Understanding Willful Default

Willful default means that a party does not make loan repayment out of its will. There are four conditions when it is assumed that the default is a willful default:

  • When a borrower defaults despite his capacity to repay
  • When a borrower defaults but diverts finance away from the purpose it was availed for.
  • The funds are available in the other form of assets but party does not make payment.
  • Party disposed off the removable assets / immovable property which was used for thr purpose of secured loan, without knowledge of the bank.

The SS Kohli Committee had recommended some penal measures against the willful defaults. Some of them are as follows:

  • The willful defaulters are not able to access the markets, so a copy of the list of the willful defaulters are shared by the RBI to SEBI.
  • No facility is provided by a Bank / FI to a willful defaulter till 5 years from the date of publishing its name in the list of willful defaulters.
  • Expeditious legal action is initiated against for the recovery of the amount.
  • The banks and FIs are required to compile the list of the suit filed willful defaulters and submit the same to the Credit Information Bureau of India Ltd. every quarter, provided the outstanding amount is 25 Lakh or more.


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