What changed
RBI introduced a comprehensive framework for UCBs to classify borrowers as wilful defaulters or large defaulters, replacing earlier piecemeal instructions. The directions apply to scheduled UCBs and non-scheduled Tier 3 and 4 UCBs for wilful defaulter provisions, while restrictions on further credit and large defaulter rules apply to all UCBs including Tier 1 and 2.
What it means for you
UCBs must now follow a standardized, non-discriminatory procedure for identifying wilful defaulters, ensuring natural justice. This tightens credit discipline and prevents wilful defaulters from accessing further institutional finance, reducing systemic risk. Lenders need to update their internal policies, reporting systems, and auditor roles to comply.
What you must do
- Review and align your UCB's board-approved policy with the new wilful defaulter classification and reporting requirements.
- Update your credit appraisal and monitoring processes to detect diversion of funds and wilful default early.
- Ensure timely reporting of large defaulters and wilful defaulters to credit information companies as per the prescribed formats.
- Train staff and auditors on the new definitions, including 'diversion of funds' and 'credit facility'.
Who it affects
Urban Co-operative Banks (all tiers), Borrowers availing credit from UCBs, Auditors of UCBs, Credit information companies
When do these directions take effect?
These directions come into force with immediate effect from the date of issuance, i.e., November 28, 2025.