#willdefaulter

There has been a lot of focus on Non Performing Assets or NPA in India. Gone are the days when people used to borrow huge amounts of money in the name of business expansion and escape without repaying them. Today, NPA control and NPA Management are the key activities carried out by banks and financial institutions. There is a close check on the borrowers, regular payers, and defaulters.

As per the guidelines and norms given by the Reserve Bank of India, there has been a significant improvement in the process of recognizing and provisioning weak assets.

When a company or individual fails to pay up, due to whatever reason, things go wrong on the financial institution’s part. Sometimes, the reason behind non-payment is genuine and real. But sometimes, it is just intentional and deliberate.

Despite having the capability of repaying the loan, they do not pay. Such an act is called a willful default. Getting money recovered from such defaulters would be very difficult. Sometimes, it involves a very long battle.

But the question is: how is a company or individual declared a ‘willful defaulter’?  What is its impact on NPA management?

Let’s understand it quickly.

When is a defaulter termed a “willful defaulter”?

As per the guidelines given by the Reserve Bank of India, a defaulter can be declared a “willful defaulter” under these circumstances:

When the default is done by the borrower (individual or company), it doesn’t honor the obligations, even when there is a capacity for repayment. It is a deliberate, intentional non-payment.

The borrower doesn’t utilize the borrowed money for the specific purpose for which it was obtained. He diverts the same for some other purpose.

When the borrower siphons off the funds and doesn’t use the money for the specific purpose for which it was used. Also, there are no assets available to justify the fund usage.

When the borrower sells off the assets bought by the borrowed funds without the knowledge of the financial institution or bank.

When the guarantee or letter of comfort given by the group company is not honored when invoked by the lender, it will also be a case of willful default.