Dec 29, 2017

How to recognize, Who is Bank's Wilful Defaulter?

In recent Months, the growing Bad Loans of Commercial Banks has alarmed many Bank's to implement the Theory of Wilful Defaulters and Non-Defaulters. Almost 38 listed Commercial Bank in India had crossed Bad Loans of around Rs. 8,00,000 Crores as on end of June 2017.

The situation is getting worse for Lenders to recover from these Wilful Defaulters. 

Due to continuous increase in Non Performing Assets (NPA) the matter under discussion whether to public these Wilful Defaulters or not. 

RBI’s Definition

As per RBI’s guideline, commercial banks and registered financial institutions (FIs) should call any debtor wilful defaulter when
  • A person or institution defaults a loan despite possessing the capacity to repay it.
  • A debtor takes a loan for one purpose and uses it for others and at the end, doesn’t repay it.
  • A debtor takes a loan for one purpose and uses it for another purpose such a way that it is not available to him in any other form.
  • A debtor removes or disposes of the collateral used for securing a loan without informing the lender/bank.

Banks / FIs are allowed to call also a guarantor of a wilful defaulter if he/she has the means to repay the debt amount of the principal debtor but doesn’t do that willingly. However, this definition applies only to the guarantees taken after the issuance of the master circular, i.e. after 09.09.2014. Guarantees taken prior to that are exempted from this treatment.

All the Banks and FIs should from now on follow these guidelines to identify and report the wilful defaulters. They can be individuals as well as business entities. In the case of enterprises, the persons responsible for Managing the business will be regarded as the wilful defaulters. However, before reporting a single company within a defaulting group as a wilful defaulter, its previous loan repayment history must be taken into account.

A defaulter is called wilful defaulter only when he has an outstanding amount of 25 lakh or above. For such defaulters, the RBI has also stipulated penalties.
  • The lending institute may interfere to alter the management authority of the defaulting company. The defaulter should not get any facilities from Banks/FIs. Additionally, there will be a ban on availing institutional Credit.

  • The lender may take legal actions.

  • The defaulter should not be allowed to enter into any new venture for the next 5 years from the date he/she is declared as wilful defaulter.


Wilful defaulters are in many ways different from regular defaulters. They mostly enjoy high social and economic power but create more serious problems for the Banks / FIs and Economy. It makes every sense to identify them and to give them a tough treatment in order to improve Indian banks’ financial health, otherwise these wilful defaulters will eat Indian Economy like Termites.

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