

MUMBAI: Deliberate defaulters will find themselves in a corner with Reserve Bank of India governor Raghuram Rajan intensifying his battle against those who use legal loopholes to avoid debt obligations by coming out with norms for 'non-cooperative borrowers' - a term coined by Rajan to identify those who choose not to repay but avoid action by playing the system.

The RBI on Monday simplified the definition of 'non-cooperative borrower' and has said that anyone lending to such businesses will face higher capital requirements than what was originally envisaged. Once a borrower is classified 'non-cooperative', banks will need to make higher provisions for fresh loans. This will also apply to any company which has on its board of directors any of the whole-time directors/promoters of a non-cooperative borrowing company or any firm in which such a non-cooperative borrower is in charge of management of the affairs.

Rajan had first used the term 'non-cooperative borrower' while coming out with rules regarding 'joint lenders forum' (JLF) and 'corrective action plan' aimed at rooting out bad debts from the books of lenders. The JLF aimed at ensuring that lenders talk to each other and prevent borrowers from playing one bank against the other. The corrective action plan aims to ensure that banks take action at early signs of financial stress and that they do not wait until the loan is classified as a bad debt.

"A non-cooperative borrower is one who does not engage constructively with his lender by defaulting in timely repayment of dues while having ability to pay, thwarting lenders' efforts for recovery of their dues by not providing necessary information sought, denying access to assets financed/collateral securities, obstructing sale of securities, etc. In effect, a non-cooperative borrower is a defaulter who deliberately stonewalls legitimate efforts of the lenders to recover their dues," RBI said in its circular to all banks.

The information in respect of non-cooperative borrowers will be shared among all lenders through the 'Central Repository of Information on Large Credits (CRILC)'. The CRILC replicates the task undertaken by credit information bureau but at a corporate level.

Clarifying that a solitary instance should not be enough to classify a borrower as 'non-cooperative', RBI said the decision should be taken by a high level committee. "The decision should be entrusted to a committee of higher functionaries headed by an executive director and consisting of two other senior officers of the rank of general managers/deputy general managers as decided by the board of the concerned bank/FI". The norms do not apply to small borrowers and only a borrower with outstanding of over Rs 5 crore can be tagged as 'non-cooperative'.

