RBI on 27.07.2000 formulated a one-time settlement (OTC) of chronic NPAs up to Rs.5.00 crore. A review of the progress made on this schme conducted in 1993 scheme has revealed that the progress of recovery of NPAs through this mechanism has been moderate. In consultation with Government of India, it has been decided to give one more opportunity to the borrowers to come forward for settlement of their outstanding dues. RBI therefore formulated a revised schme. Fresh guidelines were issued, which would provide a simplified, non-discretionary and non-discriminatory mechanism for compromise settlement of chronic NPAs below the prescribed value ceiling. All public sector banks were4 advised to uniformly implement these guidelines, so that maximum realisation of dues could be achieved from the stock of NPAs within the stipulated time.

The revised guidelines cover NPAs (below the prescribed ceiling) relating to all sectors including the small sector. The guidelines do 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.

Originally as per the guidelines the last date for receipt of applications from borrowers was as at the close of business on April 30, 2003. The processing under the revised guidelines was required to be completed by October 31, 2003. These time limuits were extended and revised schedules, viz.the time period for receipt of applications under the OTS Scheme from April 30, 2003 to September 30, 2003 and date of processing applications from October 31, 2003 to December 31, 2003. were advised to the banks on 23.05.2003.

Again in the context of requests received for extending the time limit for operation of the guidelines, it was again decided by RBI, in consultation with the Government of India, that applications for one time settlement of chronic NPAs of public sector banks up to Rs. 10 crore may be received up to 31st July 2004. Consequently, the last date for processing applications received up to 31st July 2004 would also be extended to 31st October, 2004.

The revised guidelines for compromise settlement of dues relating to NPAs of public sector banks in all sectors are given below :

1. 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 2000 with outstanding balance of Rs. 10.00 crore and below on the cut off date.

2. The guidelines will also cover NPAs classified as sub-standard as on 31st March 2000, which have subsequently become doubtful or loss.

3. These guidelines will cover cases on which the banks have initiated action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and also cases pending before Courts / DRTs / BIFR, subject to consent decree being obtained from the Courts / DRTs / BIFR.

4. Cases of wilful default, fraud and malfeasance will not be covered.

5. The last date for receipt of applications from borrowers would be as at the close of business on 30th April 2003. The processing under the revised guidelines should be completed by 31st October 2003. Thesedates since stand extended upto 31st July 2004 and 31st October 2004 respectively

1. NPAs classified as Doubtful or Loss as on 31st March 2000

   The minimum amount that should be recovered under the revised guidelines in respect of compromise settlement of NPAs classified as doubtful or loss as on 31st March 2000 would be 100% of the outstanding balance in the account as on the date of transfer to the protested bills account or the amount outstanding as on the date on which the account was categorised as doubtful NPAs, whichever happened earlier, as the case may be.

2. NPAs classified as sub-standard as on 31st March 2000 which became doubtful or loss subsequently

   The minimum amount that should be recovered in respect of NPAs classified as sub-standard as on 31st March 2000 which became doubtful or loss subsequently would be 100% of the outstanding balance in the account as on the date of transfer to the protested bills account or the amount as on the date on which the account was categorised as doubtful NPAs, whichever happened earlier, as the case may be, plus interest at existing Prime Lending Rate from 1st April 2000 till the date of final payment.

The amount of settlement arrived at in both the above cases, should preferably be paid in one lump sum. In cases where the borrowers are unable to pay the entire amount in one lump sum, at least 25% of the amount of settlement should be paid upfront and the balance amount of 75% should be recovered in instalments within a period of one year together with interest at the existing Prime Lending Rate from the date of settlement up to the date of final payment.

The decision on the compromise settlement and consequent sanction of waiver or remission or write-off should be taken by the competent authority under the delegated powers

The banks should follow the above guidelines for compromise settlement of all NPAs covered under the revised scheme, without discrimination and a monthly report on the progress and details of settlements should be submitted by the concerned authority to the next higher authority and their Central Office. Banks should go for wide publicity and also give notice by 28th February 2003 to the eligible defaulting borrowers to avail of the opportunity for one time settlement of their outstanding dues in terms of these guidelines. Adequate publicity to these guidelines through various means must be ensured.

The banks should submit a report on the progress in the compromise settlement of chronic NPAs under the revised guidelines every quarter to the Board of Directors. A copy of the quarterly progress report should also be sent to us.

As already advised in our earlier circular dated 27th July 2000, CMDs should personally supervise the compromise settlement of chronic NPAs on case to case basis, and the Board of Directors may evolve policy guidelines regarding one time settlement of NPAs not covered under this circular as a part of their loan recovery policy.

Any deviation from the above settlement guidelines for any borrower should be made only by the Board of Directors.