What changed
RBI added a new clause (d) to the wilful defaulter definition for scheduled urban co-operative banks. The new clause covers cases where a borrower defaults on repayment and also disposes of or removes movable fixed assets or immovable property given as security for a term loan without the bank's knowledge. This expands the earlier three-part definition from the August 2002 circular.
What it means for you
UCBs now have a clearer basis to classify borrowers as wilful defaulters when they secretly sell or remove collateral. This strengthens lenders' ability to take action against asset stripping. Additionally, the circular reiterates that no fresh credit should be extended to listed wilful defaulters, and promoters involved in fund diversion or fraud are barred from new institutional finance for five years.
What you must do
- Update your internal wilful defaulter identification policy to include the new clause (d) on unauthorized disposal of collateral.
- Review existing loan accounts where collateral has been removed or sold without bank approval and consider reclassification.
- Ensure no additional facilities are granted to any borrower already listed as a wilful defaulter.
- Debar promoters identified for siphoning, diversion, misrepresentation, or fraud from new finance for five years from the date of RBI publication.
Who it affects
Scheduled Primary (Urban) Co-operative Banks, Borrowers of UCBs with term loans secured by movable fixed assets or immovable property, Promoters and entrepreneurs of companies borrowing from UCBs
What exactly is the new condition added to the wilful defaulter definition?
The new condition (clause d) covers a borrower who defaults on repayment and also disposes of or removes movable fixed assets or immovable property given as security for a term loan without the bank's knowledge.
Does this circular affect all banks or only urban co-operative banks?
This circular specifically applies to all Scheduled Primary (Urban) Co-operative Banks. It does not directly address other bank categories.
What are the consequences for a borrower classified as a wilful defaulter under this expanded definition?
No additional credit facilities can be granted to such borrowers. Additionally, promoters of companies where funds have been siphoned or diverted are debarred from institutional finance for new ventures for five years from the date RBI publishes the wilful defaulter list.