"Cooperation is willing collaboration by free individuals in a collective effort that creates more value than it expends." - James Raymond Lucas.

So well said by the famous the U.S. based entrepreneur and author. An act of cooperation and coordination makes life so much simpler. But unfortunately not many put it to practice, resulting in too many complexities.

Take the case when you are in need of money and opt for a loan from a bank. Most often cooperation is extended to the bank and most requisites are fulfilled. But there are some errant borrowers who add a lot of complexity to their long-term financial well-being by avoiding repayment of loans on some or the other pretext, although they have the means to repay. And possibly that’s one of the reason why the Non-Performing Assets of banks in India are on a rise. In fact some public sector banks have written-off their loans and the rise therein in the last three financial years is rather worrisome posing a threat to financial stability of the system.
 

Loans Written off by Public Sector Banks

(Source: ARCIL, PersonalFN Research)  

You see, usually when a loan account fails to pay interest or principal for more than 90 days, it is classified as a NPA. While NPAs do not result in a loss to banks straight away, it adds tension on to the books as they run a risk of losing money if they fail to recover money from borrowers.

But now the Reserve Bank of India (RBI) has decided to crack down heavily on "non-cooperative borrowers". The central bank has set out revised guideline to deal with "non-cooperative borrowers".

So, who is a non-cooperative borrower?

Well, as defined by RBI 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 or collateral securities, obstructing sale of securities". So in other words, in effect a non-cooperative borrower is a defaulter who deliberately stonewalls the efforts of lenders to recover their dues, according to the central bank.

Individuals, promoters and directors of companies, excluding independent directors and directors nominated by the government and the lending institutions come in the ambit of borrowers whom banks can classify as "non-cooperative borrowers".

Is noteworthy that this new category has been created over and above the category of "wilful defaulters"; which makes it clear that, the central bank has been trying to tighten up the screws on borrowers who take banks for a ride and default on servicing loans.

What happens when one is classified as a "non-cooperative borrower"?>

Sourcing fresh loans would become difficult for "non-cooperative borrowers". If a company is declared as non-cooperative borrowers, its directors serving on the board may find it difficult to hold on to directorships of other companies as well.

Procedure that the banks would have to follow...

Banks would have to set up a committee under the chairmanship of an Executive Director (ED) for classifying a client as a "non-cooperative borrower". There would be another committee to run a second check which would be headed by the chairman or the CEO. The final decision would stay with the second committee. Once the bank decides to label someone as a non-cooperative borrower, it would have to report the same to Central Repository of Information on Large Credits. Moreover, banks would have to review status of such accounts once every six months. Also, banks would have to make more provisioning, before they lend further to their clients.

But while addressing the problems faced by banks, RBI has also taken care that, borrowers don’t get unfair treatment.

What purpose will the new category of "non-cooperative borrowers" serve?

The basic reason for a new such categorisation is to discourage people from defaulting on loans despite having ability to pay. Possibly such a vigilant step has been taken after assessing difficulties faced by banks to recover money from borrowers classified as "wilful defaulters". You see, before a bank classifies someone as a wilful defaulter, several legalities have to be followed to reach conclusive evidence that the borrower has wilfully defaulted.

PersonalFN is of the view that, in the backdrop of dire state of asset quality of Indian banks, new category of "non-cooperative borrowers" would empower banks to act tough against errant, disobliging, non-cooperating and defaulting borrowers.

PersonalFN believes while borrowing is okay, it is imperative to know your means whereby one needs to ascertain his capacity to service the loan taken in order to prevent from getting into a debt trap and to keep financial health in pink in the long run.

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mcpbidar@gmail.com Dec 24, 2014 customers are always cooperate banks but banks not cooperate with customers.While giving loan banks giving all asurance to give low intrest than bank loan etc . i got loan this type from icici bank but from7.75% start on first year at the end i have paid 16.50% inspite of my several mail bank not responded and at last also demanding rs.2500.00 extra on full payment of loan to return the doccuments from jalgaon branch  m.c.patil icici bank home loan account holder
zqonwhxiy@hotmail.com Jan 07, 2015 Articles like these put the consumer in the driver seat-very important.

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