classification
The Reserve Bank of India (RBI) has recently issued comprehensive guidelines aimed at the classification of wilful defaulters, mandating financial institutions to complete the identification and tagging of such borrowers within six months of default.
These guidelines will be applicable to a wide spectrum of entities including banks, non-banking financial companies (NBFCs), as well as financial institutions like the Export-Import Bank of India (Exim Bank) and the National Bank for Agriculture and Rural Development (Nabard).
Introduced after a 10-month deliberation period following extensive input from banks and stakeholders, as well as legal considerations, these guidelines represent a significant step towards safeguarding the integrity of India’s financial ecosystem.
Kunal Shah, the Group Chief Financial Officer and Managing Director of Retail Solutions at TruBoard Partners, a tech-based credit monitoring and loan collection company, highlighted the importance of the new guidelines. He emphasized that they not only streamline the process for identifying wilful defaulters but also ensure a transparent and non-discriminatory approach, upholding the principles of natural justice.
The RBI aims to fortify the credit discipline and deter deliberate defaults by defining stringent measures against defaulters and establishing robust reporting mechanisms. According to data from credit bureau TransUnion Cibil, the total outstanding wilful default as of 31st March stood at ₹3.6 trillion.
The central bank defines a wilful defaulter as a borrower who defaults on loans despite possessing the capacity to repay, including those who have diverted or “siphoned off” funds obtained from lenders. The guidelines stress that the identification of wilful defaulters should consider the borrowers’ track record and not be based on isolated incidents. Default must be intentional, deliberate, and calculated to fulfill the conditions set forth by the regulator.
Moreover, lenders are required to scrutinize all bad loans of ₹25 lakh and above for indicators of wilful default. If a borrower is found to have wilfully defaulted during internal screenings, the entire categorization process must be completed within six months.
The guidelines establish the formation of an identification committee to examine evidence of wilful default. If satisfied, this committee will issue a show-cause notice to the concerned parties and provide them with an opportunity to submit their responses within 21 days. Subsequently, a proposal will be made to the review committee for classification as a wilful defaulter, allowing a personal hearing for the involved parties.
Furthermore, before transferring defaulted loans of ₹25 lakh or more to other lenders or asset reconstruction companies (ARCs), lenders must conduct a comprehensive investigation from a wilful default perspective.
These guidelines underscore the RBI’s commitment to maintaining the sanctity of the financial system and promoting responsible borrowing and lending practices in India.
