New Delhi: The Reserve Bank of India (RBI) has clarified that punitive action against fraudsters and willful defaulters will continue, even as banks enter into an agreement with them to recover whatever part of the amount of default or fraud may be recovered from them. Compromise compromise.
It further clarified that the recovery of loans would continue even if they were technically written off from the balance sheets of the lenders.
Earlier this month, the central bank had issued a set of guidelines, specifying that banks can enter into a “compromise agreement” with defaulters “by relinquishing some of the amount due from the borrower on behalf of the regulated entities”. could”.
The guidelines drew a lot of criticism from various quarters, including the Congress, with the focus being on how they can embrace future defaulters and pardon past ones.
However, in an FAQ document released on Tuesday, the RBI said, “For borrowers currently classified as frauds or willful defaulters in terms of the Master Directions on Frauds dated July 1, 2016 and the Master Circular on Willful Defaulters of July The penal measures applicable.1, 2015, respectively, will remain unchanged and will continue to be applicable in cases where banks enter into settlement agreements with such borrowers.
The central bank further said that such punitive measures are subject to several conditions. For example, no additional facilities will be given to willful defaulters by any bank or financial institution, and such companies and their promoters will be barred from institutional finance for starting new ventures for a period of five years from the date of striking off their names. is deprived. list of willful defaulters
In addition, the central bank said, borrowers classified as fraud have been barred from obtaining bank finance for a period of five years from the date of full payment of the fraud amount.
From a policy perspective, the RBI argued that allowing such compounding settlement was a positive step as it would allow lenders to recover as much dues as possible without walling off the process in lengthy legal proceedings.
The FAQ document states, “The primary regulatory objective is to enable lenders to have multiple avenues for recovery of monies in default without undue delay.” “Apart from time value loss, excessive delay results in asset value decline which impedes eventual realisation.”
It added, “Continuance of such exposures on the balance-sheets of the lenders without resolution due to legal proceedings would result in the lenders’ funds being locked up in an unproductive asset, which would not be a desirable situation.”
Overall, the central bank’s argument in favor of a settlement was that, as long as larger policy concerns were appropriately addressed and as long as the perpetrators of “malicious acts” were forced to bear the costs of their actions Yes, early recovery should be made by the lenders. A preferred option, subject to security measures.
The RBI said its guidelines on settlement settlement would actually increase transparency in the entire process as it involves bank’s board approval at almost every step.
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‘No benefit to defaulter borrowers’
Another concern raised about the RBI circular was related to clarification of certain rules regarding technical write-off of loans, which meant that loans would be written off and not recovered, leading to loss to lenders.
“Technical write-off as defined in the circular refers to cases where NPAs (Non-Performing Assets) remain outstanding at the loan account level of borrowers but are written off by lenders for accounting purposes only goes,” the RBI clarified.
“Such technical write-off does not constitute any waiver of claims against the borrower and thus does not curtail the recovery rights of the lenders in any manner,” it said. “Hence, the defaulting borrowers do not benefit in any way and their legal liability as well as the cost of such default to them remains unchanged as they were before the technical write-off.”
(Editing by Nida Fatima Siddiqui)
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