Compromise settlements also need board nod: RBI

The RBI has put the onus of settling cases of wilful loan default on the board of directors of the lending banks. The policies also need to ensure that individuals or committees responsible for approving such settlements hold higher authority than those sanctioning the credit or investment exposure.

“Regulated entities may undertake compromise settlements or technical write-offs in respect of accounts categorised as wilful defaulters or fraud without prejudice to the criminal proceeding under way against such debtors…Proposals for compromise settlements in respect of debtors classified as fraud or wilful defaulter shall require board approval in all cases,” according to the RBI circular.

This is the first time that RBI has come out with compromise norms for settling with wilful defaulters. Earlier RBI norms had focused on ensuring that the settlement amount is not less than the net present value of the security. Banks were also barred from restructuring loans of wilful defaulters. This rule continues and banks cannot give the wilful defaulters fresh credit.