RBI proposes lenders identify 'wilful defaulters' within six months

Sep 21, 2023 

The Reserve Bank of India on Thursday proposed that lenders should label defaulting borrowers as "wilful defaulters" within six months of an account turning non-performing.

The central bank identifies "wilful defaulters" as those who have the ability to pay a bank's dues but do not or divert bank funds. The RBI did not earlier have a specific timeline within which such borrowers had to be identified.

The regulator proposed that non-banking finance companies (NBFCs) should also be allowed to tag accounts using the same parameters.

As part of the process, the RBI has suggested in its draft master directions that banks should set up a review committee and allow the borrower up to 15 days to make a written representation, as well as a chance for in-person hearing if needed.

Once an account is identified as defaulting wilfully, banks should not grant additional credit it till a year after the tag is taken off, the RBI further said.

The central bank also said that lenders would need to complete an investigation into a defaulting account to determine or rule out 'wilful default' before transferring it to another lender or an asset reconstruction facility. Such accounts will not be permitted to restructure either.

Stakeholders can give feedback on the draft rules till Oct. 31.

[Reuters]