Wilful Defaulter Classification Checklist
WILFUL DEFAULTER CLASSIFICATION CHECKLIST
Bank: {{client_name}} · Branch: {{branch_name}} · Period: {{period_end}}
Purpose: to test whether a non-performing borrower account has been correctly evaluated against the RBI Master Direction on Wilful Defaulters (and Large Defaulters) criteria before classification, ensuring the bank's identification and review-committee process has been followed rather than the classification being applied on an ad-hoc basis. Wilful-defaulter classification carries serious consequences for the borrower (credit-access bar, name publication) and must therefore be procedurally rigorous, not merely a default-driven label.
A. Substantive Wilful-Default Tests
- Unit has defaulted in meeting payment/repayment obligations AND has the capacity to honour the obligations (default despite capacity, not default due to genuine inability) — both limbs tested, not just non-payment alone.
- Diversion of funds test: borrowed funds not used for the purpose for which finance was availed, but diverted for other purposes (short-term diversion to working capital/other business, or long-term diversion to unrelated investments).
- Siphoning of funds test: funds utilised for purposes unrelated to the borrower's operations, to the detriment of the entity financially, evidenced by a mismatch not explained by the borrower's cited economic/business losses.
- Disposal of security test: the borrower has disposed of, or removed, the movable/immovable fixed assets or other assets given for financing the working capital, without the bank's knowledge.
- Misrepresentation test: false/misleading statements made at the time of availing credit facilities that would have altered the bank's credit decision had the true position been known.
B. Procedural Requirements Before Classification
- Identification Committee (comprising senior bank officials) has examined the facts and recorded the evidence for each test above, rather than a unilateral branch-level determination.
- Show-cause notice issued to the borrower/promoter/whole-time-director, allowing a reasonable opportunity (RBI guidance references around 21 days) to submit representations before a final decision.
- Review Committee (headed by a person senior to the Identification Committee's members) has confirmed the classification order, considering the borrower's representations, before it takes effect.
- Order recording the reasons for classification is communicated to the borrower along with the review committee's order, per the Master Direction's natural-justice requirement.
C. Post-Classification Reporting
- Classified account reported to credit information companies (CICs) and, where applicable, RBI's central repository, within the prescribed timeline.
- Wilful-defaulter status reassessed / withdrawn where a subsequent event (e.g. full settlement, court order) changes the factual position, rather than the classification persisting indefinitely without review.
Overall conclusion on the classification process tested: ____________________________________________
Prepared by: ____________________ Reviewed by: ____________________
Date: 30 July 2026
