The Reserve Bank of India (RBI) has released a new master circular for handling wilful defaulters and large defaulters. According to the Master Circular issued on Tuesday (30 July, 2024), banks and non-banking financial companies (NBFCs) must review all non-performing asset accounts with outstanding amounts of Rs 25 lakh and above to determine if they qualify as ‘wilful defaults.’

These guidelines apply to banks, NBFCs, and financial institutions like the Export-Import Bank of India (Exim Bank) and the National Bank for Agriculture and Rural Development (Nabard).

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Who is a Wilful Defaulter?

A wilful defaulter is a borrower or guarantor who intentionally fails to repay a loan of Rs 25 lakh or more, or as specified by the Reserve Bank of India (RBI). For companies, this includes the promoters and directors.

For other entities, it refers to those responsible for managing the entity’s affairs. If wilful default is detected, lenders must classify the borrower as a wilful defaulter within six months of the account becoming a non-performing asset (NPA).

Further RBI also mandates that lenders create a fair, board-approved policy outlining the criteria for publishing the photographs of those classified as wilful defaulters.

RBI in a master circular said, “No additional credit facility shall be granted by any lender to a wilful defaulter or any entity with which a wilful defaulter is associated.”

Once a wilful defaulter’s name is removed from the Wilful Defaulters List (LWD), they, or any entity associated with them, will be banned from receiving additional credit.

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“No credit facility shall be granted by any lender for floating of new ventures to a wilful defaulter or any entity with which a wilful defaulter is associated for a period of five (5) years after the name of wilful defaulter has been removed from the LWD by the lender,” said RBI.

The RBI’s primary goal is to ensure a transparent and unbiased process for classifying borrowers as wilful defaulters, adhering to principles of natural justice. These guidelines also aim to establish a system for sharing credit information about wilful defaulters to prevent further lending.

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