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Context: The Reserve Bank of India (RBI) has proposed several changes in its norms regarding the classification of "wilful defaulters" and the actions to be taken against them.

Key points from the RBI's proposal

• Timely Classification: Lenders are now required to classify a borrower as a "wilful defaulter" within six months of their account being declared a non-performing asset (NPA). This is a significant change as there was previously no specific timeline for identifying such borrowers. This ensures a prompt assessment of wilful default.
• Criteria for Wilful Default: The RBI defines wilful defaulters as borrowers or guarantors who have the ability to pay a bank's dues but do not or divert bank funds. The outstanding amount for a wilful defaulter is set at Rs 25 lakh and above. This definition clarifies who falls under the category of wilful defaulters.
• Identification Committee: The evidence of wilful default needs to be examined by an Identification Committee, which will be set up by lenders to decide. This committee will be responsible for reviewing the evidence and deciding whether a borrower qualifies as a wilful defaulter.
• Publication of Photographs: In cases where lenders choose to publish photographs of wilful defaulters, they must formulate a non-discriminatory board-approved policy that sets out the criteria for publication. This ensures that the publication of photographs is done fairly and without discrimination.
• Restrictions on Credit Facility: No additional credit facility can be granted by any lender to a wilful defaulter or any entity associated with a wilful defaulter. This restriction remains in effect for up to one year after the wilful defaulter's name has been removed from the List of Wilful Defaulters (LWD). This prevents wilful defaulters from accessing additional credit during and after their status as a defaulter.
• New Ventures Restriction: There is a five-year restriction on granting credit facilities for the launch of new ventures by any lender to a wilful defaulter or any entity associated with a wilful defaulter, following their removal from the LWD. This prevents them from starting new businesses and taking on additional financial commitments.
• Restructuring of Credit Facility: Wilful defaulters are not eligible for the restructuring of credit facilities. This means that they cannot negotiate to restructure their existing debt to make it more manageable.
• Liability of Guarantor: Lenders can proceed against the guarantor even without exhausting remedies against the principal debtor when a default occurs. The guarantor's liability is immediate, and if the guarantor refuses to comply with the lender's demand, they may also be considered for classification as a wilful defaulter. This holds guarantors accountable for the loans they guarantee.
• Compromise Settlement: Any account included in the List of Wilful Defaulters, where a lender has entered into a compromise settlement with the borrower, will be removed from the list only when the borrower has fully paid the compromise amount. This ensures that compromise settlements are honoured and fully settled.
• Transfer of Credit Facility: The lender should complete the investigation from a wilful default angle in every case before transferring the credit facility to other lenders or asset reconstruction companies (ARCs). This safeguards against transferring the debt without first determining if wilful default was involved.

The RBI has invited comments on these proposed changes to the master direction from various stakeholders, with the deadline for comments set at October 31. These proposed changes aim to strengthen the framework for dealing with wilful defaulters and provide clarity on the procedures and consequences associated with such cases.

Must Read Articles:

COMPROMISE SETTLEMENT OF WILFUL DEFAULTERS: https://www.iasgyan.in/daily-current-affairs/compromise-settlement-of-wilful-defaulters

EVERGREENING OF LOANS: https://www.iasgyan.in/daily-current-affairs/evergreening-of-loans

NPA: https://www.iasgyan.in/daily-current-affairs/npa

https://indianexpress.com/article/business/declare-wilful-defaulters-within-6-months-npa-tag-rbi-proposal-8950548/

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