RBI Circular on display and distribution of list of defaulters and suit-filed accounts

Gist of RBI Schemes of Defaulters’ Lists

I. Scheme for disclosure of information regarding borrowers of banks and financial institutions

In its circular DBOD No.BC/CIS/47/20.16.002/94 dated April 23, 1994 addressed to scheduled commercial banks and financial institutions (FIs), Reserve Bank of India has advised the details of the scheme, as under:

As announced by the Hon’ble Finance Minister in his Budget Speech on February 28, 1994, in order to alert the banks and FIs and put them on guard against borrowers who have defaulted in their dues to other lending institutions, the Reserve Bank of India was putting in place arrangements for circulating among banks and FIs names of defaulting borrowers above a threshold limit. He further mentioned that the Reserve Bank would also publish a list of defaulting borrowers in cases where suits have been filed by banks and FIs.

2. Accordingly, the Reserve Bank of India has prepared a scheme (vide Annexure) to collect and disseminate information on the defaulters and suit-filed accounts. The salient features of the scheme, as modified further, are as under:

i. The banks and FIs will be required to submit to the Reserve Bank of India by 15th of April and October every year the details of the borrowal accounts which have been classified as doubtful, loss and suit-filed with outstanding (both under funded and non-funded) aggregating Rs. one crore and above. However, the details on suit-filed accounts are since required to be submitted only annually as on March 31.

ii. The Reserve Bank of India will circulate to the banks and FIs the information on the defaulters (i.e. advances classified as doubtful and loss) for their confidential use. The banks and FIs may make use of the information while considering on merits requests for new or additional credit limits by existing and new constituents.

iii. Based on the information so collected, Reserve Bank of India will be publishing every year in a booklet/CD form the list of suit-filed accounts and also an update of the list on a quarterly basis, containing the lists of ‘added’ and ‘deleted’ accounts during the quarter.

iv. The first statement by banks and FIs containing the information would relate to the position as on March 31, 1994 and should reach the Reserve Bank of India before the end of May 1994 (thereafter by 15th April and 15th October of each year).

3. In case banks have difficulties in providing the information relating to defaulters of their overseas branches on account of secrecy laws of those countries, banks may refer such cases to us for our consideration.

4. This circular is issued under the powers vested with the Reserve Bank of India by the provisions of Chapter III-A of the Reserve Bank of India Act, 1934.

ANNEXURE

Disclosure of information regarding defaulters of banks and financial institutions

I. Objectives

1. To alert banks and financial institutions (FIs) and to put them on guard against borrowers who have defaulted in their dues to lending institutions.

2. To make public the names of the borrowers who have defaulted and against whom suits have been filed by banks/FIs.

II. Collection of information

1. The source will be banks and FIs including State Financial Corporations (SFCs) and State Industrial Development and Finance Corporations, which come under the purview of Chapter III-A of the Reserve Bank of India Act, 1934.

2. The information will be collected in respect of borrowal accounts classified by the institutions under any of the under noted categories irrespective of whether they are outstanding in the Indian books of any bank or in the books of foreign branches of Indian banks:

a. Doubtful Assets

b. Loss Assets and

c. Suit-filed Accounts

3. The basic unit for the purpose of reporting will be the legal entity i.e. a company (irrespective of whether it is in private, public, co-operative or joint sector), a firm, an individual, etc.

4. For the present, reporting will be required in respect of borrowal accounts with outstanding both under funded and non-funded facilities aggregating Rs. one crore and above.

5. The information to be furnished by the reporting institutions will include the name of the institution, the name of its branch, the name of the party and its registered address, the names of the directors/partners /proprietors/members, the outstanding amount, asset classification, date of classification, etc.

6. Information is to submitted be to the Reserve Bank of India by the 15th of April and October showing the position of borrowal accounts as on March 31 and September 30, respectively, of every year. However, information on list of suit filed accounts is since required to be submitted annually as on March 31, followed by its updates on quarterly basis.

7.  Information should be furnished to the Reserve Bank of India in computer compatible media, viz. floppy diskettes in the format specified.

