Guarantors may get wilful defaulter tag too, says RBI

ET Bureau | 10 Sep, 2014, 05.03AM IST 

Companies and individuals who have furnished guarantees for wilful defaulters can also be accused as wilful defaulters, as per the new norms issued by the Reserve Bank of India (RBI). 

In a letter issued on Tuesday, RBI has said that if a guarantor refuses to pay lenders despite having sufficient means to pay the dues, banks could declare such a guarantor as a wilful defaulter. 

RBI has also said that bankers need not knock on the doors of guarantors after having exhausted all the remedies against the principal debtor. 

Recently, banks, led by United Bank of India, declared liquor baron Vijay Mallya'sKingfisher Airlinesas a wilful defaulter. 

However, this may not affect Mallya's affiliated companies as RBI has specified that these rules are from prospective effect. 

"When a default is made in making repayment by the principal debtor, the banker will be able to proceed against the guarantor/surety even without exhausting the remedies against the principal debtor," RBI said a notification. 

RBI also pointed out that where guarantees furnished by the companies within the group on behalf of the wilfully defaulting units are not honoured when invoked by banks or financial institution, such group companies should also be classified as wilful defaulters. 

However, it clarified that the new rules will apply only prospectively and not to cases where guarantees were taken prior to this circular. 

"Banks and FIs may ensure that this position is made known to all prospective guarantors at the time of accepting guarantees," it said. 

The norms have come in as the government, Sebi and the RBI are looking at taking measures to arm banks against wilful defaulters. 

Recently G S Sandhu, secretary financial services, said that the government will strengthen the law by allowing banks to change the management of wilful defaulters, while Sebi has barred those with a wilful defaulter tag to raise money from the capital market. RBI governor Raghuram Rajan has also said that 'wilful-defaulter tag is a powerful weapon in the hands of creditors for resolving distressed assets.' 

Data released by employee union, shows as of March 31, 2013-24, PSU banks had declared 406 companies with borrowings  Rs 70,300 cr as wilful defaulters.