RBI’s Stringent Norms on Wilful Defaulters | PWOnlyIAS 2023
PWOnlyIAS
September 22, 2023
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”
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 forless than or equal to 12 months.
Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for aperiod 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.
“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.
Comprehensive coverage with a concise format Integration of PYQ within the booklet Designed as per recent trends of Prelims questions हिंदी में भी उपलब्ध
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Comprehensive coverage with a concise format Integration of PYQ within the booklet Designed as per recent trends of Prelims questions हिंदी में भी उपलब्ध
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