Tightening norms to deal with wilful and large defaulters, the Reserve Bank of India (RBI) has directed regulated entities (REs), including banks, financial institutions (FIs) and non-banking financial companies (NBFCs), including housing finance companies (HFCs) not to provide any credit facility to the defaulting individual or entity and entities associated with them. In addition, credit information about wilful defaulters will be shared among all lenders to caution them to ensure that further institutional finance is not made available to these defaulters, RBI says.
In its
master directions to all REs as well as asset reconstruction companies (ARCs) and credit information companies (CICs), RBI says, "No additional credit facility shall be granted by any lender to a wilful defaulter or any entity with which a wilful defaulter is associated."
"The bar on the additional credit facility to a wilful defaulter or any entity with which a wilful defaulter is associated shall be effective for one year after the name of wilful defaulter has been removed from the list of wilful defaulters (LWD) by the lender," it says.
Further, RBI says no credit facility should be granted by any lender for floating new ventures to a wilful defaulter or any entity with which a wilful defaulter is associated for five years after the name of the wilful defaulter has been removed from the LWD by the lender.
"Wilful defaulters or any entity with which a wilful defaulter is associated will not be eligible for restructuring of credit facility. Subsequent to removal of the name of wilful defaulter from the LWD, the wilful defaulter or any entity with which a wilful defaulter is associated shall be eligible for restructuring, subject to certain provisions," RBI says.
According to the central bank, the primary objective of its master directions is to provide a non-discriminatory and transparent procedure, with regard to the principles of natural justice, for classifying a borrower as a wilful defaulter by the lenders.
"The directions also aim to put in place a system to disseminate credit information about wilful defaulters for cautioning lenders to ensure that further institutional finance is not made available to them," it added.
Wilful defaulter means a borrower or a guarantor who has committed wilful default and the outstanding amount is Rs25 lakh and above, or as may be notified by RBI occasionally. A large defaulter is a defaulter with an outstanding amount of Rs1 crore and above, where a suit has been filed or whose account has been classified as doubtful or lost, as per instructions issued by RBI.
RBI also asked lenders to share information on a monthly basis to CIC, including a list of suit-filed accounts of large defaulters and a list of non-suit-filed accounts of large defaulters whose account has been classified as doubtful or loss.
On the other hand, CICs are asked to provide access to the list of non-suit-filed accounts of large defaults to all credit institutions and display the list of suit-filed accounts of large defaulters on their websites.
In case of compromise or settlement of defaulting accounts, RBI says any account included in LWD, where the lender or ARC has entered into a compromise settlement with the borrower, will be removed from the LWD only when the borrower has fully paid the compromise amount.
"Till such time as only part payment is made, the name of the borrower shall not be removed from the LWD even if the outstanding amount becomes less than the threshold of Rs25 lakh or as notified by RBI from time to time," the central bank says.
RBI also directed lenders to report details of guarantors and directors of business enterprises that have defaulted. "REs shall report to CICs the details of guarantors who have failed to honour the commitments thereunder when invoked, as large defaulters or wilful defaulters, as the case may be."