RBI proposes changes in wilful defaulter norms
Reserve Bank of India (RBI) has proposed a transparent mechanism for declaring a borrower a wilful defaulter. It's also expanding the definition and is planning to make it harder for such defaulters to secure funding for future ventures.
The move follows a Supreme Court decision earlier this year that made it mandatory for lenders to give borrowers a chance to represent themselves before declaring an account as fraudulent.
The central bank has also laid down a lengthy system of identification to make it foolproof.
It proposed an outstanding balance threshold of ₹25 lakh, above which all accounts would be examined for identification.
«The primary objective of these directions is to provide for a non-discriminatory and transparent procedure, while complying with the principles of natural justice for classifying a borrower as a wilful defaulter by the lenders,» said the RBI, which issued a draft master direction on treatment of wilful defaulters and large defaulters.
Large defaulters are those that have an outstanding amount of Rs 1 crore and above. According to RBI data, there were about 16,000 cases of wilful default involving nearly Rs 3.5 lakh crore at the end of 2022.
The draft circular expands the scope for regulated entities that can classify borrowers as wilful defaulters.
It broadens the definition of wilful default and refines the identification process. It mandates a review and finalisation of a wilful default within six months of an account being classified as a non-performing asset (NPA).
While the RBI has proposed to expand the definition of wilful defaulters, it plans to make lenders more accountable in the entire identification and classification process, said Kuntal Sur, PwC India's financial services risk
