RBI has, on July 30, 2024, issued Master Directions on Treatment of Wilful Defaulters and Large Defaulters to banks, NBFCs and All India Financial Institutions specified under these Master Directions. The provisions on large defaulters apply to all entities regulated by the RBI.

These Master Directions set out the regulatory framework and procedures for classification of borrowers as ‘wilful defaulters’ as defined in these Master Directions, and the consequences for such borrowers.

The mechanism for identification and classification of wilful defaulters requires the evidence of wilful default to be examined by an Identification Committee (‘IC’), by issuing a SCN to the wilful defaulter, calling for submissions within a defined timeframe and after considering the submissions and where satisfied, by making a proposal to the Review Committee (‘RC’) for classification as a ‘wilful defaulter’. The RC gives the wilful defaulter an opportunity to make written representations, as also an opportunity for a personal hearing, basis which it has to pass a reasoned order to be communicated to the wilful defaulter.

In addition to this, these Master Direction, inter alia, prescribe detailed provisions on review of wilful defaulters’ accounts, initiation of criminal proceedings, penal measures, reporting of information and preventive measures.