Who is a Wilful Defaulter as per RBI?

Wilful Defaults: How RBI Defines and Deals with Them

In India, non-performing assets (NPAs) have remained a pressing concern for the banking system. As per RBI data, gross NPAs in Indian banks were recorded at ₹4.8 lakh crore in March 2024, with a significant portion attributed to wilful defaults. The term wilful defaulter as per RBI refers to borrowers who intentionally evade repayment or misuse borrowed funds. RBI’s guidelines ensure that financial discipline is preserved while protecting the interests of lenders and depositors.

Defining Wilful Defaulter as per RBI

The Reserve Bank of India lays out a precise framework to identify a wilful defaulter. According to RBI guidelines, a borrower falls under this category in the following circumstances:

• Deliberate non-repayment despite adequate financial capacity.
• Diversion of funds for purposes other than those approved by the lender.
• Siphoning of funds where the money is untraceable or not used for the sanctioned project.
• Disposal of secured assets without the knowledge of the lender.

Process of Declaring a Borrower a Wilful Defaulter

RBI requires banks and financial institutions to follow due process before classifying any borrower. The process includes:

1. Identification by lender: The lending institution monitors repayment behaviour.
2. Examination by Committee: A committee of senior officials assesses evidence.
3. Borrower representation: The borrower is given an opportunity to explain.
4. Review Committee: A second committee confirms or overturns the decision.

This ensures fairness and transparency, while discouraging misuse of the label. Borrowers can also keep track of their financial health by regularly checking their CIBIL score.

Consequences of Being Declared a Wilful Defaulter

Once declared, the borrower faces severe consequences, including:

• Denial of further loans from banks or NBFCs.
• Bar on directors of wilful defaulting companies from accessing institutional finance.
• Legal proceedings, including recovery actions under SARFAESI Act or Insolvency Code.
• Disclosure of name to credit bureaus like CIBIL, lowering creditworthiness.

How Wilful Defaulter Differs from Non-Wilful Defaulter

Not every loan default is wilful. RBI distinguishes between genuine inability and deliberate evasion.

This distinction protects genuine borrowers facing hardship, such as those dealing with debt management, from being penalised unfairly.

Impact on the Indian Banking Sector

Wilful defaults damage the credit culture and increase the burden of NPAs on the banking system. According to the RBI, public sector banks account for a majority of such defaults. This results in:

• Rising provisioning costs for banks.
• Lower profitability and capital erosion.
• Reduced availability of funds for genuine borrowers.
• Negative effect on investor and depositor confidence.

Preventive Measures Adopted by RBI

To combat wilful defaults, RBI has directed banks to:

• Maintain strict due diligence during loan appraisal.
• Monitor end-use of funds to detect diversion.
• Report wilful defaulter accounts above ₹25 lakh to credit bureaus.
• Restrict restructuring or fresh loans to such borrowers.

These measures are meant to safeguard the financial ecosystem and encourage responsible borrowing. Borrowers can also benefit from learning about loan servicing and repayment structures.

Borrower’s Rights and Remedies

While the consequences of being tagged a wilful defaulter are harsh, RBI also ensures that borrowers are not unfairly classified. To strike a balance between accountability and fairness, borrowers are granted specific rights under RBI guidelines:

• Right to representation before classification.
• Review process by an independent committee.
• Access to information on grounds of classification.

This ensures no borrower is wrongly categorised as a wilful defaulter as per RBI. Borrowers should also understand concepts like commitment fee when dealing with loan agreements.

Why Personal Loan Borrowers Should Pay Close Attention

While wilful defaults are often associated with large corporate borrowings, individuals taking personal loans are equally governed by RBI’s rules. A borrower with the capacity to repay but who deliberately avoids repayment may still be classified as a wilful defaulter as per RBI. This highlights the importance of maintaining repayment discipline, even for smaller loans.

For individuals looking for reliable options, Airtel Finance Personal Loan provides a transparent and convenient borrowing experience. As we are an NBFC, customers can expect:

• Quick digital approval with minimal paperwork.
• Flexible loan amounts suited for diverse needs.
• Competitive interest rates starting from 12.75% p.a.
• Easy EMI options that support hassle-free repayment.

This makes it easier for borrowers to access funds responsibly without the risk of falling into wilful default scenarios.

Steps to Avoid Becoming a Wilful Defaulter

Borrowers can protect themselves by:

• Using funds only for the sanctioned purpose.
• Maintaining transparent records of fund utilisation.
• Communicating proactively with lenders in case of distress.
• Avoiding any disposal of collateral without consent.

By adhering to these, borrowers can safeguard their creditworthiness and avoid severe consequences.

Wilful Default or Responsible Finance – The Choice is Yours

A wilful defaulter as per RBI is not just any borrower who fails to repay; it is someone who deliberately misuses funds or evades responsibility despite having the means. The repercussions are severe, impacting both personal reputation and future borrowing opportunities. For individuals seeking a reliable option, Airtel Finance Personal Loan offers a simple and transparent solution with competitive rates.

FAQs

1. How does RBI ensure fairness in declaring wilful defaulters?

RBI mandates a two-committee system. Borrowers are first examined by a lender’s committee, allowed representation, and then reviewed by another independent committee. This ensures fair treatment before officially labelling anyone as a wilful defaulter.

2. What are the consequences of being declared a wilful defaulter?

Consequences include denial of new loans, reporting to credit bureaus, possible legal action under recovery laws, and reputational damage. Directors of wilful defaulting companies may also be restricted from raising institutional finance or holding significant positions in listed firms.

3. Is every loan default treated as wilful default?

No. RBI distinguishes between genuine inability to repay due to business losses or financial hardship and deliberate non-repayment. Only intentional defaults with capacity to repay, misuse of funds, or asset disposal are treated as wilful defaults.

4. Can an individual borrower be declared a wilful defaulter?

Yes. Although many cases involve corporate borrowers, individual borrowers who misuse funds, fail to repay despite capability, or wilfully avoid obligations can also be classified as wilful defaulters as per RBI guidelines, affecting their creditworthiness and borrowing opportunities.

5. How can borrowers avoid being labelled as wilful defaulters?

Borrowers should use funds strictly for sanctioned purposes, maintain repayment discipline, keep transparent financial records, and communicate with lenders during financial stress. Avoiding diversion or misuse of funds is critical to prevent being labelled a wilful defaulter as per RBI. Borrowers can also prevent risk by planning ahead for emergency expenses.