Master Direction on Treatment of Wilful Defaulters and Large Defaulters

Current Context: The Reserve Bank of India (RBI) has recently issued new directives regarding the treatment of wilful and large defaulters. These guidelines apply to all regulated entities, including asset reconstruction companies and credit information companies.

• Here are the key points:
• Wilful Default Definition:
• A borrower is considered a “wilful defaulter” if they fail to meet payment obligations despite having the capacity to honor them.
• It also applies if the borrower diverts funds from the credit facility without lender approval or disposes of secured assets without consent.
• Cases where the borrower or promoter fails to infuse equity despite having the ability to do so are also covered.
• Threshold Amount:
• A borrower or guarantor committing wilful default is classified as such if the outstanding amount is ₹25 lakh or more (or as notified by RBI).
• Identification Mechanism:
• The RBI mandates a structured process for identifying and classifying wilful defaulters.
• An Identification Committee reviews the borrower’s track record to determine if the default was intentional.
• If wilful default is suspected, a show-cause notice is issued, allowing the borrower to respond.
• The final decision rests with a Review Committee.
• These guidelines aim to create transparency, accurate reporting, and prevent future defaults. They will take effect 90 days from issuance.

Question:

1 Under the new RBI guidelines, What is the threshold amount for classifying a borrower or guarantor as a wilful defaulter?

• A) 25 lakh
• B) 15 lakh
• C) 50 lakh
• D) 1 crore

Answer: A) A borrower or guarantor committing wilful default is classified as such if the outstanding amount is ₹25 lakh or more (or as notified by RBI).