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Are You a Wilful Defaulter?

Rajiv Raj | 21 Jul, 2016  | Follow Author | Add to my Favourites 
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Are You a Wilful Defaulter?


The last few months, whoever is following the news broadcasts, even loosely, may have heard of the term ‘Wilful Defaulter’, ever since, India’s multimillionaire Vijay Mallya has been tagged as one. His company Kingfisher Airlines owes Rs 90 billion to various Indian banks, most of which were public sector. The banks are now having a difficult time trying to recover the outstanding amount from him. In 2015, as per a government’s report, the amount of money owned by wilful defaulters is close to Rs 643 billion.


The bad debt of state owned banks are surmounting, also fuelled by economic slowdown. Most of the times, when a company or individual defaults on their debt, it is due to the fact that they do not have ability to pay back their loan due to unavoidable circumstances. However, there are entities and individuals, defaulting on their loans deliberately, even when they have the ability to repay their loans.


Who are Wilful Defaulters?


As per RBI, any company or individual, who owns money to the lender and has the capacity to pay back their loan, but are wilfully defaulting on their loans is called wilful defaulter. There are four different circumstances defined by RBI, under which a company or an individual can be declared as the ‘wilful defaulter’.

  • When the company or the individual has the capacity to repay their loans, but are not doing so intentionally.
  • When the company or the individual avails the loan for fulfilling a specific purpose, but utilize the fund for other purposes.
  • When the company or the individual avails the loan for a specific purpose, but the funds are siphoned off and was not employed for the said purpose and there is no accessible assets to validate the usage of the fund received through finance.
  • When the company or the individual sells off the asset for which the fund was availed, without the knowledge of the lender.


How does the Tag of Wilful Defaulter affect the Individual or the Company?


Being tagged as a wilful defaulter can attract some legal penalties. However, for the most part, the purpose of tagging someone as a wilful defaulter is to name and shame them. Once, somebody gets the tag, their name, photograph and other details is published in the newspapers and the bulletin boards of the banks. But this is not all. Once someone makes his or her way in this list, it is absolutely impossible for them to avail any credit. Here are some restrictions that a wilful defaulter, whether an individual or a company, will face.


Recently Securities and Exchange Board of India (SEBI), has declared stringent rules for wilful defaulters. These entities will not be allowed to raise money through stock market, either by selling their shares, debentures or non-convertible preference shares. This could be a serious blow to these companies, as the stock market is one of the most important sources of raising funds for expansion.

  • These defaulters will not be able to avail loans from banks and other financial institutions.
  • The bank will refrain from doing any business with any company when a wilful defaulter is a part of their board of directors.
  • The lenders have the right to file legal and criminal suits against such defaulters, in order to recover their dues. This can lead to a jail term or possession of their assets by the banks.


I have always paid my dues on time and will always do so. Should this information matter to me?


We all are part of the banking system, even if we use banks just to deposit our money. When there are huge defaults on the loans borrowed by corporate, entire banking system feels the stress. If your bank is facing a liquidity risk due to large borrowers not repaying their debt willingly, it is perilous to the depositors as well. Even if you have always been diligent on paying your debts on time, the wilful defaulters can negatively affect the profitability of your bank. Apart from that, it is the taxpayer’s money that is being squandered by big defaulters.

 




About Rajiv Raj

Rajiv Raj is a Co-founder and Director at www.creditvidya.com He is a credit expert with over 10 years’ experience in the personal finance and consumer banking industry and another 7 years in the credit bureau sector. He was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL) in 2005 and moved on to help UK based Experian Group to set up Experian Credit Information Company of India Private Limited (ECICI) in 2008. He can be contacted at [email protected]


For more information, please contact [email protected]


Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. The author does not accept any liability whatsoever arising from the use of any of the above contents.




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