Reserve Bank of India (Urban Co-operative Banks – Treatment of Wilful Defaulters and Large Defaulters) Directions, 2025

RBI/DOR/2025-26/288 DOR.FIN.REC.No.207/20-16-003/2025-26 November 28, 2025

Reserve Bank of India (Urban Co-operative Banks – Treatment of Wilful Defaulters and Large Defaulters) Directions, 2025

Table of Contents Chapter I - Preliminary Chapter II - Function of Board Chapter III - Treatment of Wilful Defaulters Chapter IV - Reporting of Wilful Defaulters and Large Defaulters Chapter V - Preventive Measures and Role of Auditors Chapter VI - Repeal and Other Provisions Annex I - Format for submission of List of Large Defaulters Annex II - Format for submission of data on cases of wilful default

Introduction

The objective of these Directions is to provide for a non-discriminatory and transparent procedure, having regard to the principles of natural justice, for classifying a borrower as a wilful defaulter by UCBs. The directions also aim to put in place a system to disseminate credit information about wilful defaulters for cautioning lenders to ensure that further institutional finance is not made available to them.

Accordingly, in exercise of the powers conferred by the Sections 21 and 35A read with Section 56 of the Banking Regulation Act, 1949; and Section 11 of the Credit Information Companies (Regulation) Act, 2005, the Reserve Bank, being satisfied that it is necessary and expedient in public interest so to do, hereby, issues these Directions hereinafter specified.

Chapter I - Preliminary

1. Short title and commencement

(1) These directions shall be called the Reserve Bank of India (Urban Co-operative Banks – Treatment of Wilful Defaulters and Large Defaulters) Directions, 2025.

(2) These directions shall come into force with immediate effect.

2. Applicability

(1) These Directions shall be applicable to Urban Co-operative Banks (hereinafter collectively referred to as 'UCBs' and individually as a 'UCB').

For the purpose of these Directions , ‘Urban Co-operative Banks’ mean Primary Co-operative Banks as defined under section 5(ccv) read with Section 56 of Banking Regulation Act, 1949.

Provided (i) The provisions regarding wilful defaulters contained in these Directions shall be applicable to a Scheduled UCB, as well as a non - Scheduled UCB falling under Tier 3 and 4 in terms of the specifications contained in the Reserve Bank of India (Urban Co-operative Banks – Licensing, Scheduling and Regulatory Classification) Guidelines, 2025 .

(ii) The restrictions on further financial accommodation to wilful defaulters and provisions regarding large defaulters contained in these Directions, shall apply to all entities regulated by the Reserve Bank, including Tier 1 and 2 UCBs, irrespective of whether they fall within the definition of ‘lender’ as provided in these Directions or not.

3. Definitions

(1) In these Directions, the following definitions shall apply, unless the context otherwise requires:

(i) “borrower” shall mean one who has availed credit facility from a UCB;

(ii) “credit facility” shall mean any fund based or non-fund-based facility, including off- balance sheet items like derivatives, guarantees and letters of credit, which a UCB has extended to the borrower.

(iii) “credit information company” (CIC) shall mean a company that has been granted a certificate of registration under Section 5 of the Credit Information Companies (Regulation) Act, 2005.

(iv) “default” shall have the same meaning assigned to it in the Reserve Bank of India (Urban Co-operative Banks – Resolution of Stressed Assets) Directions, 2025

(v) “director” shall mean the director of a company which was classified as a large defaulter / wilful defaulter and who was associated with the company at the time when the acts of omission or commission by the company / its directors led to the default.

(vi) “director identification number (DIN)” shall have the meaning assigned to it under the Companies Act, 2013.

(vii) “diversion of funds” shall mean and includes the under- noted occurrences: utilisation of short-term working capital funds for long-term purposes not in conformity with the terms of sanction of credit facility; deploying funds availed using credit facility for the creation of assets other than those for which the credit was sanctioned; transferring funds availed using credit facility to the subsidiaries / group companies or other entities, by whatever modality, without approval of the UCB / all the lenders in the consortium; routing of funds through any lender other than the UCB or members of consortium without prior written permission of the UCB or all the lenders of consortium; investing funds availed using credit facility in other companies / entities by way of acquiring equities/debt instruments without the approval of the UCB or all the lenders of consortium; and shortfall in the deployment of funds vis-à-vis the amounts disbursed / drawn under the credit facility and the difference not being accounted for.

(viii) “guarantor” shall mean a person / entity who has guaranteed the credit facility.

(ix) "identification committee" shall mean the committee constituted by a UCB for identifying a wilful defaulter and shall comprise of an officer not more than one rank below the MD/ CEO as chairperson and two senior officials, not more than two ranks below the chairperson of the committee, as members.

(x) "independent director" shall have the meaning assigned to it under the Companies Act, 2013.

(xi) "large defaulter" shall mean a defaulter with an outstanding amount of ₹1 crore and above, and - where suit has been filed; or whose account has been classified as doubtful or loss (in accordance with the instructions issued by the Reserve Bank from time to time).

(xii) "lender" shall mean any of the following entities which has granted a credit facility to the borrower: a commercial bank as defined under sub-sections (c), (da), and (nc) of section 5 of the Banking Regulation Act, 1949, including a Small Finance Bank, a Regional Rural Bank, and a Local Area Bank, but excluding a Payments Bank; a Scheduled Primary (Urban) Co-operative Bank; a non - Scheduled Primary (Urban) Co-operative Bank falling under Tier 3 and 4 in terms of the specifications contained in the Reserve Bank of India (Urban Co-operative Banks – Licensing, Scheduling and Regulatory Classification) Guidelines, 2025 ; an All India Financial Institution, viz., Export-Import Bank of India (EXIM Bank), National Bank for Agriculture and Rural Development (NABARD), National Housing Bank (NHB) Small Industries Development Bank of India (SIDBI), or National Bank for Financing Infrastructure and Development (NaBFID); a Non-Banking Financial Company (NBFC) falling under NBFC-Middle Layer (NBFC-ML) and above layers in terms of the specifications contained in the Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Guidelines, 2025 .

(xiii) "nominee director" shall mean a director nominated by a lender, a regulatory authority, or the Central or a State Government.

(xiv) "professional director" shall mean a director of a Primary (Urban) Co-operative Bank as referred to in Reserve Bank of India (Urban Co-operative Banks – Governance) Directions, 2025 .

(xv) "promoter" shall mean a person who has been named as such in a prospectus or is identified by the company in the annual return, and has control over the affairs of the company, directly or indirectly, whether as a shareholder, director or otherwise; and / or in accordance with whose advice, directions or instructions, the Board of Directors of the company is accustomed to act.

(xvi) "review committee" shall mean the committee constituted by a UCB for the purpose of reviewing the proposal of the Identification Committee and shall comprise of the MD/ CEO as the chairperson, and two professional directors as members.

Explanation: The Review Committee shall not be comprised of members who are part of the Identification Committee.