Wilful defaulter tag to guarantor by banks will hit trust core of biz, industry bodies say
Updated: Sep 13, 2014 02:30:01pm
New Delhi, Sept 13 (KNN) Industry bodies have raised concern over Reserve Bank’s notification this week to banks to name guarantors as wilful defaulters in case the principal debtors fail to pay up.
In a circular to the banks, 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.”
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.”
Industry body Assocham has said, “Pushing the envelope on the loan guarantor and declaring him wilful defaulter without banks being asked to first exhaust the remedies against the principal debtors is a knee-jerk reaction of the RBI and is not the right way to tackle the NPA issue, as the move will scare away the guarantors affecting the credit growth.”
“We can understand banks taking recourse to guarantors after the lenders have exhausted the means of loan recovery from the principal debtors. But to straight away rush to the guarantor will set a very bad precedent, giving sleepless nights to the guarantors, rather than the borrowers.
“Thus, the banks are shifting their responsibility of risk analysis, management and due diligence solely to the guarantors. We might end up in situation where the main borrower would even take the guarantor for a ride while he/she is able to get away with the mismanagement of funds,” ASSOCHAM Secretary General D S Rawat said in a statement seeking immediate redressal of the situation.
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. (KNN/SD)
In a circular to the banks, 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.”
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.”
Industry body Assocham has said, “Pushing the envelope on the loan guarantor and declaring him wilful defaulter without banks being asked to first exhaust the remedies against the principal debtors is a knee-jerk reaction of the RBI and is not the right way to tackle the NPA issue, as the move will scare away the guarantors affecting the credit growth.”
“We can understand banks taking recourse to guarantors after the lenders have exhausted the means of loan recovery from the principal debtors. But to straight away rush to the guarantor will set a very bad precedent, giving sleepless nights to the guarantors, rather than the borrowers.
“Thus, the banks are shifting their responsibility of risk analysis, management and due diligence solely to the guarantors. We might end up in situation where the main borrower would even take the guarantor for a ride while he/she is able to get away with the mismanagement of funds,” ASSOCHAM Secretary General D S Rawat said in a statement seeking immediate redressal of the situation.
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. (KNN/SD)
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