Subject: GS-03: Indian Economy
Context:
- Reserve Bank of India (RBI) revised ‘Draft Master Direction – Treatment of Wilful Defaulters and Large Defaulters‘ have been published for comments from stakeholders and members of the public.
“Understanding Willful Defaulters: Regulations and Laws”
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- Wilful defaulters are those who have the ability to pay a bank’s dues but do not or divert bank funds. Wilful defaulter: It means a borrower or a guarantor who has committed wilful default and the outstanding amount is Rs 25 lakh and above.
- Large defaulter: It means a defaulter with an outstanding amount of Rs 1 crore and above, and whose account has been classified as doubtful or loss.
- As per the RBI regulations, willful defaulter covers several broad areas:
- Siphoning off of funds to the detriment of the defaulting unit.
- Assets and proceeds have been misutilised.
- Misrepresentation of records.
- Disposal of securities without the bank’s knowledge.
- Laws dealing with Wilful Defaulters:The Fugitive Economic Offenders Act 2018: Provide for measures to deter fugitive economic offenders from evading the process of law in India by staying outside the jurisdiction of Indian courts.
- Companies Act of 2013: It mentions punishments including imprisonment for someone found guilty of fraud.
- Fugitive Economic Offenders Act, 2018: Its objective is to punish such offenders in line with the procedure established by the law.
Non-Performing Asset (NPA):
- NPA is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
- Banks are required to classify NPAs further into:
- Substandard assets: Assets that have remained NPA for less than or equal to 12 months.
- Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
- Loss assets: It is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.
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“Wilful Defaulters Identification and Consequences: Guidelines and Procedures”
- Identification: It has allowed non-banking finance companies and cooperative banks to identify them.
- All NPA’s above Rs 25 lakh need to be examined for wilful default.
- Review Panel: To provide an opportunity to the borrower for personal hearing.
- Actions: The compromise settlement shall be without prejudice to the continuation of the legal proceedings, including criminal proceedings, against the wilful defaulter.
- Credit Facilities: Wilful defaulters are debarred from any institutional finance. The draft norms said the wilful defaulters would not be eligible for restructuring credit facilities.
- Removal from the List: For an account that is on the list of wilful defaulters and has been resolved either through the Insolvency and Bankruptcy Code or the RBI’s norms, the name of such a defaulter should be removed from the list.
- The name should not be removed for part-payment.
News Source: Business Standard
September 22, 2023
