RBI GUIDELINES ON WILLFUL DEFAULTERS

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PLUTUS IAS
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RBI Guidelines on Willful Defaulters

• GS3 Economy

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Proposed Amendments to RBI Guidelines on Willful
Defaulters

• Timely Classification Borrowers must be
  classified as willful defaulters within six
  months of their account becoming a non-performing
  asset (NPA).
• Definition of Willful Default A willful
  defaulter is someone with the capacity to repay
  but intentionally chooses not to or diverts
  funds. The minimum outstanding amount is set at
  Rs 25 lakh.
• Identification Committee Lenders establish an
  Identification Committee to assess evidence of
  willful default objectively.
• Publication of Photographs Lenders can publish
  photographs of willful defaulters, but policies
  must be non-discriminatory and board-approved.
• Credit Facility Restrictions No additional
  credit can be extended to willful defaulters or
  related entities for one year after removal from
  the List of Willful Defaulters (LWD).
• New Ventures Restriction Willful defaulters are
  prohibited from obtaining credit facilities for
  new ventures for five years after removal from
  LWD.

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• Restructuring Limitation Willful defaulters
  cannot restructure their existing debt.
• Guarantor Liability Lenders can take action
  against guarantors without exhausting remedies
  against the primary debtor.
• Compromise Settlement Removal from the LWD is
  only possible after full repayment of compromised
  amounts.
• Credit Facility Transfer Investigation into
  willful default scenarios is required before
  transferring credit facilities.

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Factors Contributing to High Defaults

• Poor Banking Practices.
• Discretionary Authority of Banking Officials.
• Influence from Powerful Industrial Groups.
• Intense Competition Among Banks.

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Non-Performing Assets (NPAs)

• Definition NPAs are loans with overdue principal
  or interest payments, exceeding 90 days.
• Asset Status Loans become NPAs when they stop
  generating interest income for banks.
• RBI's Criteria NPAs are assets that no longer
  contribute to a bank's income.
• Classification NPAs are categorized as
  Substandard Assets (up to 12 months), Doubtful
  Assets (12 months), and Loss Assets
  (uncollectible).

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