New Delhi: The Reserve Bank of India (RBI) on June 20, Tuesday, clarified that a compromise settlement with wilful defaulters is not new and has been there for more than 15 years. The statement comes amid criticism from several quarters, including bank unions.
“RBI had advised IBA vide letter dated May 10, 2007 that, “(i) banks may enter into compromise settlement with wilful defaulters/ fraudulent borrowers without prejudice to the criminal proceeding underway against such borrowers; (ii) All such cases of compromise settlements should be vetted by Management Committee/ Board of banks,” the central bank said in an FAQ on the ‘Framework for Compromise Settlements and Technical Write-offs’ circular, dated June 8, 2023.
It added, “The penal measures currently applicable to borrowers classified as fraud or wilful defaulter in terms of the Master Directions on Frauds dated July 1, 2016 and the Master Circular on Wilful Defaulters dated July 1, 2015, respectively, remain unchanged and shall continue to be applicable in cases where the banks enter into compromise settlement with such borrowers.”
It further clarified that the cooling period has been introduced as a “general prescription for normal cases of compromise settlements, without prejudice to the penal measures applicable in respect of borrowers classified as fraud or wilful defaulter as per the Master Directions on Frauds dated July 1, 2016 and the Master Circular on Wilful Defaulters dated July 1, 2015, respectively…”
While some reports had said that wilful defaulters can now get a new loan after 12 months of executing a compromise settlement, the RBI said this was not the case.
Bank unions have opposed the RBI’s move to allow lenders to settle loans of wilful defaulters. The unions said that allowing compromise settlement for accounts classified as fraud or wilful defaulters not only rewards unscrupulous borrowers but also sends a distressing message to honest borrowers who strive to meet their financial obligations.