ASSOCHAM cautions wilful defaulter tag to guarantor by banks is dangerous

Pushing the envelope on the loan guarantor and declaring him wilful defaulter without banks being asked to first exhaust the remedies against the principal debtors is a knee-jerk reaction of the RBI and is not the right way to tackle the NPA issue, as the move will scare away the guarantors affecting the credit growth, ASSOCHAM said today. “We can understand banks taking recourse to guarantors after the lenders have exhausted the means of loan recovery from the principal debtors. But to straight away rush to the guarantor will set a very bad precedent, giving sleepless nights to the guarantors, rather than the borrowers.

“Thus, the banks are shifting their responsibility of risk analysis, management and due diligence solely to the guarantors. We might end up in situation where the main borrower would even take the guarantor for a ride while he/she is able to get away with the mismanagement of funds,” ASSOCHAM Secretary General Mr D S Rawat said in a statement seeking immediate redressal of the situation.He said there is a basic flaw in the circular by RBI to banks wherein it is stated that the guarantor would “also "be treated as wilful defaulter along with the principal borrower. " But when you allow banks to proceed against the guarantor without even exhausting the remedies against the main debtor, it will be guarantor who will first be declared wilful defaulter because the remedies against the principal debtors have not been exhausted".This would create an awkward situation and will hit the very core of trade and business- which is the trust among within the business community and among the family members/friends who stand as guarantors.