Context :
RBI
tightens screws on wilful defaulters, says no access to additional credit
facilities … 22 Sept 2023
Extract :
Willful
defaulters will have no access to additional credit facilities or be eligible
for credit restructuring.
Tightening the screws on defaulters, the Reserve Bank of India
also said that no lender will extend
credit to entities
associated with such wilful defaulters.
The
banking regulator has set a timeline of
six months (after an account is classified as a non-performing asset) within
which a lender must complete the process to identify borrowers who ought to be
classified as a wilful defaulter.
The RBI defines a willful default as a situation that arises when a borrower fails to meet its repayment
obligation:
Willful
defaulters will have no access to additional credit facilities or be eligible
for credit restructuring.
Tightening the screws on defaulters,
the Reserve Bank of India also said that no
lender will extend credit to entities associated with such willful defaulters.
The RBI defines a willful default as a situation that
arises when a borrower fails to meet its repayment obligation:
(a) even
though it has the capacity to honour the obligation,
(b) because the entity
has diverted the loan for purposes other than that for which it was taken
(c) has
siphoned off funds and the sum is no longer available in the form of other
assets
(d) has
disposed off the moveable or fixed asset that he had given to secure a term
loan without the
The banking regulator proposed these
sweeping changes in a draft circular on treatment of both willful and large
defaulters.
It said that the proposed directions also aim to put in place a system of dissemination of
credit information about willful defaulters so that lenders are cautioned that
no more institutional finance is made available to them.
Its directions comes after RBI
governor Shaktikanta Das said in May that the RBI has found that some lenders
were resorting to innovative methods to conceal the status of their loans
during its supervision.
Its latest directions pertains to
loans where willful default has occurred by a
borrower or guarantor where the outstanding amount is Rs 25 lakh and above.
As per the draft rules, if there is a
willful default, it will have to be examined by an "Identification
Committee". If this panel is satisfied that such an event has occurred, it
shall issue a show-cause notice to the
borrower, guarantor, promoter, director or persons who are in charge and
responsible for the management of the affairs of the company, and call for
submissions.
After their submissions are
considered, the committee will have to make a proposal to a review panel for
classification as a willful defaulter by explaining the reasons in writing.
The RBI said that based on the facts
and circumstances of each case, lenders
can examine whether criminal action against willful defaulters is warranted.
My Take
:
Dear Shri Shaktikant Das :
Thank you for incorporating
in your guidelines, a few of the suggestions which I made in my following
emails
I urge you to “ re-consider “ your guidelines and incorporate rest of my
suggestions , listed in following
tabulation :
Daylight Robbers ? Some Yes !............... 27 Dec 2022
Passports…………………………………………………..
07 Mar 2018
Only
Rs 7,000 per Family ?.......... ……….25 Oct 2017
Fugitives don’t
care !.... ………………………………27 Feb 2018
Robbing Peter To
Pay Paul ? …
…………… 19 July 2016
Wilful
Defaulters { and Wilful Lenders ? }… 13 Mar 2016
NPA ? or is it
NPB ?................................ 08 Mar 2016
Non Performing
Assets ? …………………………. 01 Aug 2015
Bank
Recapitalization ?............................23 June 2015
Rs. 200,000 per
debtor ?........................ 16 Aug 2011
Long Term or Short Term ?..................... 31 Mar 2016
With regards,
Hemen Parekh
www.hemenparekh.ai / 21
Nov 2023
When requested , BARD came back with the following tabulation, in respect of
suggestions made in my 11 e-mails : :
===================================================
|
Suggestion |
Incorporated by RBI |
How Inclusion Could Help Reduce
Bank's NPA |
|
Denying passports to willful defaulters |
No |
Restricting travel could discourage individuals
from engaging in willful default, as it could hinder their business
operations and personal travel plans. |
|
Freezing assets of willful defaulters |
No |
Freezing assets could prevent willful defaulters
from using their financial resources to evade repayment obligations,
potentially reducing the amount of NPAs. |
|
Banning willful defaulters from holding
directorships on public companies |
No |
Preventing willful defaulters from holding
positions of authority in public companies could enhance corporate governance
and deter individuals from engaging in reckless financial practices. |
|
Making willful default a criminal offense |
No |
Establishing willful default as a criminal
offense could increase the severity of consequences for defaulters,
potentially deterring them from engaging in such practices. |
|
Requiring banks to report willful defaults to
credit bureaus |
Yes |
Reporting willful defaults to credit bureaus
would inform other lenders about the borrower's creditworthiness, reducing
the likelihood of them extending credit to defaulters. |
|
Empowering banks to initiate bankruptcy
proceedings against willful defaulters |
No |
Empowering banks to initiate bankruptcy
proceedings would provide a more effective mechanism for recovering loans
from willful defaulters. |
|
Creating a blacklist of willful defaulters to
prevent them from accessing credit from any financial institution |
No |
Creating a blacklist would prevent willful
defaulters from accessing credit from any financial institution, reducing the
likelihood of them taking out new loans and defaulting on them. |
|
Increasing the penalties for willful default to
deter individuals from engaging in such practices |
No |
Increasing the penalties would deter individuals
from engaging in willful default, as the potential consequences would be more
severe. |
|
Publicising the names of willful defaulters to
shame them and deter others |
No |
Publicly shaming willful defaulters could deter
others from engaging in similar practices, potentially reducing the amount of
NPAs. |
|
Confiscating the properties of willful defaulters |
No |
Confiscating the properties of willful defaulters
would provide a strong incentive for borrowers to repay their loans,
potentially reducing the amount of NPAs. |
|
Enacting a law that makes it mandatory for
companies to disclose the credit history of their directors |
No |
Requiring companies to disclose the credit
history of their directors would enhance transparency and make it more
difficult for willful defaulters to hold positions of authority. |
|
Establishing a system of early warning signals to
identify potential willful defaulters |
No |
Implementing an early warning system could allow
banks to take proactive measures to prevent borrowers from becoming willful
defaulters. |
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