The Reserve Bank of India (RBI) on November 28, 2025, released the Reserve Bank of India (Small Finance Banks – Treatment of Wilful Defaulters and Large Defaulters) Directions, 2025 for comments. The aims to establish a transparent, fair, and uniform procedure for identifying and classifying borrowers as wilful defaulters, ensuring adherence to principles of natural justice. It also seeks to strengthen the framework for information sharing on such accounts with Credit Information Companies (CICs), to prevent further institutional financing to errant borrowers.
Under the, Small Finance Banks (SFBs) are required to constitute two-tier committees — an Identification Committee and a Review Committee — to determine wilful default status. Borrowers and guarantors must be given notice and opportunity for representation before classification. Definitions are clarified for terms like wilful default, large defaulter (₹1 crore and above), and associated entities. The directions also require banks to review NPA accounts of ₹25 lakh and above for wilful default within six months and adopt a Board-approved policy detailing roles, thresholds, and publication norms.
Penal measures include restrictions on fresh or additional credit facilities to wilful defaulters and their associated entities, publication of photographs based on Board-approved policy, and initiation of legal or criminal proceedings when warranted. Further, SFBs must insert covenants in loan documents to prevent induction of wilful defaulters into management and report all such cases to CICs. The provisions also emphasize accountability of directors and promoters while safeguarding independent and nominee directors from undue classification.
These Directions shall come into force with immediate effect.
[Notification No. RBI/DOR/2025-26/197 DOR.FIN.REC.No.116/20-16-003/2025-26]
