RBI Tightens Norms on Wilful Defaulters: What Banks Need to Know

The Reserve Bank of India (RBI) issued new guidelines for banks and NBFCs to address wilful defaulters. The directive mandates examination of all non-performing asset accounts with Rs 25 lakh and above. Lenders must classify such accounts within six months and follow a transparent procedure to ensure non-discrimination.

The Reserve Bank of India (RBI) on Tuesday unveiled comprehensive guidelines targeting wilful defaulters. The newly issued Master Direction mandates that banks and Non-Banking Financial Companies (NBFCs) scrutinize all non-performing asset (NPA) accounts with outstanding dues of Rs 25 lakh and above for signs of wilful default.

An identification committee will be responsible for examining evidence of wilful default, following a prescribed procedure. According to the guidelines, a 'wilful defaulter' is defined as a borrower or guarantor who intentionally defaults on loans amounting to Rs 25 lakh or more.

Lenders are required to complete the process of classifying a borrower as a wilful defaulter within six months of an account being designated as NPA. The RBI also stresses a non-discriminatory, board-approved policy for publishing photos of identified wilful defaulters. Additionally, lenders are barred from extending further credit facilities to wilful defaulters or related entities for one year post-removal from the List of Wilful Defaulters (LWD). Implementing these robust guidelines seeks to foster transparency and preempt further institutional financing to wilful defaulters, promoting financial prudence.

(With inputs from agencies.)