Wilful defaulter
Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT
Meaning
A wilful defaulter is a borrower who does not repay a bank even though it has the money to do so. The label also covers a borrower who diverts loan money to other uses. It also covers one who sells assets pledged to the lender without telling the lender. Under RBI's Master Direction of 2024, the label applies to dues of Rs 25 lakh and above. The penalties are strict. The borrower gets no additional credit. It is barred from floating new ventures and from sitting on the boards of other companies. These rules exist to stop borrowers from gaming the system, which adds to banks' bad loans.
Example
A company takes a Rs 50 crore loan to build a factory. It moves the money into buying property for its promoters, then stops repaying. The bank can declare it a wilful defaulter. That cuts it off from fresh bank credit.
Don't confuse with
- Ordinary defaulter (NPA borrower): this borrower cannot pay, for example because its business failed. A wilful defaulter can pay but chooses not to, or misuses the funds.
- Fraud account: fraud involves cheating the bank, and the account is reported to RBI's Central Fraud Registry. Wilful default is about refusing to repay or misusing funds, and it can happen without any forged documents.
Related concepts
- Twin balance sheet problem
- Evergreening
- Asset Quality Review
- Loan restructuring
- Bank recapitalisation
- Loan write-off
- One-time settlement