Wilful Defaulter

Wilful Defaulter

Topic: Economy

Context: Amid Covid effect, bank steps, wilful defaults rise Rs 38,976 crore

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.

Central Repository of Information on Large Credits (CRILC), is a central repository or database where the RBI stores credit information on all borrowers having aggregate fund-based and non-fund based exposure of Rs 5 crores and above.

Hence willful defaulter is when there is:

• Default in repayment obligations by the unit to the lender even when it has the capacity to honour the said obligations.
• Default in repayment obligations by the unit to the lender and has not utilized the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes.
• Default in repayment obligations by the unit to the lender and has siphoned off the funds so that the funds have not been utilized for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets.
• Default in repayment obligations by the unit to the lender and has also disposed off or removed the movable fixed assets or immovable property given by it for the purpose of securing a term loan without the knowledge of the bank/lender.

How willful defaulters are affecting the economy?

• The economy is facing the issue of Non-Performing Assets (NPAs) in Banking Sector especially in case of Public Sector Banks (PSBs). NPA is an asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. In these NPAs there are two categories of defaulters:
  • Those who are unable to pay back due to economic slowdown both in domestic and global market and other reasons outside their control.
  • Willful defaulters.

Government initiatives

The Government has taken various measures to deal with both these categories of defaulters.

• In order to deal with default due to economic slowdown, the Government has taken various measures to revive the stressed sectors which mainly include steel, textiles, power and roads among others.
• The Government has also done recapitalization of banks by providing Rs. 25,000 crore in the last year Union Budget 2015-16 as well as in this year’s budget 2016-17.
• Transparency and professionalism has been brought in appointment process for top management positions in the PSBs including Chairmen and Managing Directors.
• The Government has taken various measures to make the management professional, has given full autonomy to the banks in taking commercial decisions without any interference from the Government.
• Insolvency and Bankruptcy Law has been cleared by the Parliament.
• The SARFAESI Act and DRT Act have been amended to make the recovery process more efficient and expedient.
• Government has decided to establish six new Debt Recovery Tribunals (DRTs), to speed up the recovery of bad loans of the banking sector.
• Government has advised Public Sector Banks (PSBs) to constitute a Board level Committee for monitoring of recovery and to increase the pace of recovery and manage NPAs.