Housing finance companies regulator, National Housing Bank, has asked mortgage firms to share information on default of Rs 25 lakh and above by wilful defaulters so that further credit to such borrowers is choked.
"This is pursuant to the advice of RBI and recommendation of the Puri Committee report, which states that HFCs may also report data on wilful defaulters to all Credit Information Companies (CICs) because the exclusion of such entities from the guidelines of wilful defaulters may lead to arbitrage by the borrowers," NHB said.
Accordingly, NHB framed guidelines to put in place a mechanism of sharing information on wilful defaults of Rs 25 lakh and above so as to ensure further funds are not made available to them.
As per the norms, HFCs can take penal action against wilful defaulters. "Wherever possible, HFCs should adopt a proactive approach for a change of management of the wilfully defaulting borrower unit," it said.
Under the set-up, no additional facilities will be granted by any HFC to the listed wilful defaulters.
"Such companies (including entrepreneurs or promoters) where HFCs have identified siphoning off funds, misrepresentation, falsification of accounts and fraudulent transactions should be debarred from finance... For floating new ventures for 5 years from the date of removal of their names from the list as published or disseminated by RBI," it said.
According to the guidelines, HFCs can initiate a legal proceeding, wherever warranted, against borrowers or guarantors, and foreclosure for recovery of dues should be initiated expeditiously.
"The lenders may initiate criminal proceedings against wilful defaulters, wherever necessary," it clearly said.
NHB has come out with the guidelines in the wake of the recommendations of the Puri Committee and worries emanating out of the exclusion of HFCs from the preview of rules meant for wilful defaulters.
(REOPENS DCM 82)
The guidelines said the identification of the wilful
default should be made keeping in view the track record of borrowers and should not be decided on the basis of isolated transactions/incidents.
The default to be categorised as wilful must be intentional, deliberate and calculated. In cases of project financing, HFCs must ensure the end-use of funds by obtaining certification from chartered accountants.
In cases of short-term corporate/clean loans, such an approach ought to be supplemented with 'due diligence' on the part of lenders themselves, and to the extent possible, such loans should be limited to only those borrowers whose integrity and reliability are above board.
"Housing finance companies, therefore, should not depend entirely on certificates issued by chartered accountants, but strengthen their internal controls and the credit risk management system to enhance the quality of their loan portfolio," the guidelines said.
While dealing with a wilful default of a single borrowing company in a group, HFCs "should consider the track record of the individual firm, with reference to its repayment performance".
