The Reserve Bank of India (RBI) on June 8 put out rules under which banks can enter into compromise settlements with defaulters, borrowers who have not been able to pay.

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While some of the rules look very healthy like the one -- the person who gave the loan should not be the person who structures the compromise and all compromise settlements have to be approved by one level up bankers, higher than the committee which structures the compromise-- what has attracted maximum attention is the one that RBI refers to compromise settlements with wilful defaulters.

This rule, which says that every such case will have to be approved by the board and even the wilful defaulters may be given a loan after five years, has however stirred a lot of opposition from unions and from the media especially the wilful defaulter clauses.

In a recent interview with CNBC-TV18, SS Mundra, Former Deputy Governor at the Reserve Bank of India (RBI), clarified that the new circular on wilful defaulters is not an entirely novel concept.

“Provision of five years is not something new,” he said.

“It is very important to recover the money. If there is a way to recover the money, that should be the priority,” Mundra explained.

The provision of categorising wilful defaulters and defining default categories has been a part of the Indian banking system for some time now. However, with the new circular, the RBI has made significant changes that will have a tangible impact on how such cases are dealt with.

One of the key aspects highlighted by Mundra is the provision of giving loans after a period of five years. He emphasized that this provision has always existed, even before the introduction of the new circular. The RBI's intention behind this provision is to provide an opportunity for borrowers who have previously defaulted to rectify their financial standing and regain access to credit facilities.

Another prominent figure in the banking industry, Rajnish Kumar, Former Chairman at the State Bank of India (SBI), noted that the concept of wilful default and the categorization of defaulters is unique to the Indian banking system. It is a mechanism implemented to ensure that individuals or entities intentionally evading loan repayment obligations face appropriate consequences.

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(Edited by : C H Unnikrishnan)

First Published:Jun 16, 2023 2:01 PM IST