Reserve Bank of India (Commercial Banks, Treatment of Wilful Defaulters and Large Defaulters) Directions, 2025

What it does

The Directions, RBI/DOR/2025-26/166, were issued on 28 November 2025 under sections 21 and 35A of the Banking Regulation Act, 1949 and section 11 of the Credit Information Companies (Regulation) Act, 2005. They came into force with immediate effect. Paragraph 22 repeals the earlier directions, instructions and guidelines on the subject as they applied to commercial banks, and saves any action taken under them.

They set out when a default is a wilful default, how a bank classifies a borrower as a wilful defaulter, what follows from the label and how a name leaves the list. They also deal with large defaulters, who are borrowers with a large outstanding and are subject to reporting. The site's note puts the thresholds as INR 25 lakh for wilful default and INR 1 crore for a large defaulter.

Who it binds

Commercial banks other than small finance banks, local area banks, payments banks and regional rural banks. Two parts reach further. The bar on further financial accommodation to wilful defaulters, and the provisions on large defaulters, apply to every entity the Reserve Bank regulates, whether or not it falls within the definition of lender in the Directions. The borrower, the guarantor and, where the borrower is a company, its promoters and directors are affected by the classification, subject to the paragraph on non-whole-time directors.

What has changed, and when

The Directions consolidate an earlier regime issued as a Master Direction, and the site's note on the SARFAESI clock records that the regime had been issued as a Master Direction on 30 July 2024. The substance described in the site's note on wilful defaulters is that in the 2025 text.

Under paragraph 3(1)(xviii), a wilful default is deemed when a borrower defaults on payment and one or more of five features is noticed: capacity to pay, diversion of funds, siphoning of funds, disposal of secured assets without the lender's approval, or failure to bring in equity the borrower or promoter had committed. Paragraph 5(2) adds that the default must be intentional, deliberate and calculated, and paragraph 5(1) that the finding rests on the track record and not on isolated transactions.

What turns on it in practice

The process is the point. Paragraph 6 requires the bank to examine the wilful default question in every non-performing account with an outstanding of INR 25 lakh or more, and if wilful default is observed in the preliminary screening, to complete the process within six months of the account becoming a non-performing asset. The identification committee, chaired by a whole-time director other than the managing director, issues a show cause notice with 21 days to reply and proposes classification with written reasons. The borrower has 15 days to make a written representation to the review committee, chaired by the managing director and chief executive officer with two independent or non-executive directors, which offers a personal hearing and passes a reasoned order. Paragraph 5(10) calls the process in-house and denies the person a right to be represented by a lawyer, so the written reply has to carry the case.

The consequences are heavy. Under paragraph 7(3) the person, and entities associated with it, cannot obtain additional credit from the bank, the bar lasts one year after removal from the list, there is no credit to float a new venture for five years after removal, and restructuring is allowed only as the Resolution of Stressed Assets Directions, 2025 permit. Banks report the list to credit information companies monthly, and removal from the list does not end criminal proceedings.

A name leaves the list when the outstanding falls below INR 25 lakh, or on liquidation or a resolution that changes management. On a compromise settlement, paragraph 13 removes the name only when the borrower has fully paid the compromise amount, so part payment keeps the name on even if the outstanding falls below the threshold. A transfer of a defaulted loan is not a recovery for the threshold, and a bank must examine wilful default before it transfers a loan of INR 25 lakh or more.

For banking, SARFAESI and Debts Recovery Tribunal work, this is the instrument that decides whether a borrower facing enforcement also faces a label that shuts it out of credit, and the timing of the show cause notice is often the earliest sign of it.