This is the first time that RBI has come up with a settlement system for willful defaulters and loan frauds.

The Reserve Bank of India (RBI) has given a big relief to the borrowers. At the same time, this decision can completely change the methods of settlement of bad loans of banks and financial companies. According to the new rule of RBI, on the one hand, it will not be easy for the banks to declare a borrower as a willful defaulter. At the same time, defaulting borrowers will get a chance to settle. But will it be able to stop big bank frauds like Vijay Mallya and Nirav Modi in the country?

In fact, RBI has made it clear in its new guideline that banks and financial companies can now compromise and settle with willful defaulters and companies involved in fraud. Or technically their loan can be written off. This is the first time that RBI has come up with a settlement system for willful defaulters and loan frauds. Let us now understand this whole thing in depth…

What is the meaning of RBI’s new guideline?

The new system of RBI says that if a person has become a loan defaulter or a company has been involved in bank fraud, then the bank and the financial company can settle the loan by accounting for some less money. This settlement will be done without any legal or criminal action against the borrower. Although the central bank has also made some rules and regulations regarding this settlement, which are mentioned further.

See also: RBI’s new rule will benefit the common man, this is how a new loan will be available after default

At present, in the event of a borrower defaulting or the company committing bank loan fraud, the settlement amount cannot be less than the current net value of the pledged goods. While banks cannot restructure the defaulter’s loan, nor can they give him a new loan.

Settlement will happen after approval from the board

RBI has also fixed the rules for doing such loan settlement. Accordingly, in every case of compromise settlement or technical write-off of the loan, banks will have to take approval from a board of directors. Not only this, one has to be careful in declaring someone as a willful defaulter, as the responsibility of taking a decision on compromise settlement of the loan will now be with the supervisory office instead of the operating office of the bank.

Apart from this, banks will have to show more responsibility on their decision to give loans. Banks will take the process of compromise settlement or technical write-off on the basis of the minimum period of the loan and the decline in the value of any asset kept in lieu thereof. Not only this, the board of directors or committee that approves such settlement of these loans should be higher in rank than the officers who allot the loan.

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New loan will be available only after 12 months

RBI has made another provision in this arrangement. Banks will have to follow the cooling period formula of at least 12 months if a willful defaulter or a fraud company wants to take a new loan after settlement or technical write-off. That is, banks will be able to allot new loans only after 12 months.

Now if this case is linked to Vijay Mallya and Nirav Modi, then after defaulting the bank loan, criminal cases were registered against them, due to which their properties were confiscated and they were not in a position to settle the loan.