Who is a wilful defaulter?
The RBI lays down four scenarios under which a person or company can be declared a wilful defaulter:
- The borrower fails to meet his dues even if he has the ability to pay
- The borrower has diverted the money away from the intended purpose
- The money is siphoned off and used by the borrower for purposes which are unrelated to his operation. There are thus no assets to back up the loan
- If the borrower sells off the asset which he bought with the loan taken without the knowledge of the bank, then too he can be deemed a wilful defaulter
If the group company of a borrower, which has given a letter of guarantee, fails to honor it, it too can be tagged a willful defaulter.
What is the effect of declaring someone a wilful defaulter?
If a person or company is tagged as a wilful defaulter — they can attract penalties laid down by the RBI:
- Access to all credit channels is cut off — a wilful defaulter cannot borrow more from any institution
- It also chokes off the prospect for any new ventures — a wilful defaulter cannot access institutional finance for floating any new business for a period of five years
- Lenders can take criminal action against the borrower. In addition, banks are required to submit the list of wilful defaulters with outstanding loan balances of over ₹25 lakh (where suits have been filed) to credit information companies such as Credit Information Bureau of (India) (CIBIL), Experian Credit Information, Equifax Credit Information and High Mark Credit Information, at the end of every quarter, to earn off prospective lenders — Banks also report the names of current directors as well as directors who were associated with the company at the time the borrower was named as a defaulter.