scorecardresearchHave the means, but decide to default on loan? Find out how RBI handles

Have the means, but decide to default on loan? Find out how RBI handles wilful defaulters

Updated: 26 Sep 2023, 11:41 AM IST

The Reserve Bank of India has released directives pertaining to wilful defaulters within the financial sector.

RBI issues guidelines on wilful defaulters.

RBI issues guidelines on wilful defaulters.

Borrowing money is a substantial financial commitment that warrants careful planning. It is vital to comprehend the loan's terms and conditions, as well as your own capacity to meet repayment obligations. Although unforeseen circumstances, like job loss, can occasionally pose challenges in repaying a loan, maintaining open communication with your lender and seeking viable solutions is crucial.

Wilful defaulters are individuals who intentionally choose not to honour their loan obligations despite having the means to do so. This behaviour is a grave offense, as it can harm the creditworthiness of other borrowers and hinder their access to loans. Wilful defaulters may also face legal repercussions, including being prohibited from obtaining future loans or even facing arrest and imprisonment.

Intentional defaulters can encounter punitive actions imposed by the Reserve Bank of India (RBI), which may involve their exclusion from accessing financial services through any bank or financial institution, reported Zee Business. Presently, the RBI has released draft guidelines aimed at strengthening measures against wilful defaulters.

What actions will the RBI take in the case of wilful defaulters?

According to the most recent guidelines, the RBI has broadened the definition of the term, requiring lenders to conclude the identification of borrowers and the categorization of them as wilful defaulters within six months of their loans deteriorating.

The RBI has suggested that borrowers with the capability to repay but a reluctance to do so will be classified as “wilful defaulters.” This categorization will encompass borrowers who have redirected or misappropriated their borrowed funds or have not injected equity as agreed upon.

Before designating a borrower as a wilful defaulter, lenders must finalize the classification within six months of categorizing the loan as non-performing. To summarize, the key provisions resulting from the RBI's revision are as follows:

  • A borrower will be labeled as a wilful defaulter if they have the financial capacity to repay but choose not to do so.
  • This classification also applies if they have misappropriated the borrowed funds for purposes other than the intended use.
  • If the asset or collateral provided to secure the loan has been liquidated, the borrower will also be categorized as a wilful defaulter.
  • An outstanding balance of Rs. 25 lakh or more will trigger penal provisions in cases of wilful default and misappropriation of funds.


As per RBI data, home loans grew 8.4% between March and October, faster than the preceding six month period during which there were no hikes.
First Published: 26 Sep 2023, 11:41 AM IST