Wilful Defaulters-Restructuring of Their Loan Accounts

The RBI has recently proposed that loans extended to wilful defaulters can be restructured in case they come foreward to rectify the deafult.Banks have to review the reasons for the classification of the borrowers as wilful defaulters especially in old cases where the manner of classification of borrowers as wilful defaulters was not transparent.RBI has in its recent circular on ''Prudential Guidelines on Restructuring of Advances by Banks''clarified that accounts of borrowers indulging in frauds and malfeasance will continue to remain ineligible for resructuring.
A wiful borrower is one who has failed to fulfil his repayment obligations although he has capacity to honour the said obligation.As per CIBIL data as on 31st March 2008there were 2681 loan accounts of Rs 25 lakhs and above of wilful defaulters involving an ammount of Rs10433 crores.As per RBI guidelines restructuring of such accounts can be done if there is certainty of repayment after restructuring and the concerned parties are interested in rectfing the deault apart from the activity or project of the borrowers being found viable..Banks have to place the policy in this regard before their Boards and restrucuring can be done with the approval of Boards.Companies which are guilty of siphoning and diversion of funds must be debarred from institutional funds for 5 years.
If properly and carefully implemented the scheme of restrucuring of accounts of wilful borrowers may afford an excellent opportunity to wilful borrowers to rectify their default and turn over a new leaf.It will also help them to erase their bad image as wilful defaulters.They can after restructuring keep their accounts regular and close the accounts through regular repayment of instalments .On closure of the restructured loans they can even get new loans from banks.Thus the scheme will be a boon to wilful defaulters.The scheme will also help banks in getting rid of many NPA accounts.It is possible that many of restructured loan accounts may continue to be regular and they will thus be performing assets.Banks will be greatly benefited from this as they can recognise interst income in respect of such restrucured loan accounts after one year from the date of restrucuring in case the said accounts coninue to be regular .The scheme will surely help in promoting good repayment culture.