What changed
RBI inserted clause (d) into the wilful defaulter definition, covering cases where a borrower defaults and also disposes of or removes movable fixed assets or immovable property given as security for a term loan without the bank's knowledge. The modified definition is effective immediately from May 28, 2008.
What it means for you
Banks and FIs must now treat any borrower who defaults and secretly sells or removes secured assets as a wilful defaulter. This strengthens lenders' ability to act against asset stripping. Additionally, no additional facilities can be granted to listed wilful defaulters, and promoters involved in siphoning, diversion, or fraud are barred from institutional finance for five years from the date their name appears in RBI's wilful defaulter list.
What you must do
- Update your internal wilful defaulter identification policy to include the new clause (d) on unauthorized asset disposal.
- Review existing NPA accounts for evidence of asset removal or disposal without bank knowledge and reclassify as wilful defaulters where applicable.
- Ensure no additional credit facilities are sanctioned to any entity or promoter listed as a wilful defaulter.
- Debar promoters of companies with identified siphoning, diversion, or fraud from institutional finance for five years from the date of RBI's wilful defaulter list publication.
Who it affects
All scheduled commercial banks, All notified All-India Financial Institutions, Borrowers with secured term loans, Promoters and entrepreneurs of defaulting companies
What exactly is the new condition added to the wilful defaulter definition?
The new clause (d) says a wilful default occurs if a unit defaults on payment/repayment obligations 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 change the consequences for wilful defaulters?
Yes, it reiterates that no additional facilities should be granted to listed wilful defaulters. It also bars promoters of companies with siphoning, diversion, or fraud from institutional finance for five years from the date their name appears in RBI's wilful defaulter list.
When does this new definition take effect?
The instructions came into force with immediate effect from May 28, 2008, the date of the circular.