MUMBAI: The RBI on Thursday proposed major changes in rules relating to wilful defaulters, including allowing NBFCs to classify such borrowers. It also said that defaulters with a Rs 25 lakh loan outstanding and unpaid for six months could be classified as defaulters, and that they would be barred from joining the board of any company. The current rule doesn’t have a fixed timeline to classify a wilful defaulter.
According to RBI, a wilful defaulter is a borrower from a bank, financial institution or an NBFC who, despite having the capacity to pay back the loan, doesn’t do so. Under the proposed regime, each of these institutions should have a committee which will identify its wilful defaulters. These lenders should also have a review committee that will review the decisions of the identification committee.
It added that prospective wilful defaulters should be given at least 15 days’ time to present their side of the case in front of a review committee before being classified under the new rule.
RBI proposed several checks and balances between who could be a member of the identification committee and the review committee. It said that the person who had sanctioned the loan should chair neither the identification nor the review committee.
On Thursday, the central bank put on its website a draft plan of the new rules which is expected to be made into a rule after public consultation. This new rule is expected to replace the existing one that had come into force in July 2015.
“The draft (rule) expands the scope for (banks, financial institutions and NBFCs) which can classify borrowers as wilful defaulters, broadens the definition of wilful default, refines the identification process and mandates a review and finalisation on wilful default aspects within six months of an account being classified as a non-performing asset. It also addresses the treatment of wilful default loans sold to Asset Reconstruction Companies and their status under the Insolvency and Bankruptcy Code,” RBI said.
The central bank would accept comments from the public on this draft rule till October 31, it said.
According to RBI, a wilful defaulter is a borrower from a bank, financial institution or an NBFC who, despite having the capacity to pay back the loan, doesn’t do so. Under the proposed regime, each of these institutions should have a committee which will identify its wilful defaulters. These lenders should also have a review committee that will review the decisions of the identification committee.
It added that prospective wilful defaulters should be given at least 15 days’ time to present their side of the case in front of a review committee before being classified under the new rule.
RBI proposed several checks and balances between who could be a member of the identification committee and the review committee. It said that the person who had sanctioned the loan should chair neither the identification nor the review committee.
On Thursday, the central bank put on its website a draft plan of the new rules which is expected to be made into a rule after public consultation. This new rule is expected to replace the existing one that had come into force in July 2015.
“The draft (rule) expands the scope for (banks, financial institutions and NBFCs) which can classify borrowers as wilful defaulters, broadens the definition of wilful default, refines the identification process and mandates a review and finalisation on wilful default aspects within six months of an account being classified as a non-performing asset. It also addresses the treatment of wilful default loans sold to Asset Reconstruction Companies and their status under the Insolvency and Bankruptcy Code,” RBI said.
The central bank would accept comments from the public on this draft rule till October 31, it said.
