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Wilful Defaulter- explained

According to RBI, a willful defaulter is person who

  1. Defaults despite having the capacity to repay his dues
  2. Defaults and has not used the money for the specific purpose for which the loan was availed
  3. Defaults, has siphoned off the funds, and the money is not available with him in form of other assets
  4. Defaults and has disposed the assets given as security against the loan without informing lenders

A company is declared will full defaulter after giving proper and sufficient time to the company to explain its constraints.

Procedure to declare will full defaulter:

  1. Internal Committee: First an internal committee, normally headed by an executive director examines the case of willful defaults.
  2. Once a borrower is identified as a willful defaulter, the bank sends him/her a notice with the reasons for the same.
  3. Grievance Redressal Committee: The borrower is generally given 15 days to make a representation against the decision of Internal Committee to the Grievance Redressal Committee.
  4. The bank declares a borrower willful defaulter if he fails to offer a proper explanation or avoids the GRC hearing repeatedly despite notices.

Penal measures
Banks are advised to send their list of willful defaulters to

  1. RBI,
  2. Securities and Exchange Board of India and
  3. Credit Information Bureau India (CIBIL).

This is aimed at preventing willful defaulters from accessing capital markets and borrowing from other banks and financial institutions. The penal measures include:

  • No additional facilities will be granted to listed willful defaulters by banks and financial institutions
  • Promoters of companies are debarred from institutional finance for floating new ventures for a period of five years
  • Legal process against willful defaulters will be initiated. Lenders may initiate criminal proceedings also
  • Banks will adopt a proactive approach for a change of management of the willfully defaulting borrower unit.
  • Willful defaulters will not be allowed to take up board positions in any company
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