RBI tightens wilful defaulter norms to bring promoter directors under its ambit

Earlier, SEBI also beefed up norms for defaulters trying to raise fresh money.

The Reserve Bank of India (RBI) has clarified that only nominee and independent directors who are not whole-time board members of a firm deemed as a ‘wilful defaulter’ would be excluded from being labelled as a party to the default. It has, however, said that promoters who are not whole-time directors would still be covered under the classification of a wilful defaulter.

“Banks or financial institutions while disseminating information to credit information companies on borrowers with outstanding amount aggregating Rs 1 crore and above classified as doubtful or loss assets, should exclude the names of non-whole time directors (nominee and independent directors), other than the promoter directors from the list,” RBI has said.

The new notification tightens the noose for promoters who would also be included in the list even though they are not whole-time directors.

In a notification issued in January altering the rules for wilful defaulters the central bank had stated that banks and other lenders should not include the names of non-whole time directors in the list until and unless it can be conclusively established that they were aware of the default.

While the clarification reiterates its leeway to a nominee director representing, say, a private equity investor on the board of the company, it brings under its ambit all promoter directors.

The central bank has been coming down hard on classification of defaulters given rising NPAs in the banking sector. SEBI also launched a crusade against wilful directors stating that companies in which a promoter, director or subsidiary is declared a wilful defaulter not be allowed to issue equity, debt securities, or non-convertible redeemable preference shares.

In a concerted effort, the Indian law makers are trying to curb the problem of bad loans. The finance ministry last week asked public sector banks (PSBs) to submit details of wilful defaulters by the end of this month. Finance Minister Arun Jaitley is expected to meet heads of PSBs on Tuesday to discuss the issue of NPAs. The gross NPAs of PSBs accounted for Rs 2,60,531 crore as on December 2014 while the top-30 defaulters had bad loans of Rs 95,122 crore, more than one-third of the gross non-performing assets of PSBs.