The Reserve Bank of India (RBI) has announced the guidelines of a special one-time settlement (OTS) scheme for small and marginal farmers.
The guidelines for the public sector banks (PSBs) cover all loans accounts with outstanding balance of up to Rs.50,000 principal amount (excluding any interest element), which have become NPAs as on March 31, 1998. The RBI guidelines come in the wake of the finance minister making an announcement in this regard in his 2002-03 budget speech. The OTS scheme will be operative up to December 31, 2002. The central bank said that the PSBs should follow the guidelines for compromise settlement of NPAs covered, without discrimination.
The OTS scheme will also cover suit-filed and decreed debts. After the settlement is reached, the banks may take appropriate steps for closure of cases in respective courts. The scheme will not, however, cover cases of fraud, malfeasance and wilful defaults.
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The amount that should be recovered as settlement amount would be the balance outstanding towards principal in the loan account as on March 31, 1998. Any interest which is included on the outstanding as on March 31, 1998, or accrued on the outstanding after March 31, 1998, will be waived. The settlement arrived at should normally be paid in one lump sum. In deserving cases, banks may consider recovering the settlement amount in installments.
The balance amount should be recovered within one year from the date of settlement.
The decision on the compromise settlement would be vested with the branch manager. In case the loan had been sanctioned by the branch manager himself, the decision on compromise settlement for such cases, should be taken by the next higher authority.
On the policy formulation front, the RBI said, the Board of Directors of the banks should frame a policy on the compromise settlement of NPAs covered under the guidelines. The banks can also devise their own accounting procedure for treatment of the outstanding amount subject to the OTS.
The RBI, in a notification said, a monthly report on the progress and details of the settlement made should be submitted by the concerned authority to the next higher authority and the Head Office. The compromise settlement reached should be reviewed by the Board at monthly intervals.