Wilful defaulter tag for loan guarantors to hit SMEs hard
Updated: Sep 10, 2014 12:56:31pm
New Delhi, Sept 10 (KNN) RBI's diktat to banks to name guarantors as wilful defaulters in case the principal debtors fail to pay up, would be a huge blow to the small and medium enterprises since it is this sector which is required the most to arrange for guarantors for bank loans.
In a circular to the banks yesterday, the Reserve Bank said, “When a default is made in making repayment by the principal debtor, the banker will be able to proceed against the guarantor/surety even without exhausting the remedies against the principal debtor,” in a notification.
Further, the apex bank said, “If guarantees, given by group companies on behalf of a firm that defaults wilfully, are not honoured when invoked by banks or financial institutions, such group companies should also be reckoned as wilful defaulters.”
If an individual serving on the board of a firm is declared a wilful defaulter, any company on whose board he serves as a member cannot avail of bank loans. This rule is also applicable in the cases where guarantors are not directors of the borrowing company or are non-group entities or individuals.
RBI has also said that bankers need not knock on the doors of guarantors after having exhausted all the remedies against the principal debtor.
Meanwhile, SMEs have raised concern over the RBIs notification on declaring the guarantors as wilful defaulters, if a borrower defaulted on payment despite having the capacity to repay.
President of Federation of Indian Micro and Small & Medium Enterprises (FISME), D Gandhikumar said, “This move is strongly objectionable. A guarantor is not a wilful defaulter by any means. The diktat will definitely affect the MSME sector.”
Expressing similar sentiments, Past President of FISME, V K Agarwal said it would create a huge problem for MSMEs. “MSMEs have to provide guarantors. As it is, guarantors are difficult to get. If something like this is enforced, we will have no guarantors to offer,” he said.
However, he welcomed the stipulation that even if one defaults, the whole group will be considered wilful defaulters.
“This is certainly a right step. When it comes to MSMEs, they are treated so shabbily and cruelly. They have no access to leniency. The stipulation will ensure than big companies pay their timely instalments,” Agarwal said. (KNN/ES/SD)
In a circular to the banks yesterday, the Reserve Bank said, “When a default is made in making repayment by the principal debtor, the banker will be able to proceed against the guarantor/surety even without exhausting the remedies against the principal debtor,” in a notification.
Further, the apex bank said, “If guarantees, given by group companies on behalf of a firm that defaults wilfully, are not honoured when invoked by banks or financial institutions, such group companies should also be reckoned as wilful defaulters.”
If an individual serving on the board of a firm is declared a wilful defaulter, any company on whose board he serves as a member cannot avail of bank loans. This rule is also applicable in the cases where guarantors are not directors of the borrowing company or are non-group entities or individuals.
RBI has also said that bankers need not knock on the doors of guarantors after having exhausted all the remedies against the principal debtor.
Meanwhile, SMEs have raised concern over the RBIs notification on declaring the guarantors as wilful defaulters, if a borrower defaulted on payment despite having the capacity to repay.
President of Federation of Indian Micro and Small & Medium Enterprises (FISME), D Gandhikumar said, “This move is strongly objectionable. A guarantor is not a wilful defaulter by any means. The diktat will definitely affect the MSME sector.”
Expressing similar sentiments, Past President of FISME, V K Agarwal said it would create a huge problem for MSMEs. “MSMEs have to provide guarantors. As it is, guarantors are difficult to get. If something like this is enforced, we will have no guarantors to offer,” he said.
However, he welcomed the stipulation that even if one defaults, the whole group will be considered wilful defaulters.
“This is certainly a right step. When it comes to MSMEs, they are treated so shabbily and cruelly. They have no access to leniency. The stipulation will ensure than big companies pay their timely instalments,” Agarwal said. (KNN/ES/SD)
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