Early-stage hearing of defaulters better, commercial banks tell RBI

Commercial banks have told the Reserve Bank of India they would prefer giving defaulting borrowers an “in-person hearing” at the time they identify an account as stressed than at the last stage before classifying the borrower as a wilful defaulter, said people aware of the matter.

The RBI in a draft directive has suggested an in-person hearing at the review stage, which is the last stage before classification.

Lenders hope recovery will improve – at least among the small-ticket borrowers – if a dialogue is initiated at an early or the identification stage.

Small borrowers may pay up
“Many borrowers come on the negotiating table – at least the small-ticket borrowers – when they receive a show cause notice on classification as wilful,” said a senior bank official. Such borrowers are willing to settle when they are informed that if the defaulting company is classified as a wilful defaulter, it will not be able to raise loans through formal banking channels, lenders said.As of March 2023, 16,883 accounts involving total borrowing of Rs 3.5 lakh crore had been classified as wilful defaulters, according to TransUnion Cibil, a credit information company.The RBI has defined a wilful borrower as a person or a company which has defaulted despite having the capacity to honour the loans, or has diverted or siphoned off funds. Borrowers who failed to infuse committed equity after availing of loans despite being able to do so are also classified as wilful defaulters. The RBI issued a draft master directive on September 21 on treatment of wilful defaulters wherein it had suggested a standard operating process before declaring a borrower as wilful defaulter. The suggestions made by lenders are in response to the draft directive.