January 29, 2003
DBOD. BP. BC. 65 / 21.04.117/ 2002-2003
Chairmen and Managing Directors
of all Public Sector Banks
Revised guidelines for compromise settlement of chronic
Non-Performing Assets (NPAs) of public sector banks
Please refer to our circular DBOD.BP.BC.11/21.01.040/99-00 dated 27th July 2000, setting out the guidelines for compromise settlements of chronic NPAs up to Rs.5.00 crore.
2. A review of compromise settlements of NPAs through the above 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. Hence fresh guidelines are now issued, which will provide a simplified, non-discretionary and non-discriminatory mechanism for compromise settlement of chronic NPAs below the prescribed value ceiling. All public sector banks should uniformly implement these guidelines, so that maximum realisation of dues is achieved from the stock of NPAs within the stipulated time.
3. The revised guidelines will cover NPAs (below the prescribed ceiling) relating to all sectors including the small sector. 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. Accordingly, in modification of guidelines set out in our Circular of 27th July 2000, revised guidelines for compromise settlement of dues relating to NPAs of public sector banks in all sectors are given below :
(A) Guidelines for compromise settlement
of chronic NPAs up to Rs. 10.00 crore
[ i ] Coverage
a) 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.
b) The guidelines will also cover NPAs classified as sub-standard as on 31st March 2000, which have subsequently become doubtful or loss.
c) 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.
d) Cases of wilful default, fraud and malfeasance will not be covered.
e) 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.
[ ii ] Settlement Formula – amount and cut off date
a ) 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.
b ) 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.
[ iii ] 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.
[ iv ] Sanctioning Authority
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.
[ v ] Non-discretionary treatment
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.
[ vi ] Reporting to the Board
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.
(B) Guidelines for compromise settlement
of chronic NPAs over Rs. 10.00 crore
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.
4. Deviation only by Board of Directors
Any deviation from the above settlement guidelines for any borrower should be made only by the Board of Directors.
5. Please acknowledge receipt.
( C. R. Muralidharan )
Chief General Manager