What changed
RBI issued a master circular consolidating all prior circulars on wilful defaulters into one document for easier reference. The circular reaffirms the definition of wilful default, including deliberate non-payment despite capacity, siphoning of funds, and asset misappropriation. It also retains the reporting threshold of Rs. 25 lakhs for wilful default accounts and Rs. 1 crore for considering legal action.
What it means for you
Banks and financial institutions must now refer to this single master circular for all guidelines on wilful defaulters, ensuring uniformity in identification and reporting. The circular reinforces the need for strict penal measures, including denial of further credit and potential criminal action, to deter wilful defaults. It also emphasizes the role of auditors and internal inspection in detecting such cases.
What you must do
- Review and adopt the definitions and criteria for wilful default as per the master circular.
- Ensure quarterly reporting of all wilful default accounts with outstandings of Rs. 25 lakhs and above to RBI and credit information companies.
- Form a committee headed by the Executive Director to identify wilful defaults and initiate penal measures.
- Examine all wilful default cases of Rs. 1 crore and above for filing suits and consider criminal action where fraud is detected.
- Update internal audit and inspection processes to monitor end-use of funds and detect diversion or siphoning.
Who it affects
All scheduled commercial banks (excluding RRBs and LABs), All India Notified Financial Institutions, Borrowers and directors of defaulting entities, Auditors and internal audit teams
What is the threshold for reporting wilful defaulters to RBI?
Banks must report all non-performing borrowal accounts with outstandings of Rs. 25 lakhs and above that are identified as wilful default by a committee of higher functionaries.
What actions are required for wilful default cases of Rs. 1 crore and above?
Banks should examine such cases for filing suits and consider criminal action if instances of cheating or fraud are detected.
Does this circular apply to overseas branches?
Yes, but reporting of wilful defaults at overseas branches is required only if such disclosure is permitted under the laws of the host country.