Reserve Bank Governor Raghuram Rajan has said the wilful defaulter tag is a powerful weapon in the hands of banks for resolving bad loans.
His comments come days after the state-run United Bank of India declared the industrialist Vijay Mallya as "wilful defaulter".
"The wilful defaulter tag is a powerful weapon in the hands of creditors for resolving distressed assets. It shuts out access to credit within the Indian financial system for a borrower," Rajan said without naming Mallya.
He was speaking at an event organised by American bank Citi at Boston last night. The comments come from a note circulated by the event organiser.
Mallya, whose Kingfisher Airlines owes money to several banks, had on Thursday said he will challenge UBI's decision to declare him a willful defaulter.
Mallya is the chairman of United Breweries, producer of India's best-selling beer brand Kingfisher. He is also the chairman of United Spirits, now controlled by Diageo Plc.
Besides United Bank of India, Kingfisher owes about Rs 9,140 crore (Rs 91.4 billion) to about a dozen banks. Of them, IDBI Bank is considering declaring Mallya a willful defaulter and is serving out its 15-day notice period on non-payment of dues.
Kingfisher owes Rs 750 crore (Rs 7.5 billion) to IDBI Bank.
Indian banks' gross NPAs touched 4.6 per cent in June 2014, according to the rating agency Icra.
Rajan said even though GNPAs and restructured assets are at 10 per cent of the total assets, there are some signs of this stress easing in the last few quarters as project approvals have been fast-tracked and levels of stalled projects have started to decline.
"The sectors which have been impacted the most could see NPAs easing as growth returns," he was quoted as saying.
