MUMBAI, June 13 (Reuters) - Two of India's largest bank employee unions on Tuesday urged the central bank to review and withdraw its recent decision to allow compromise settlements for wilful defaulters saying that such a move would hurt the integrity of the banking system.

Last week, the Reserve Bank of India (RBI) released a framework for lenders governing technical write-offs and compromise settlements, including those classified as fraud or wilful defaulters.

Compromise settlement refers to an arrangement with the borrower to fully settle the lender's claim upfront, which may or may not include a complete recovery of dues.

A wilful defaulter is a borrower who has defaulted in meeting payment or repayment obligations to the lender despite having the capacity to do so.

"It not only rewards unscrupulous borrowers but also sends a distressing message to honest borrowers who strive to meet their financial obligations," the All India Bank Officers' Confederation (AIBOC) and the All India Bank Employees' Association (AIBEA) said in a joint statement on social networking platform Twitter.

The compromise settlement for fraud accounts is an "affront" to the principles of justice and accountability, they said, adding that the RBI's move came as a "shocker."

By allowing such settlements, the RBI is condoning wilful defaulters' wrongful actions and placing the burden of misdeeds on bank employees, they said in the statement.

Reporting by Siddhi Nayak; editing by Eileen Soreng

Our Standards: The Thomson Reuters Trust Principles.

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