The Reserve Bank of India (RBI) has unveiled a draft paper of proposed revisions to the guidelines for handling wilful defaulters.
According to the bankers’ bank, the suggested changes encompass an expanded scope for regulated entities to classify borrowers as wilful defaulters, an amplified definition of wilful default and a refined identification process.
It says the modifications will bolster the existing instructions after a comprehensive review. It will consider judicial judgments, including those from the Supreme Court and high courts, and input from banks and stakeholders.
The revised framework emerges following a March ruling by the Supreme Court over an RBI 2016 circular. The court mandated that borrowers should have a hearing before their accounts are labelled as fraud, and emphasised the importance of avoiding unilateral fraud declarations by banks without providing a fair hearing to borrowers.
Lenders contended that the circular aimed at early fraud detection and the classification was restricted to interbank communication to exercise due caution.
Under the proposed changes, lenders are required to scrutinise the “wilful default” aspect of all accounts with an outstanding amount of INR2.5 million (USD30,000) or more.
The proposals necessitate completing the classification process for wilful default within six months of an account being categorised as a non-performing asset. There is no timeline in the current regulations.
