The definition of Non-Cooperative Borrowers is originally defined in RBI circular dated 26.02.2014 on ‘Frame work for Revitalizing Distressed Assets in the Economy-Guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP). The definition of a Non-Cooperative Borrower as contained therein is now modified by RBI which reads as under:
“A non-cooperative borrower is one who does not engage constructively with his lender by defaulting in timely repayment of dues while having ability to pay, thwarting lenders’ efforts for recovery of their dues by not providing necessary information sought, denying access to assets financed / collateral securities, obstructing sale of securities, etc. In effect, a non-cooperative borrower is a defaulter who deliberately stone walls legitimate efforts of the lenders to recover their dues.”
The role of CRILC in respect of non-cooperative borrowers
The information in respect of non-cooperative borrowers will be shared by lenders through Central Repository of Information on Large Credits (CRILC). The role of CRILIC is similar to functions of CIBIL, it gathers credit history of large borrowers having aggregate fund based and non-fund based limits of Rupees Five Crores. Banks and Financial institutions submit a quarterly report on their non-cooperative borrowers to CRILC within 21 days from the close of the relevant quarter. Such information contributed by members will be shared by its membership of lenders as and when they call for it. The CRILC data is collected under the provisions of the RBI Act, non-adherence to reporting instructions attracts penal provisions under the Act.
The norms for classifying a borrower as non-cooperative
Banks/FIs have to follow the strict norms prescribed by RBI, while classifying/declassifying a borrower as non-cooperative borrower. The norm does not apply to small borrowers and only borrowers who are having aggregate fund based and non-fund based limits of Rs.50 million can be classified as non-cooperative. Besides the borrower company, the promoters and directors, persons who are in-charge and responsible for management (excluding independent directors and directors nominated by the Government and the lending institutions) of the company/business enterprises are classified as Non-cooperative borrowers.
The procedure for classifying a borrower as non-cooperative
A solitary or isolated instance of default cannot be the reason for classifying a borrower as a non-cooperative. Therefore, the decision on classification of ‘Non-Cooperative Borrower’ is entrusted to a high level committee comprised with two members of GM/DGM grade and headed by ED of the Bank/FI, which will be constituted by Board of the concerned Bank/FI. Before concluding that the borrower is non-cooperative, the high level committee will issue a ‘Show Cause Notice’ to the concerned borrower, calling for his explanation in the matter. If the committee feels necessary, it may even give an opportunity to the borrower for a personal hearing. The high level committee passes an order recording the borrower as non-cooperative. The order passed by the above committee will be reviewed by another committee headed by Chairman/CEO and MD, in addition to two independent directors of bank/FI in the committee. The order becomes final only after it is confirmed by the review committee. The status of non-cooperative borrowers will be reviewed by board of Banks/FIs on half yearly basis. The removal of names from the list of non-cooperative borrowers is separately reported to CRILC with adequate reasoning/rationale for such removal.
The corrective action plan
The corrective action plan (CAP) envisages that banks take early action at early signs of financial stress, instead of waiting till the loan is classified as NPA. The fresh exposure extended by Banks/FIs to a non-cooperative entity implies greater risk; therefore they are required to make higher provision as applicable for sub-standard assets. This rule of higher provisioning to new loan sanctioned any other company that has on its board of directors any of the whole time directors/promoters of a non-cooperative borrowing company/entity or any firm in which non-cooperative borrower is in charge of the management. However, for the purpose of asset classification and income recognition, the new loans would be treated as standard assets.