Here is What the RBI's New Rules for Loan Defaulters Will Mean for Banks

The Reserve Bank of India has laid down a new set of rules and regulations on each and every aspect of banks and the services they provide. Apart from the general functioning of the banks, new rules have been laid down to help banks recover bad loans. The loans which the borrower fails to pay over a period of time can be termed as a bad loan and the borrower becomes a loan defaulter.

The RBI has provided banks with a concrete and strict 180-day timeline for the banks to come up with a plan in the case of a loan default or to refer an account for bankruptcy.

In 2016, banks in India dealt with a stipulated amount of an alarming $150 billion due to various defaults of loan. This eventually resulted in slow economic growth.

What the New Rules Mean for Banks?

The RBI has instructed, through the new rules for the banks, to implement a new plan in 180 days for all the accounts which are in default. Collections will need to be made along with restructuring.

The rules have mentioned that if the resolution plan with regard to large accounts is not implemented according to the timelines mentioned, the lenders will be required to file an insolvency application, singly or jointly, within 15 days from the expiry of the specified date under the IBC, 2016.

The new regulations have also binded the rules with regard to the resolution plans where any kind of process, which will involve restructuring or any kind of change in ownership for large accounts with loans of Rs.1 billion or more, will be needing a strict independent credit evaluation by various credit rating agencies which are authorised by the RBI.

Any kind of loans of Rs.5 billion or more will be assigned two independent evaluators and in case of failure to comply to the rules, banks will be facing penalty charges for the same. 

What RBI’s Rules Mean for Defaulters?

The banks will have designated recovery agents who will be following up on the recovery of the loan amount. These agents will be authorised by the Indian Institute of Banking and Finance and will be contacting family, in the case the borrower is not contactable.

It is of utmost importance that you, if you have defaulted a loan, make the necessary arrangements with the help of your bank to pay the loan amount so as to not affect bank transactions in the future.