“Karz Mukti”: Relief from debt explained

Now is the golden opportunity for borrowers to avail concessions and settle their NPA accounts
“Karz Mukti”: Relief from debt explained
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Let me share one of my personal memorable WhatsApp messages received from an acquaintance running a tour and travel agency. The message was an alert against the menace of debt.

The message reads: “Since long I have not been disturbing you. Today I took this liberty to let you know about these two Duas (prayers) from Al-Tirmizi and Al-Bukhari. Both of these Duas are for settling debts. Pray these Duas as many times as you can. Allah will make ways to clear your debts, Inshallah.”

Here is the dua: Allaahummakfinee bi halaalika ‘an haraamika wa ‘aghninee bifadhlika ‘amman siwaaka.

“O Allah, suffice me with what You have allowed instead of what You have forbidden , and make me independent of all others besides You.” (Reference: At-Tirmithi 5/560)

This Dua against debt contains within itself the solution to the problem. “Suffice me with what you have allowed.” In other words, let the halal be enough for me. Don’t let me get myself into debt because of haram mortgage loans or excessive material desire, or out-of-control consumer spending. Let me be satisfied with a simple, halal life, so that I don’t get into debt. It’s fervently believed that if one repeats this Dua often, enough it becomes a part of ones thinking and awareness, and one modifies his own behavior, which leads to: “make me independent of all others besides You.” Scholars say you become your own man or woman, not owing money to anyone, independent, relying only on Allah. They further say that this subtle and amazing Dua works on both levels, as an affirmation and as a prayer to Allah to help you achieve that affirmation.

Here, it’s important to define a ‘Debt’? It’s an amount of money borrowed by an individual or a company to meet their requirements which are not affordable for them under normal circumstances. This money borrowed is essentially to be paid back at a later date, usually with interest. And the most common form of debt is loans.

Now you must be curious to know the relevance of the Dua to get rid of debt which my acquaintance had suggested to follow. It’s not a puzzle though it puzzled and educated me as well a lot. Basically I was supposed to pay some travel ticket expenses which he had incurred on my behalf. Owing to some busy schedule I was unable to reach him to deliver the cash as he had advised me not to transfer the money in his bank account. Though I paid my debt, yet the way of asking for repayment of the dues adopted by my acquaintance was by all means wonderful, as the above quoted Dua is very powerful to knock the consciousness of any defaulter and guide him/her out of the debt trap. Coming to the basic point, this short story has a substance in bad debts which banks have been struggling to recover from the defaulters. Bad loans have proved an unending menace and proving termite for the banking industry. For the last two decades I have come across various strategies adopted by banks to recover their dues from loan defaulters. But the drives to recover bad loans two decades ago have only seen swelling up of these bad loans.

Precisely, recovering bad debts continues to remain an arduous task with the frequency of such debt on the rise. This is happening despite a strict legal framework in place and the Reserve Bank of India’s several measures to curb the menace of bad loans.

Meanwhile, J&K Bank has come out with its own innovative one-time settlement scheme (OTS) to pull its defaulting borrowers out of the debt trap. The scheme, named as ‘Karz Mukti Scheme’, is a golden opportunity for the defaulters (not wilful defaulters) having NPA balance below Rs.15 lacs to repay their debt gracefully.

What is the exact intention of the scheme?

It’s a special one-time settlement scheme devised by the J&K Bank providing golden opportunity to the borrowers whose loan accounts are classified as non-performing assets (NPAs) and have outstanding balance below Rs.15.00 lacs as on 31st March 2022. The scheme will remain operational for three months till the close of business on 16th September 2022. However, the validity of the scheme can be extended for another three months, if need arises.

Which category of accounts falls under the scheme and what are the concessions available to the borrowers?

The bad loan accounts have been categorized as per the sector. For instance, borrowers of all agricultural /government sponsored accounts with NPA balance Rs.5000/- up to Rs.15.00 lacs are eligible to settle their accounts under the scheme and avail concession in terms of write-off to the tune of 40% in outstanding balance and 100% in unapplied interest. Borrowers in other categories can also settle their NPA accounts with 30% concession in outstanding NPA balance and 100% waiver in unapplied interest.

Further, accounts with outstanding balance below Rs.5000 can be settled minimum at Rs.3000. Notably, zero balance NPA accounts having collateral security available will get 90% waiver in unapplied interest. The borrowers seeking settlement of their bad loans under the scheme should note that CGTSME claims / Govt. subsidy received on or after circulation of the scheme and claim/subsidy received but not adjusted, will not be appropriated towards recovery.

Also, loan cases of deceased, terminated employees and employees dismissed from service are eligible. Even cases of failed compromise settlement fall under the ambit of the scheme.

What about those cases which are pending in courts or debt recovery tribunals (DRTs)? Can such borrowers take route of this scheme to avail concessions?

Yes. Cases pending before Courts / DRTs are eligible. However, consent terms with default clause will have to be filed before the presiding officer of Court/ DRT for obtaining consent decree. Even borrowers who have received notices from the Bank or faced action u/s 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI-2002) can also take route of the scheme to settle their accounts.

There may be some accounts which have been declared fraud or willful defaulters. Are these borrowers eligible to seek settlement of their debt under the scheme?

Several categories of cases are not eligible under the scheme. This includes cases reported as fraud to RBI and cases of wilful default. In addition to this, following cases are not eligible:

-Cases which are under any internal or external investigation,

-Loan granted to Government/Semi Government/public sector undertaking employees.

-“Compromise cases” where repayment has already commenced as per the agreed terms

-NPA accounts which are under rehabilitation/restructuring

-Loan granted against the bank deposits, Life insurance policies, KVIP, Mutual funds, Shares etc.

What is the repayment schedule of the settlement amount?

The borrower has to deposit 10% of the settlement amount as 1st instalment at the time of submission of application. Another 20% as 2nd instalment is to be paid within thirty days from the date of sanction of settlement. 3rd instalment of another 20% is to be deposited within sixty days from the date of sanction. The remaining 50% balance amount of the settlement is preferably to be paid within three months from the date of sanction. However, the amount (Beyond 50%) can also be paid within 6 months from the date of sanction of OTS (the validity period) together with interest.

However, there is incentive for early payments up to 5% of the settlement amount.

Disclaimer: The views and opinions expressed in this article are the personal opinions of the author. The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.

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