Remember Vijay Mallya? A former liquor baron and a member of Parliament who was deep in loans he took to start his airlines Kingfisher Airlines. Despite being unable to repay, received a lot of flak for being unabashedly unapologetic for leading a lavish lifestyle.
Consequently, the term associated to loan defaulters like with him who refuse to repay their loans despite being wealthy in their personal life is ‘wilful defaulter’
This means someone who has access to the funds to repay his loans but he still chooses not to. However, a literal meaning of a term often is interpreted differently in the legal and regulatory parlance.
So, the RBI has, time and again, tried to define this term to bring all facets together and even expanded the scope in line with changing times.
Last time, the RBI released a master circular on wilful defaulters was on July 1, 2015.
But now, with the release of new master direction, Reserve Bank of India has further expanded the scope of regulated entities that can classify borrowers as wilful defaulters.
It has also broadened the definition of wilful default, and called for a review by the bank within six months of an account being declared as a non performing asset (NPA).
Some of the key provisions include the following:
1. A wilful default would be considered to have been occurred when a borrower took the money, has the means to repay but has still defaulted.
2. In another instance, in case the borrower has siphoned off the funds for purposes other than the one it was borrowed for, it will be known as a wilful default.
3. Besides, if the borrower has disposed off the asset that was given for the purpose of securing a loan, then also it will be known as a wilful default.
4. Any wilful defaulter with an outstanding balance of ₹25 lakh or more would attract the penal provisions.
5. This limit of ₹25 lakh would apply in case of siphoning of funds as well.
A background on the regulations on wilful defaulters
The Reserve Bank of India (RBI) introduced a scheme for handling wilful defaulters effective from April 1, 1999. These guidelines were later consolidated into the master circular on wilful defaulters.
These guidelines were recently revised after the banking regulator reviewed the orders and judgements of constitutional courts and representations from banks and stakeholders.