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HCS (Haryana)Prelims2024General Studies
Question
Consider the following statements regarding recently released Reserve Bank of India regarding Treatment of Wilful Defaulters and Large Defaulters Directions, 2023: 1. The directions are applicable to all regulated entities including NABARD, SIDBI and EXIM Bank 2. A wilful default borrower needs to be reviewed and finalised within six months of an account being classified as a non-performing asset (NPA). 3. Lender cannot proceed against guarantor without exhausting the remedies against principal debtor. How many of the statements given above are correct?
Options
- A 1 only
- B 1 and 2 only
- C All 1, 2 and 3
- D 2 and 3 only
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Correct Answer
B 1 and 2 only
Model Answer
- The Wilful Defaulters and Large Defaulters Directions, 2023 were introduced by the RBI to provide a comprehensive and standardized framework for identifying, reporting, and taking action against wilful defaulters and large defaulters in the banking sector.
- Wilful Defaulter: A borrower is classified as a wilful defaulter if they have the capacity to repay but deliberately avoid repayment, divert funds for other purposes, or dispose of the secured assets without the bank’s knowledge.
- Applicability: These directions apply to all Scheduled Commercial Banks (excluding Regional Rural Banks), All India Financial Institutions, and Credit Information Companies (CICs). They are also applicable to Systemically Important Non-Deposit taking Non-Banking Financial Companies (NBFC-ND-SI) and Deposit taking Non-Banking Financial Companies (NBFC-D).
- Hence, statement 1 is correct.
- The identification and classification of a borrower as a wilful defaulter need to be reviewed periodically, specifically within six months from the date of the initial classification. Hence, statement 2 is correct.
- The review committee, usually comprising senior officials from the bank, examines the borrower's behaviour, payment history, and any new developments that may affect their status as a wilful defaulter.
- Traditionally, lenders have the legal right to proceed against guarantors to recover dues if the borrower defaults.
- Under the new directions, lenders cannot classify guarantors as wilful defaulters or large defaulters solely based on the default of the principal borrower. The responsibility for wilful default lies with the principal borrower, not the guarantor, unless it can be proven that the guarantor was complicit in the fraud or misused the loan proceeds. Hence, statement 3 is incorrect.