RBI Tell Banks, NBFC to Scrutinize Potential “Wilful Default” Cases in NPA

The Reserve Bank of India (RBI) has issued new guidelines urging banks and Non-Banking Financial Companies (NBFCs) to scrutinize potential ‘wilful default’ cases in non-performing asset accounts with outstanding amounts of Rs 25 lakh and above. These directives, outlined in RBI’s latest Master Direction on the Treatment of Wilful Defaulters and Large Defaulters, will be applicable to all regulated entities and will come into effect 90 days from their issuance.

Under these new regulations, a structured process for identifying and classifying wilful defaulters has been established. The RBI defines a ‘wilful defaulter’ as a borrower or guarantor who has deliberately defaulted on a loan of Rs 25 lakh or more. This classification also extends to cases where funds have been diverted or siphoned off, assets securing the credit have been disposed of without lender approval, or when borrowers fail to fulfill equity infusion commitments despite having the means to do so.

The identification process involves a thorough examination by an Identification Committee, which will review the borrower’s track record to determine if the default was intentional. If wilful default is suspected, the borrower is issued a show-cause notice, allowing 21 days for response. The entire classification process must be completed within six months of an account being labeled as an NPA.

A Review Committee will make the final decision on classifying an individual or entity as a wilful defaulter. This committee will consider the Identification Committee’s recommendations, the borrower’s submissions, and may offer a personal hearing before reaching a verdict.

Notably, the RBI has mandated that no additional credit facilities should be granted to wilful defaulters or associated entities. This restriction remains in effect for one year after the defaulter’s name is removed from the List of Wilful Defaulters (LWD).

These measures reflect the RBI’s commitment to enhancing financial discipline and reducing the incidence of deliberate loan defaults in the Indian banking system. By implementing a more rigorous identification and classification process, the central bank aims to safeguard the interests of lenders and maintain the integrity of the credit ecosystem.