III. Dissemination of information

(1) List of Defaulters:

(a) Banks and FIs coming under the purview of Chapter III-A of the Reserve Bank of India Act, 1934, will be entitled to receive information on defaulters.

(b) Reserve Bank of India will furnish to the Head Offices of all the eligible institutions the database on defaulters in floppy diskettes.

(c) In due course, online access to the database in the computer system at the Reserve Bank of India will also be available to the authorized officials of the eligible institutions.

(d) Banks and FIs will not make available to any outside agency, without the prior approval of the Reserve Bank of India, information on defaulters received by them from the Reserve Bank of India.

(2) List of suit-filed accounts:

(a) Reserve Bank will publish information on suit-filed accounts in a booklet/CD form annually and also place the same on RBI website, along with a disclaimer.

(b) Updates of the list will be placed on RBI website by the Reserve Bank of India on quarterly basis.

(c) These booklets/CDs will be available to all eligible Institutions, associations of industry and trade, press and the general public.

(d) These booklets/CDs will be appropriately priced.

List of suit filed (including decreed) accounts with aggregate outstanding of Rs. 1 crore and above

II.Scheme on collection and dissemination of information on cases of wilful defaults of Rs.25 lakh and above

Pursuant to the directions of the Central Vigilance Commission, Reserve Bank of India introduced above scheme in terms of circular DBOD No.BC.DL(W)12/20.16.002(1)/98-99 dated February 20, 1999 addressed to banks and FIs under which it collects and disseminates information from/to them on cases of wilful defaults of Rs.25 lakh and above on a quarterly basis commencing from the quarter April-June 1999. As subsequently advised to the banks and the notified FIs, as per circular DBOD No.DL(W)BC.110/20.16.003/2001-02 dated May 30, 2002, the term ‘Willful defaulter’ has been redefined in suppression of earlier definition/illustrations, as follows:

A willful default would be deemed to have occurred if any of the following events is noted:

a. The unit has defaulted in meeting its payment/repayment obligations to the lender even when it has the capacity to honour the said obligations.

b. The unit has defaulted in meeting its payment/repayment obligations to the lender and has not utilised the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes.

c. The unit has defaulted in meeting its payment/repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilised for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets.]

List of cases of willful defaults against which Banks andFinancial Institutions have filed suits for recovery of funds (Rs. 25 lakhs and above)

The term ‘Diversion of funds’, referred to at para (b) above, would be construed to include any one of the under noted occurrences:

i. Utilization of short-term working capital funds for long-term purposes not in conformity with the terms of sanction;

ii. Deploying borrowed funds for purposes/activities or creation of assets other than those for which the loan was sanctioned;

iii. Transferring funds to the subsidiaries/Group companies or other corporate by whatever modalities;

iv. Routing of funds through any bank other than the lender bank or members of consortium without prior permission of the lender;

v. Investment in other companies by way of acquiring equities/ debt instruments without approval of lenders;

vi. Shortfall in deployment of funds vis-à-vis the amounts disbursed /drawn and the difference not being accounted for.

The term’ Siphoning of funds’, referred to at  Para  (c) above, should be  construed to occur if any funds borrowed  from banks/FIs are  utilised  for  purposes un-related  to  the  operations of  the  borrower,  to  the detriment of the financial health of the entity or of the lender. The decision as to whether a particular instance amounts to siphoning of funds would have to be a judgment of the lenders based on objective facts and circumstances of the case.

Availability of list of suit-filed accounts on RBI Website

Particulars of wilful defaulters against whom suits have been filed are published annually as on March 31 along with the list of suit-filed accounts of Rs. one crore and above in booklet/CD form. As indicated above, the booklet/CD containing suit-filed accounts will be available to all eligible institutions, associations of industry and trade, press and the general public. Accordingly, this list of suit filed accounts as on March 31, which is a priced publication, is also put on RBI website, along with a disclaimer. Further, the list of suit-filed accounts of willful defaulters is placed on RBI website on quarterly basis.