The Reserve Bank’s clarification came after banks had raised queries regarding inclusion of guarantors in the list of wilful defaulters. The Reserve Bank defines a wilful defaulter as a borrower that is able but unwilling to pay, has diverted loan proceeds for other than their initially stated use or has overstated profits to obtain a loan, reported NDTV news.
“It is advised that in terms of Section 128 of the Indian Contract Act, 1872, the liability of the surety [guarantor] is co-extensive with that of the principal debtor unless it is otherwise provided by the contract,” the RBI’s notification said. This means that when a default is made in repayment by the principal debtor, the banker can knock on the doors of the guarantor without exhausting the remedies against the principal debtor, the RBI clarified.
More importantly, the liability of the guarantor becomes immediate when a bank has made a claim on the guarantor on account of the default made by the principal debtor, the RBI added.
The ‘wilful defaulter tag’ is a powerful weapon in the hands of banks for resolving bad loans, RBI Governor Raghuram Rajan recently said. The wilful defaulter tag makes very difficult for the person to access credit, said State Bank of India Chairperson Arundhati Bhattacharya. “In our society it is very difficult nowadays to live without credit. It will be even difficult to get a credit card in your name,” she added.
Moreover, if you have our own business you cannot also remain a director in that company, SBI’s chairperson said. The wilful defaulter norms for guarantors would not apply to cases where guarantees were taken earlier to this RBI’s notification.
Recently, United Bank of India declared Kingfisher Airlines, its promoter Vijay Mallya and three other directors as wilful defaulters citing alleged diversion of funds.
Source: Nagaland Post
Post a Comment