Reserve Bank comes down hard on evasive borrowers

Borrowers unwilling to repay bank loans despite the ability to do so run the risk of being classified as non-cooperative.

Clamping down on errant borrowers, the Reserve Bank of India on Monday said the move will ensure that companies classified as non-cooperative will not get fresh funds.

A non-cooperative borrower is one who deliberately stonewalls legitimate efforts of lenders to recover their dues.

Along with the modified definition, the central bank has also prescribed norms for classifying/declassifying a borrower as non-cooperative borrower and reporting information on such defaulters to the Central Repository of Information on Large Credits (CRILC).

This move will help rein in borrowers who have defaulted on dues despite the ability to pay, thwarted lenders’ efforts at recovery by not providing necessary information, denied access to assets financed/collateral securities, obstructed sale of securities, and so on.

Further, if a promoter/director of a non-cooperative borrower is on the board of another company, then loans to the latter will become dearer.

The central bank’s cut-off limit for classifying borrowers as non-cooperative would be those having aggregate fund-based and non-fund based facilities of ₹50 million (₹5 crore) from the bank/FI (financial institution) concerned.

A non-cooperative borrower in the case of a company will also include its promoters and directors (excluding independent directors and government/lending institution nominees).

In the case of business enterprises other than companies, non-cooperative borrowers would include persons in charge and responsible for the management of the enterprise.

The RBI said banks/FIs will need to make higher provisioning as applicable to substandard assets for loans sanctioned to any other firm that has on its board directors/promoters of a non-cooperative borrowing company. However, for the purpose of asset classification and income recognition, the new loan would be treated as standard assets.

A senior public sector bank official said, “Once a borrower is classified as non-cooperative then there is no question of sanctioning fresh loans to the company. However, if the promoters/directors of a non-cooperative company are on the board of other firms then new loans will come at a higher price.”