The draft Master Direction broadens the definition of wilful default, clarifies the identification process, and mandates a review and finalisation on wilful default aspects within six months of an account being classified as a non-performing asset. It also increases the scope for Regulated Entities that can designate borrowers as wilful defaulters. Additionally, it covers how wilful default loans issued to Assets Reconstruction Companies are handled and how the Insolvency and Bankruptcy Code treats them.
Wilful defaulter refers to a borrower or guarantor who has engaged in willful default and the outstanding balance is USD 25 lakh or more, or as may otherwise be defined by the Reserve Bank of India from time to time. If the borrower is a company, the promoters and director(s) associated at the time of default are also considered to be wilful defaulters, as are any entity (other than companies) management personnel.
“The lender must complete the process of classifying or declaring the borrower as a wilful defaulter within six months of the account being classified as NPA by looking into the “wilful default” aspect in all accounts with an outstanding amount of USD 25 lakh or more, or as otherwise may be notified by the Reserve Bank of India from time to time,” it said.
It further advises that the identification committee shall review the wilful default evidence. If the identification committee determines that a wilful default event has taken place, it will notify the borrower, the guarantor, the promoter, the director, and any other individuals in charge of overseeing the entity’s management of its affairs and will request submissions.
The identification committee will submit a proposal to the review committee for classification as a wilful defaulter by outlining the justifications in writing after examining the submissions.