Tougher law likely to tackle wilful loan defaulters-Hindu Business Line
Special courts may be set up to boost loan recoveries
MUMBAI, JUNE 25:
To tackle the menace of wilful defaulters, the Reserve Bank of India is believed to be drafting a legislation which, if enacted by Parliament, could make it easier for banks to recover loans.
Currently, banks have two main channels — Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act and Debt Recovery Tribunals — for recovering loans.
However, some recalcitrant borrowers manage to stave off recovery action by getting a stay on recovery proceedings from the Tribunals and Debt Recovery Appellate Tribunals.
To ensure that wilful loan defaulters do not put a spoke in the wheel of banks and financial institutions, the legislation that is being considered could also include establishment of special courts to speed up loan recoveries, said a banker clued in to the development.
A “wilful default” is deemed to have occurred if: a unit has defaulted in meeting its payment/repayment obligations to the lender even when it has the capacity to do so, or has not utilised the finance from the lender for the specific purposes for which finance was taken but diverted the funds for other purposes.
Further, if the unit has defaulted in meeting its payment/repayment obligations to the lender and has also disposed of or removed securities without the bank’s knowledge, then it is a case of wilful default.
That the bad loan rot runs deep in public sector banks (PSBs) has been brought out by the All-India Bank Employees’ Association.
The Association has put together a list which shows that just 50 loan defaulters, which include a defunct airline, a couple of gem and jewellery companies, and some infrastructure companies, owe PSBs a whopping ₹40,500 crore.
According to Finance Ministry data, the top 30 non-performing loans (NPLs) of PSBs constitute 40.2 per cent of the total NPLs of these banks. The ministry has asked the PSB chiefs to take exemplary action, including change of management, as it does not want a situation where the promoter is flourishing while the company is sick.
According to credit rating agency ICRA, PSBs’ gross NPLs increased to ₹2,27,300 crore as at March-end 2014 from ₹1,64,500 crore as at March-end 2013.
The agency said fresh NPL generation rate may remain at elevated levels in the short term
Strict law on anvil for wilful defaulters-Times of India
NEW DELHI: Amid a pile of bad debt, the government is working on a new legislation for 'wilful defaulters' that seeks to link the jail term with the value of default in a bid to help recover dues from promoters who do refuse to cooperate.
Sources said the contours of the new law are been drawn up by the finance ministry as banks, especially those in the public sector, are dealing with high level of defaults, especially in the infrastructure sector. In its master circular last July, the RBI had said that a borrower will be considered a wilful defaulter if it defaults despite having a capacity to pay, has siphoned-off or diverted funds or disposes of property or assets pledged as security with a bank.
Banks are grappling with non-performing assets of over Rs 2 lakh crore, while loans to several large projects have been restructured, which prevented them from turning bad debt.
Wilful Defaulters – RBI Guidelines forSources said the contours of the new law are been drawn up by the finance ministry as banks, especially those in the public sector, are dealing with high level of defaults, especially in the infrastructure sector. In its master circular last July, the RBI had said that a borrower will be considered a wilful defaulter if it defaults despite having a capacity to pay, has siphoned-off or diverted funds or disposes of property or assets pledged as security with a bank.
Banks are grappling with non-performing assets of over Rs 2 lakh crore, while loans to several large projects have been restructured, which prevented them from turning bad debt.
Banks-By Rajesh goyal
Who is A Wilful Defaulter :
A "wilful default" would be deemed to have occurred if any of the following events is noted:-
(a) The unit has defaulted in meeting its payment / repayment obligations to the lender even when it has the capacity to honour the said obligations.
(b) The unit has defaulted in meeting its payment / repayment obligations to the lender and has not utilised the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes.
(c) The unit has defaulted in meeting its payment / repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilised for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets.
(d) The unit has defaulted in meeting its payment / repayment obligations to the lender and has also disposed off or removed the movable fixed assets or immovable property given by him or it for the purpose of securing a term loan without the knowledge of the bank/lender.
Limit for Reporting Purposes :
The above indicates that there is no minimum amount to declare a borrower as willful defaulter. However, for reporting purposes RBI has set certain limits.
(a) All cases of wilful default (non-suit filed accounts) with outstanding of Rs.25 lakh & above are required to be reported to RBI on quarterly basis as per the format given in the Master Circular on the subject;
(b) All cases of willful default (suit filed accounts) with outstanding of Rs 25 lakh & above are required to be reported to CIBIL. [It may also be mentioned here that banks also submit the suit-filed accounts of Rs. 1 Crore and above to CIBIL i.e. the cases not categorized as willful defaults]
Both the above lists are also sent to SEBI so as to prevent the access to the capital markets by the willful defaulters.
Banks and FIs need not report cases where outstanding amount falls below Rs.25 lakh and cases where banks have agreed for a compromise settlement and the borrower has fully paid the compromised amount.
Banks and FIs are required to take suitable steps to report the names of current directors as also the directors who were associated with the company at the time the account was classified as defaulter to put other banks and FIs on guard. The names of independent and nominee directors are also be included with suitable distinguishing remarks as applicable.
Penal measures
The following measures are required to be initiated by the banks and FIs against the wilful defaulters as per RBI guidelines:
a) No additional facilities should be granted by any bank / FI to the listed wilful defaulters. In addition, the entrepreneurs / promoters of companies where banks / FIs have identified siphoning / diversion of funds, misrepresentation, falsification of accounts and fraudulent transactions should be debarred from institutional finance from the scheduled commercial banks, Development Financial Institutions, Government owned NBFCs, investment institutions etc. for floating new ventures for a period of 5 years from the date the name of the wilful defaulter is published in the list of wilful defaulters by the RBI.
b) The legal process, wherever warranted, against the borrowers / guarantors and foreclosure of recovery of dues should be initiated expeditiously.The lenders may initiate criminal proceedings against wilful defaulters, wherever necessary.
c) Wherever possible, the banks and FIs should adopt a proactive approach for a change of management of the wilfully defaulting borrower unit.
d) A covenant in the loan agreements, with the companies in which the banks / notified FIs have significant stake, should be incorporated by the banks / FIs to the effect that the borrowing company should not induct a person who is a promoter or director on the Board of a company which has been identified as a wilful defaulter.
Grievances Redressal Mechanism
Decisions to classify the borrower as wilful defaulter should be entrusted to a Committee of higher functionaries headed by the Executive Director and consisting of two GMs/DGMs as
decided by the Board of the concerned bank/FI with a view to have more objectivity in identifying cases of wilful default.
The borrower should be suitably advised about the proposal to classify him as a wilful defaulter along with reasons therefore. He should be provided reasonable time (say 15 days) for making representation against such decision to a Grievance Redressal Committee headed by the CMD and consisting of two other senior officials.
He should also be given a hearing in case he represents that he has been wrongly classified as wilful defaulter and a final declaration as ‘wilful defaulter’ should be made after a view is taken by the Committee on the representation and the borrower should be suitably advised.
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