Reserve Bank of India (All India Financial Institutions – Treatment of Wilful Defaulters and Large Defaulters) Directions, 2025

1. Warn the other lenders

The rules aim to spread word of a wilful defaulter so no fresh money reaches him.

1. Large defaulter definition

A large defaulter owes 1 crore rupees or more to the all India financial institution.

2. Independent directors chair it

In that case independent or non-executive directors must chair the committee.

3. Wilful default

This paper sets how all India financial institutions name a wilful defaulter.

4. Start date

These Directions came into effect on the day RBI issued them.

5. Who is covered

These Directions apply to every all India financial institution.

6. Every RBI-regulated lender

The bar on fresh money to a wilful defaulter binds every lender RBI regulates.

7. Whole-Time Director if vacant

Where the chief executive's post is vacant, a Whole-Time Director takes his place.

8. Two committees, no overlap

No one on the first committee may sit on the second.

9. What siphoning means

Siphoning is using loan money for work that has nothing to do with the borrower.

10. Still suit filed on appeal

An account stays suit filed while an appeal or execution is still running.

11. Meaning of wilful default

A wilful default means the borrower had the means to pay but did not.

12. Fund diversion

Diverting loan money to another use can make a borrower a wilful defaulter.

1. Board must write a policy

The Board must approve a policy for putting these rules into practice.

1. 21-day reply window

The accused person gets 21 days to reply to a show-cause notice.

2. No lawyers at hearing

The accused person cannot bring a lawyer to this in-house hearing.

3. Twenty-five lakh triggers a check

Every bad loan of ₹25 lakh and above must be examined for wilful default.

4. Six-month decision deadline

All India financial institutions must decide wilful defaulter status within six months of the account becoming an NPA.

5. One-year credit ban

All India financial institutions cannot give a wilful defaulter new credit for one year after removal from the list.

6. It must be deliberate

The default must be planned and meant, to count as wilful.

7. Show all the material

Everything the show cause notice rests on must be disclosed to the borrower.

8. Reasons must be written

The first committee must put its reasons in writing to the second.

9. Tell them of the proposal

The borrower must be told of the proposal to class him as a wilful defaulter.

10. Their reply goes up

The written reply must go to the review committee with the proposal.

11. A personal hearing is due

The second committee must offer a hearing in person first.

12. A reasoned order, served

The review committee must pass a reasoned order and send it to the defaulter.

13. Name the committee members

The notice and the order must say they carry committee approval and name its members.

14. Flag the nominee director

A non-whole-time, independent or nominee director so classed must be reported as such.

15. Look again later

Where no wilful default was seen at first, the account must be re-examined later.

16. A covenant against the listed

Every loan agreement must bar taking a listed defaulter onto the board.

17. Move to court without delay

Court action to get the money back must be started fast.

18. The process must be open

The whole process must be open, so no room is left for choice.

19. Internal audit checks it

Internal auditors must check that the rules were followed.

20. Audit Committee reviews cases

The Audit Committee must review wilful default cases from time to time.

21. Find the root cause

That review must find the root causes and fix any gap in the process.

22. Follow the set procedure

A person may be classed a wilful defaulter only by the procedure set out here.

23. Look at the whole record

Wilful default is judged on the borrower's track record, not one stray incident.

24. Identification Committee

The all India financial institution's Identification Committee first reviews the evidence of wilful default.

25. 15-day review window

The accused person gets 15 more days to write to the Review Committee.

26. Removal does not end it

Taking a name off the list does not stop criminal proceedings already begun.

27. Penalty ends with the tie

The penalties stop applying to an associated firm once the tie is broken.

28. Associated firms are caught

Every firm a wilful defaulter runs or sits on the board of is tied to him.

29. Go straight to the guarantor

On default the lender may proceed against the guarantor without first exhausting the borrower.

30. A refusing guarantor is caught

A guarantor who refuses the demand may himself be classed a wilful defaulter.

31. Judge each company alone

In a group, each borrowing company is judged on its own repayment record.

1. One crore includes unapplied interest

Unapplied interest counts towards the ₹1 crore threshold.

BankPulse example. Suppose the principal outstanding is ₹98 lakh and the unapplied interest is ₹4 lakh. Together that is ₹1.02 crore. The account crosses the ₹1 crore threshold, because the interest counts.

2. 30-day list removal

All India financial institutions must remove a name from the list within 30 days once dues fall below 25 lakh rupees.

3. Investigate before you sell

A defaulted loan of ₹25 lakh and above must be investigated before it is transferred.

4. No two-stage committee needed

That investigation need not use the two-stage committee, but must be thorough.

5. Tell the buyer

The buyer must be told what was reported and must report it onward.

6. Check the director details

Director details sent to the bureaus must be checked against the Registrar's database.

7. Report failed guarantors

Guarantors who do not honour an invoked guarantee must be reported to the bureaus.

8. Full names of directors

The full names of directors must be reported so the person can be identified.

9. Suits go by sued amount

For a suit filed account the threshold is the amount sued for.

10. Off the list when paid

A name comes off the list only when the compromise amount is paid in full.

11. Part payment keeps the name

Part payment does not take the name off, even below the threshold.

12. Cancelled settlement, revised figure

If a deal is called off, the new sum owed is what gets reported.

13. Selling is not recovery

Transferring a defaulted loan does not count as recovery against the threshold.

14. New owner, clean slate

The bar lifts once a rescue plan puts the firm in new hands.

1. Do not lean on auditors

A lender must not go by the auditor's paper alone.

2. Report the auditor too

A complaint against an auditor goes to the Reserve Bank and the banks' association.

3. Check identical names yourself

Where two names are the same, the lender must check who is who on its own.

4. Watch where the money goes

The end use of funds must be watched and a certificate taken from the borrower.

5. End use in the policy

End use checks must form part of the lender's own loan policy document.

6. Hear the auditor first

The auditor must be given a hearing before any such report is made.

7. A false certificate means court

A false paper from the borrower may take him to court.

8. A caution list of auditors

The banks' association circulates a caution list of such auditors to lenders.

1. Older rules cancelled

This document cancels the older wilful-defaulter rules for Commercial Banks.

2. Old cases continue

Penalties and legal cases already started under the old rules still continue.