Wilful Defaulter
RBI DEFINES A WILFUL DEFAULTER AS
- The unit which has defaulted even when it has the capacity to repay.
- The unit which has defaulted and has not utilised the loans for the specific purposes for which finance was availed of but has diverted the funds for other purposes.
- The unit which has defaulted and has siphoned off the funds so that the funds have not been utilised for the specific purpose for which finance was availed and the funds are not available with the unit in the form of other assets.
- The unit which has defaulted and has also sold off the collateral used for availing loans
Fugitive Economic Offender
Definition: A person against whom an arrest warrant has been issued for committing an offence listed in the Act and the value of the offence is at least Rs. 100 crores. Such a person may have either left India to avoid criminal prosecution; or being abroad, refuses to return to India to face criminal prosecution.
List of Offences: Some of the Offences listed in the act are Counterfeiting government stamps or currency, Cheque dishonour, Money laundering, Transactions defrauding creditors, Evasion of taxes, Corruption by Civil Servants etc.
Procedure to Declare Fugitive Economic Offender:
Director or Deputy Director appointed under Prevention of Money Laundering Act (PMLA) Act, 2002Files Application before the Special Court constituted under PMLA Act if the person fails to appear before the special court within six weeks of issuance of notice Declared as Fugitive Economic Offender. (If the person appears before the court within 6 weeks, the proceedings to declare him as FEO get terminated).
Power to confiscate properties: Confiscate properties which: (i) are proceeds of crime, (ii) are benami properties in India or abroad, and (iii) any other property in India or abroad. Upon confiscation, all rights and titles of the property will vest in the central government.
Regulatory Forbearance
The term Regulatory Forbearance means giving certain exemptions from complying with the regulatory requirements. In case of Banking sector, the RBI provides certain leeway to the Banks to comply with its regulations.
It is normally provided to enable the Banks to tide over the tough economic conditions such as Global Financial Crisis (GFC) 2007-08.
For example, post GFC in 2007-08, the RBI enabled the Banks to undertake the debt restructuring of Stressed assets. These assets continued to be categorised as Standard Assets. This in turn reduced the provisioning requirements of the Banks, enabled the Banks to provide enhanced credit to kickstart the Indian Economy.
Interest Coverage Ratio (ICR) & Zombie Firms
The interest coverage ratio is used to measure how well a firm can pay the interest due on outstanding debt. The interest coverage ratio is calculated as ratio of a firm’s profit after tax to its total Interest expenses. Firms with Interest Coverage ratio (ICR) lower than 1 would be unable to meet their interest obligations from their income and hence called as “Zombie Firms”.
SARFAESI Act
The SARFAESI Act essentially empowers banks to directly auction residential or commercial properties that have been pledged with them to recover loans from borrowers. As per the SARFAESI Act, if a borrower defaults on a loan, the Banks can give a notice period of 60 days to the borrower to repay the loans. If the borrower fails to repay within 60 days, the Banks can take the following actions:
- Take possession of the pledged assets and then lease or sell it off to recover the loan amount.
- Take over the management of the business of the borrower.
- Appoint a person to manage the assets.
Difference Between SARFAESI Act and IBC, 2016
- SARFAESI- Applicable only for secured financial creditors; IBC- Applicable for both secured and unsecured financial creditors.
- Unlike IBC, SARFAESI is not applicable to Operational Creditors.
- The minimum threshold for invoking IBC: Individuals (Rs 1000); Companies (Rs 1 crore); Minimum threshold for SARFAESI: Rs 1 lakh.