The Reserve Bank of India (RBI) is leaving no stones unturned to tighten grip on the bad boys among defaulters, who do not honour their repayment commitments to banks even if they do have ability to pay back.
The RBI on Monday modified the definition of a non-cooperative borrower as some who “deliberately stone walls legitimate efforts of the lenders to recover their dues… 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...”.
The only difference between a willful defaulter and a non-cooperative borrower is the tag of a wilful defaulter virtually ostracises the borrower from the financial system as no financial institution will be ready to fund him any more, while the non-cooperative borrower can technically still get funding.
But, if someone manages to do so, it will be next to a miracle. That’s because once a borrower is declared as non-cooperative borrower, any fresh loans to the company will attract higher provisions for banks, which effectively would mean that banks will think twice before lending further.
High provisions impact the profitability of the bank and, naturally, force it to price the loan expensive to the borrower.
In normal scenario, no bank will take that additional risk. In effect, the tag of a non-cooperative borrower significantly reduces the chances of the firm to secure fresh funding.
The RBI, under Raghuram Rajan, has been taking steps to check the rise in bad loans by announcing a roadmap in January 2014 to manage stressed assets through early recognition of trouble in the behaviour of a loan.
The RBI on Monday modified the definition of a non-cooperative borrower as some who “deliberately stone walls legitimate efforts of the lenders to recover their dues… 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...”.
The only difference between a willful defaulter and a non-cooperative borrower is the tag of a wilful defaulter virtually ostracises the borrower from the financial system as no financial institution will be ready to fund him any more, while the non-cooperative borrower can technically still get funding.
But, if someone manages to do so, it will be next to a miracle. That’s because once a borrower is declared as non-cooperative borrower, any fresh loans to the company will attract higher provisions for banks, which effectively would mean that banks will think twice before lending further.
High provisions impact the profitability of the bank and, naturally, force it to price the loan expensive to the borrower.
In normal scenario, no bank will take that additional risk. In effect, the tag of a non-cooperative borrower significantly reduces the chances of the firm to secure fresh funding.
The RBI, under Raghuram Rajan, has been taking steps to check the rise in bad loans by announcing a roadmap in January 2014 to manage stressed assets through early recognition of trouble in the behaviour of a loan.
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