What according to Reserve Bank of India constitutes a wilful default 1 A borrower or ...........

Economic Affairs Types of Banks and Banking

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What, according to Reserve Bank of India, constitutes a wilful default?

1. A borrower (or an entity) does not pay up even when it has the capacity to pay

2. A borrower has not used the loan for the purpose borrowed and diverted the money elsewhere

3. A borrower sells assets given as security against the loan without informing lenders

Select the correct answer using the code given below:

1 and 3 Only

2 and 3 only

1 and 2 Only

1, 2 and 3

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Explanation:

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. There is deliberate intention of not repaying the loan.

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.