RBI modifies definition of non-cooperative borrower

MUMBAI: Defaulting borrowers, who resort to legal and other means such as denying access to securities to make it difficult for banks to recover dues, will find it harder to raise fresh funds. Also, it will become tougher for banks to continue lending to such entities. The Reserve Bank of India on Monday issued a new set of norms defining non-cooperative borrowers.

Under this, there would be disincentives for lenders in the form of higher provisions if they give additional loans to such entities. A sharp rise in stressed assets over the last few years had prompted RBI to frame corrective action that lenders can take to stem bad loans. The framework included setting up a joint lenders’ forum for specific accounts even before these slip into the sub-standard category and narrowing sources of funds for such borrowers by classifying them as non-cooperative borrowers if they are found to be “deliberately stonewalling legitimate efforts of lenders to recover their dues”.

RBI has defined a non-cooperative borrower as “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 or collateral securities, obstructing sale of securities”.

Any fresh loan given to those classified as non-cooperative borrowers will attract higher provisions equivalent to that of a sub-standard asset (where the dues are not paid for 90 days) while the account can continue to be classified as a standard account. These provisions are much higher than the 5% prescribed by RBI in its February notification. Loans classified as substandard attract 15% provisions.

Furthermore, banks have to make the higher provision of 15% even for loans given to any other company that has directors or promoters of companies that are classified as non-cooperative directors.

RBI has set a loan cut-off limit of Rs 5 crore and said independent directors and government nominees will be excluded from being classified as non-cooperative borrowers.

As for business enterprises, noncooperative borrowers would include persons in charge of and responsible for the management of the affairs of the enterprise.