The Reserve Bank of India will announce next weeks steps to recognise and resolve financial stresses, including making it more expensive for so-called wilful defaulters to borrow funds, governor Raghuram Rajan said on Wednesday.
The RBI defines a wilful defaulter as a borrower who is able but unwilling to pay, or one that has diverted loan proceeds for uses other than their initially stated intention. Wilful defaulters can also refer to borrowers that overstate profits in order to obtain a loan.
“For wilful defaulters, or the category that we call un-cooperative defaulters, future borrowing will become more expensive,” Rajan said during a speech to the Delhi Economic Conclave organised by India’s Finance Ministry.
The prevalence of so-called “wilful” defaults is symptomatic of what critics say is a loose credit culture that plagues Indian economy, keeping underperforming companies in business, crowding out other borrowers and leaving taxpayers on the hook to recapitalise state banks.