What changed
RBI has formalized a dedicated set of directions for Rural Co-operative Banks (State and Central Co-operative Banks) on handling wilful defaulters and large defaulters. The directions impose specific penal measures, including a bar on additional credit facilities for one year after removal from the wilful defaulter list and a separate five-year bar on funding new ventures. They also require RCBs to report and disseminate credit information on such defaulters to caution other lenders.
What it means for you
RCBs must now strictly enforce credit restrictions against wilful defaulters and their associated entities. This will tighten lending discipline and reduce the risk of further exposure to chronic defaulters. Banks need to update their internal systems to track and report defaulters accurately, and ensure compliance with the new timelines for credit bars.
What you must do
- Update your internal policies to incorporate the new penal measures for wilful defaulters, including the one-year and five-year credit bars.
- Ensure your credit appraisal and monitoring systems can identify and flag wilful defaulters and their associated entities as defined.
- Set up reporting mechanisms to submit lists of wilful defaulters and large defaulters to RBI in the prescribed format.
- Train staff on the new definitions and restrictions, especially regarding restructuring of stressed assets for wilful defaulters.
Who it affects
Rural Co-operative Banks (State Co-operative Banks and Central Co-operative Banks), All entities regulated by RBI that extend credit to wilful defaulters, Borrowers classified as wilful defaulters or large defaulters
What is the duration of credit restrictions after a wilful defaulter's name is removed from the list?
The bar on additional credit facilities lasts for one year after removal, and the bar on funding new ventures lasts for five years after removal.
Do these directions apply only to Rural Co-operative Banks?
The directions are specifically applicable to Rural Co-operative Banks, but the restrictions on further financial accommodation to wilful defaulters apply to all entities regulated by RBI.
What happens if an entity is no longer associated with a wilful defaulter?
The penal provisions cease to apply to that associated entity once the association ends.