The RBI's decision to allow compromise settlement for wilful defaulters has several implications for both the wilful defaulters and the banking sector: 1. Opportunity for resolution: Wilful defaulters now have the opportunity to settle their dues through a compromise settlement, which could provide them with relief from legal action and help them avoid bankruptcy. 2. Reduction in NPAs: This decision may lead to a reduction in non-performing assets (NPAs) for banks, as they can recover at least a portion of the outstanding loans through the compromise settlement. 3. Improved credit discipline: Allowing compromise settlements may act as a deterrent for potential wilful defaulters, as it sends a message that defaulters may not escape consequences entirely. It could encourage better credit discipline among borrowers. 4. Strengthening of banking sector: By facilitating the resolution process, the RBI aims to strengthen the banking sector by reducing the burden of NPAs. This could improve the overall stability and functioning of banks. 5. Opposition from bank unions: However, the decision has faced criticism from bank unions who are concerned that it may incentivize wilful defaulters and create a moral hazard, compromising the financial health of banks in the long run. In summary, the RBI's decision to allow compromise settlement for wilful defaulters has potential benefits for both defaulters and the banking sector, but it also raises concerns regarding the impact on credit discipline and the moral hazard it may create.