Reserve Bank of India (RBI) has made it simpler for banks and financial institutions to classify or declassify a borrower as non-cooperative borrower.
A non-cooperative borrower is one who does not engage constructively with his lender by defaulting in timely repayment of dues while having ability to pay, thwarting lenders’ efforts for recovery of their dues by not providing necessary information sought, denying access to assets financed/collateral securities, obstructing sale of securities, etc. “In effect, a non-cooperative borrower is a defaulter who deliberately stone walls legitimate efforts of the lenders to recover their dues,” it added.
As per the new classification, a non-cooperative borrower is the person who has the aggregate fund-based and non-fund based facilities of Rs 5 crore from the concerned bank or financial institution. Such borrowers should be reported to Central Repository of Information on Large Credits (CRILC).
A non-cooperative borrower in case of a company will include, besides the company, its promoters and directors (excluding independent directors and directors nominated by the government and the lending institutions). In case of business enterprises (other than companies), non-cooperative borrowers would include persons who are in-charge and responsible for the management of the affairs of the business enterprise.
Banks and financial institutions would need to put in place a transparent mechanism for classifying borrowers as non-cooperative. A solitary or isolated instance should not be the basis for such classification, RBI cautioned.
The decision to classify the borrower as non-cooperative borrower should be entrusted to a committee of higher functionaries headed by an executive director and consisting of two other senior officers of the rank of general managers/ deputy general managers as decided by the board of the concerned lender.
If the committee concludes that the borrower is non-cooperative, it shall issue a show cause notice to the concerned borrower (and the promoter/whole-time directors in case of companies) and call for his submission and after considering his submission issue an order recording the borrower to be non-cooperative and the reasons for the same. An opportunity should be given to the borrower for a personal hearing if the committee feels such an opportunity is necessary, RBI said.
The order of the committee should be reviewed by another committee headed by the chairman/CEO and MD and consisting, in addition, of two independent directors of the lender and the order shall become final only after it is confirmed by the said review committee.
The boards of banks/FIs should review the status on a half-yearly basis of non-cooperative borrowers for deciding whether their names can be declassified as evidenced by their return to credit discipline and cooperative dealings, RBI added.
RBI also said that if any particular entity is reported as non-cooperative, any fresh exposure to such a borrower will by implication entail greater risk necessitating higher provisioning.
Banks/FIs will therefore be required to make higher provisioning as applicable to substandard assets in respect of new loans sanctioned to such borrowers as also new loans sanctioned to any other company that has on its board of directors any of the whole time directors/promoters of a non-cooperative borrowing company or any firm in which such a non-cooperative borrower is in charge of management of the affairs. However, for the purpose of asset classification and income recognition, the new loans would be treated as standard assets, it said.
(Edited by Joby Puthuparampil Johnson)