Earlier this month, the Finance ministry issued a guideline according to which the non-payment of a loan to one bank will automatically render the company or individual ineligible for loans from any other banks.
In other words, if a company or individual becomes a bad debt for one bank, then it will be treated as bad debt by all the other banks. This rule has been passed by the finance ministry in order to curb the companies from exploiting the system.
It has been seen that some companies acquire a loan from one bank in order to pay another loan.
In the official circular, it said "Since the counter-party for all lenders is the same, the status of the borrower across all lenders shall have to be same," to all PSU banks. "The move is aimed to prevent undue leverage in the hands of the borrower and will also incentivize early resolution of any irregularity with all the lenders".
Earlier in March the finance ministry, issued a draft note to banks asking them to get into a formal lending agreement for loans above Rs. 150 crores to instill economic discipline among borrowers.The agreement is aimed to bring a single borrower of over 150 crores under the bounds of the joint lending agreement with the bank that has the largest share of the loan leading the entire group.