Burgeoning bad loans, commonly known as NPAs (non-performing assets) in banking parlance, has always threatened the survival of banks. History is witness that uncontrolled surge in bad loans has wiped out many banks in the past. This NPA problem has been dominating media headlines for years. Experts in the industry are continuously engaged in highlighting the dangers which these NPAs carry for a bank, if such loans go uncontrolled. But, we have rarely found experts dishing out exact solutions to the problem.
Default in loan repayments has remained rampant despite the fact the regulator, Reserve Bank of India (RBI), had set in motion a series of measures to arrest the menace of mounting bad loans. Despite these measures, the NPA menace persists in the banking industry.
This bad loan scenario throws open two important questions. First, who is responsible for this menace? Second, what is the solution to this problem?
In the first case, banks are themselves to be blamed for this situation. They haven’t shown interest in cleaning the mess existing in their asset quality. Most of them resorted to ever greening and delayed recognition of bad loans.
In the second case, at least, creating panic cannot solve the problem. First of all, we have to understand that all bad loans are not willfully created. It should not also be assumed that in all cases banks and borrowers were hand-in-glove to defraud public money and had indulged in funds diversion. But there is a need to acknowledge the risk factor in a market economy. It’s important to differentiate between the willful defaulter and a genuine business failure.
It’s here, J&K Bank, under the dynamic leadership of Baldev Prakash, MD & CEO, initiated a solution to the problem of NPAs and help the borrowers who have not wilfully defaulted in repaying the loans. The bank rolled out special One Time Settlement (OTS) schemes targeting a wide range of NPA accounts. The schemes include Special OTS – 2021 targeted accounts with outstanding amounts of Rs. 15 Lakh to Rs. 5 Crore, ‘Special Karz Mukti Scheme – 2022’ covered the accounts with outstanding principal amount up to Rs. 15 Lakh and recently launched “JKB Special OTS, 2022” providing opportunity to the borrowers whose loan accounts are classified in Doubtful-II, Doubtful-III or Loss category with Principal (NPA) balance of Rs.15.00 lacs to Rs.10.00 Crores as on 30th June 2022.
This time it is a golden opportunity for the borrowers who are not wilful defaulters, to come out of the debt in a most respectable and convenient way.
What are the attractions in the scheme?
This one time settlement scheme is an opportunity for the non-wilful defaulters having an NPA (non-performing account) balance from Rs.15.00 lacs to Rs.10.00 Crores as on 30.06.2022, to settle their bad accounts.
The eligible defaulters are offered huge concessions which include entire unapplied interest, legal and other expenses from date of NPA to be waived-off. Remarkably, the scheme envisages 100% waiver in unapplied interest and charges incurred. Besides, in eligible cases, the defaulter will be extended 15% waiver in NPA outstanding balance.
Those defaulters whose cases are pending before Courts / Debt Recovery Tribunals (DRTs) can also take route of this scheme to avail the concessions and settle their accounts. However, consent terms with default clauses will have to be filed before the Presiding Officer of Court/ DRT for obtaining consent decree.
One of the attractive features of this OTS scheme is the timeline for settlement of the accounts. The bank will accord sanction within 7 days from the date of receipt of application from the borrower.
Do the defaulters who have received notices under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI-2002) fall under the ambit of this OTS scheme?
Yes. If a defaulter has received notice u/s 13(2) or action has been taken u/s 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI-2002), he/she can also approach the bank to settle the account under this OTS Scheme. The Bank will defer conducting auctions under SARFAESI in the eligible borrower accounts, who have to submit an application for OTS of their loan liability. However, in cases where an OTS application is not accepted by the Bank or the borrower fails to abide by the payment schedule, the SARFAESI action should be restored /initiated immediately. Notably, accounts under consortium or multiple banking arrangements are also eligible under the Scheme.
Are the cases where repayment has already commenced under a “compromise agreement” eligible to take the route of this scheme?
No. “Compromise cases” where repayment has already commenced as per the agreed terms, are not eligible. However, cases of failed compromise settlement, where the OTS amount has not been received in full or within the stipulated time and the bank has issued formal OTS revocation letter to the borrower, can be considered afresh.
Even the cases which are under process of settlement through the “compromise” route and the offer amount is on a higher side vis-à-vis the OTS amount prescribed under this scheme are not covered under this scheme.
Besides, the NPA accounts which have been decreed by the Court in favour of the bank and where the bank is convinced that the chances of recovery of maximum outstanding through execution are reasonably strong are also not eligible under the scheme.
The cases admitted in NCLT and under liquidation too won’t be considered under the scheme.
What are the other types of NPA accounts not covered under the scheme?
According to the scheme, NPA accounts that are analyzed for fraud and wilful default won’t be considered under the OTS Scheme till these angles are ruled out. Besides, cases which are under any internal or external investigation, Central Govt. / State Govt. guaranteed accounts and units under rehabilitation / restructuring don’t fall under the purview of this OTS scheme. The scheme also does not cover loans granted against the Bank Deposits, Life Insurance policies, Kissan Vikas Patra, Mutual Funds, Shares etc.
What is the time period given to the eligible borrower to settle the account after sanction is accorded under the scheme?
The scheme carries a convenient payment schedule. As per the settlement formula, the borrower shall have to deposit 10% of the OTS Amount at the time of submission of application. Another 20% of the OTS Amount as first instalment is to be paid within thirty (30) days from the date of sanction of OTS. The borrower has to deposit another 20% of the OTS Amount as second instalment within sixty (60) days from the date of sanction of OTS. This means, 50% of the OTS amount is to be paid by the borrower within sixty (60) days from the date of the sanction.
There are a few options for the remaining 50% OTS amount which is preferably to be paid within three months. 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 @ 6 months MCLR on reducing balance basis effective from the date of sanction of the OTS.
However, there are certain incentives which a borrower can avail. If the amount of settlement is paid within 30 days from the date of sanction, the borrower will get a rebate of 5%. Full payment of OTS amount within 60 days will earn the borrower a rebate of 2%.
What is the procedure to take the route of the scheme?
It’s simple. The eligible borrower has to submit a simple letter to the concerned branch of the bank expressing willingness for one time settlement of the NPA account. As per the scheme, the borrower has to pay 10% of the OTS amount at the time of submission of the application. In the event of the application for OTS being rejected by the Bank, such payment will be refunded without interest within three months.
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.