Wilful defaulter

Wilful defaulter

Subject: Economy

Context: Banks have added Rs 38,976 crore from 662 borrower accounts as willful defaulters during the 12 months ended December 2020 when the Covid pandemic hit the country’s financial system.

Concept:

• As per the Reserve Bank of India’s (RBI) classification, a ‘wilful default’ would be deemed to have occurred if the borrower has defaulted in meeting their repayment obligations to the lender even when they have the capacity to honour the said obligations.
• A wilful default happens when the borrower has not utilised the finance from the lender for the specific purpose for which finance was availed and has diverted the funds for other purposes, or siphoned off funds, or disposed of or removed the movable fixed assets or immovable property given for the purpose of securing a term loan without the knowledge of the bank.

Status

• The total wilful defaults amounted to Rs 244,602 crore from 12,917 accounts as of December 2020, according to data available from credit information bureau Transunion Cibil.
• State Bank of India (SBI), India’s largest bank, has topped the list of wilful defaulters with 1,792 borrower accounts owing Rs 62,709 crore as of December 2020.
• Punjab National Bank is in the second position

Action under various provisions

• In cases involving secured assets, action under provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 has been initiated in 8,175 cases.
• Central Bureau of Investigation (CBI) has registered and probed 512 cases of bank loan default at the behest of public sector banks (PSBs) between 2018 and 2020.
• According to the RBI’s Master Circular on wilful defaulters, once the bank declares a borrower wilful defaulter, no additional funding facility should be granted by any bank to the listed wilful defaulter. In addition, such companies (including promoters) should be barred from institutional finance from banks for floating new ventures for a period of five years from the date of removal of their name from the list of wilful defaulters as published or disseminated by the RBI or credit information companies. Lenders should initiate criminal proceedings against wilful defaulters, wherever necessary.