Willful Defaulters

A Willful defaulter is an entity or a person that has failed to repay the loan they borrowed from government owned lenders (banks),despite having the ability to pay. Under Indian law, they are defined as firms or individuals who own large businesses and deliberately avoid repayments.

The regulation against willful defaulters has gained attention due to a strike in the number of Non Performing Assets in the banks/financial institutions (especially public sector banks).


According to the RBI, a wilful default is deemed to have occurred in any of the following four circumstances:

  1. When there is a default in repayment obligations by the unit (company/individual) to the lender even when it has the capacity to honour the said obligations.
  2. The funds are not utilised for the specific purpose for which finance was availed but have been diverted for other purposes.
  3. When the funds have been siphoned off and not been utilised for the purpose for which it was availed. Further, no assets are available which justify the usage of funds.
  4. When the asset bought by the lenders’ funds have been sold off without the knowledge of the bank/lender.

Further, in cases where a letter of comfort or guarantees furnished by group companies of wilfully defaulting units are not honoured when they are invoked by the lender, then such group companies are also considered to be wilful defaulters.


The government can take the following actions against willful defaulters –

  • Wilful defaulters are not sanctioned any additional facilities by banks or financial institutions, and they are not permitted to float any new business for a period of 5 years.
  • The lenders may initiate criminal proceedings against wilful defaulters, wherever necessary. The banks and financial institutions may adopt a pro-active approach for a change of management of the wilfully defaulting borrower unit.
  • They are debarred from accessing capital markets to raise funds or participate in insolvency resolution process.
  • Bank chiefs can also authorise look-out notices for defaulters to prevent them from leaving the country.


The Supreme Court recently held that the RBI is duty-bound to disclose the list of wilful defaulters when such information is sought under Right to Information Act, 2005.

Further, the Government has advised PSBs to decide on publishing photographs of wilful defaulters, in terms of RBI’s instructions and as per their Board-approved policy.

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