Wilful defaulter - Chase with new limbs! - Juris Corp

Wilful defaulter – Chase with new limbs!

Legal Updates
August 6, 2024

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Brief Overview:

RBI has issued the Master Direction on Treatment of Wilful Defaulters and Large Defaulters (the “Directions”).

Technical Details:

Following are noteworthy points in the Directions:

1) The scope of applicability of the Directions now covers NBFCs, ARCs and CICs, in addition to the banks and all India financial institutions which were covered under the extant master circular.

2) Introduction of a concept of large defaulter which covers a defaulter having outstanding amount of INR 1 Crore and above and where suit has been filed/account has been classified as doubtful or loss. The CIC shall display the list of suit filed accounts of large defaulter on their website.

3) The lender shall examine the wilful defaulter aspect in all NPAs with default of INR 25 Lakhs or above within six months of the account being classified as a NPA. Before transferring a defaulted loan, the lender must internally conduct a comprehensive investigation from a wilful default perspective.

4) Wilful defaulters shall not be eligible for restructuring of credit facility.

5) The penal measures under the Directions shall also be applicable to the entity associated with the wilful defaulter i.e. subsidiary company, joint venture or an associate company.

6) The Direction also directs the lender to report the details of third party to Indian Banks’ Association, who play a vital role in credit sanction/ disbursement and are found negligent or deficient in their work.

The Directions shall be effective from the last week of October 2024.

Key Takeaways:

The Directions:

1) Are applicable to more regulated entities in comparison to the earlier regime which is in line with the thought process that the wilful defaulters should be more stringently dealt with.

2) Are now restricting restructuring of credit facility. However, the said restriction is not applicable on ARC.

3) Provide that penal measures are applicable on associate companies also. This requires major shareholder/partner of such associated company to be vigilant in respect of the wilful default to avoid any unwarranted complication for such entity.