Govt extends 1-time settlement scheme for loans up to Rs 10 cr

After the carrot comes the stick. Months after empowering banks with legal powers to directly attach assets of defaulters, the government has now allowed banks to enter into compromise settlement of chronic bad loans up to Rs 10 crore.
Following the moderate success of the one-time settlement scheme introduced for chronic bad loans up to Rs 5 crore in ’00, the Reserve Bank of India, in consultation with the government, has now decided to extend the scheme for bad loans up to Rs 10 crore.
The difference this time is that even those who have been sent notices for recovery of dues under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act will be allowed to come to the negotiating table. Defaulters can apply under the new one time settlement scheme until April 30, ’03.
The RBI has already announced the guidelines for the new scheme which is to be non-discretionary and non-discriminatory. Consequently, there can not be any case-by-case decision nor different set of relief for the same category of borrowers.
The guidelines will not, however, cover cases of wilful default, fraud and malfeasance. The banks should identify cases of wilful default, fraud and malfeasance and initiate prompt action against them.
The revised guidelines will cover all NPAs — in all sectors irrespective of the nature of business — which have become doubtful or loss as on 31st March ’00 with an outstanding balance of Rs 10 crore and below on the cut-off date.
The guidelines will also cover NPAs classified as sub-standard as on 31st March ’00, which have subsequently become doubtful or loss.
The new guidelines will cover cases on which the banks have initiated action under the SRFAESI Act, ’02 as well as cases pending before courts, debt recovery tribunals and the Board for Industrial and Financial Reconstruction, subject to consent decrees.
The central bank has also prescribed the minimum percentage of the disputed amount that has to be recovered by the bank for different classes of bad loans.
The bank chairmen have been asked to supervise the compromise settlement of chronic NPAs on a case to case basis. The bank’s boards have also been allowed to evolve policy guidelines on one time settlement of NPAs not covered under this circular.