Wilful defaulters will have no access to additional credit facilities or be eligible for credit restructuring.
Tightening the screws on defaulters, the Reserve Bank of India also said that no lender will extend credit to entities associated with such wilful defaulters.
The banking regulator has set a timeline of six months (after an account is classified as a non-performing asset) within which a lender must complete the process to
identify borrowers who ought to be classified as a wilful defaulter.
The RBI defines a wilful default as a situation that arises when a borrower fails to meet its repayment obligation:
(a) even though it has the capacity to honour the obligation,
(b) because the entity has diverted the loan for purposes other than that for which it was taken
(c) has siphoned off funds and the sum is no longer available in the form of other assets
(d) has disposed off the moveable or fixed asset that he had given to secure a term loan without the knowledge of the banker.
The banking regulator proposed these sweeping changes in a draft circular on treatment of both wilful and large defaulters.
It said that the proposed directions also aim to put in place a system of dissemination of credit information about wilful defaulters so that lenders are cautioned that no more institutional finance is made available to them.
Its directions comes after RBI governor Shaktikanta Das said in May that the RBI has found that some lenders were resorting to innovative methods to conceal the status of their loans during its supervision.
Its latest directions pertains to loans where wilful default has occurred by a borrower or guarantor where the outstanding amount is Rs 25 lakh and above.
As per the draft rules, if there is a wilful default, it will have to be examined by an "Identification Committee". If this panel is satisfied that such an event has occurred, it shall issue a show-cause notice to the borrower, guarantor, promoter, director or persons who are in charge and responsible for the management of the affairs of the company, and call for submissions.
After their submissions are considered, the committee will have to make a proposal to a review panel for classification as a wilful defaulter by explaining the reasons in writing.
The RBI said that based on the facts and circumstances of each case, lenders can examine whether criminal action against wilful defaulters is warranted.