This means that when a default is made in repayment by the principal debtor, the banker can knock on the doors of the guarantor without exhausting the remedies against the principal debtor, the RBI clarified.

More importantly, the liability of the guarantor becomes immediate when a bank has made a claim on the guarantor on account of the default made by the principal debtor, the RBI added.

The 'wilful defaulter tag' is a powerful weapon in the hands of banks for resolving bad loans, RBI Governor Raghuram Rajan recently said. The wilful defaulter tag makes very difficult for the person to access credit, said State Bank of India Chairperson Arundhati Bhattacharya. "In our society it is very difficult nowadays to live without credit. It will be even difficult to get a credit card in your name," she added.

“If they are classified as a wilful defaulter as they had given a guarantee, they can approach the court seeking relief. They can argue that when they had given the guarantee, they did not know the borrower would default. Just because the borrower is mala fide does not mean the guarantor is, too,” says Ameet Hariani, managing partner of law firm Hariani and Co. Thus now every guarantor can fight back to being tagged as a willful defaulter.