The Reserve Bank of India (RBI) has issued draft guidelines requiring banks and financial institutions to classify borrowers as wilful defaulters within six months of loans turning bad. A wilful defaulter is someone who defaults on repayments despite having the capacity to pay, including those who divert or siphon off borrowed funds or fail to infuse equity as agreed.
The RBI's move expands the definition of wilful defaulters. Bankers have expressed concerns about the short timeframe, noting that forensic audits, personal hearings, and consortium meetings take time. Once classified as a wilful defaulter, borrowers cannot avail fresh loans for one year. The RBI is seeking feedback on these guidelines until October 31, 2023.