Banks to tag wilful default in six months under new rules

livemint.com:

RBI) on Thursday issued draft guidelines on classification of wilful defaulters, expanding the definition of the term and mandating lenders to complete the process of identifying and tagging borrowers as wilful defaulters within six months of loans turning bad. Apart from various judgements by high courts and the Supreme Court, the regulator said it has received suggestions from banks and other stakeholders on the matter. The new draft provisions would apply to banks, non-banking financial companies (NBFCs) and all-India financial institutions like the Export-Import Bank of India (Exim Bank) and the National Bank for Agriculture and Rural Development (Nabard).

A borrower can be labelled a wilful defaulter for defaulting on repayments despite having the capacity to make them. This would also include those who have diverted or siphoned off borrowed funds. That apart, those who fail to infuse equity despite agreeing to do so, and having the wherewithal to do so, would also come under this definition.

It would include outstanding loans of ₹25 lakh or more. The regulator said lenders need to complete classifying and declaring a borrower as a wilful defaulter within six months of the loan being classified as non-performing. Banks classify loans as bad or non-performing when repayments are delayed for over 90 days.

Bankers are not too excited about the RBI fixing a deadline to classify a borrower as a wilful defaulter. A senior private sector banker said it takes over six months just to do a forensic audit and conduct personal hearings. “There are also several delays because of adjournments in these hearings.