The Hindu : `Revised norms for one-time settlement of NPAs ineffective'

Online edition of India's National Newspaper
Wednesday, Mar 03, 2004

Tamil Nadu

Tamil Nadu

`Revised norms for one-time settlement of NPAs ineffective'

By Our Special Correspondent

CHENNAI, MARCH 2. The National Confederation of Small Industry (NACOSI) has said the current "cursory" extension of revised guidelines for a one-time settlement (OTS) of chronic non-performing assets (NPAs) of commercial banks up to Rs. 10 crores will be as ineffective as were the previous tenures of the scheme unless the lacunae in its operation are plugged.

In a letter to the Governor of the Reserve Bank of India (RBI), the NACOSI President, DE Ramakrishnan, said the "subjective interpretation" at the level of the bank branch of legal and other charges recoverable from the borrower made a mockery of the "non-discretionary, non-discriminatory" (ND-ND) nature of the scheme. This resulted in harassment of the borrower and delays in settlement.

The "amount outstanding" on the cutoff date for arriving at an OTS as specified by the RBI was the amount outstanding to the debit of that account when it became "doubtful". This was meant to give relief to genuinely sick and suffering borrowers. But this was used by the banks to calculate and collect the interest for two years after the account had been classified an NPA, flouting the RBI's prudential norms. (An account is to be classified an NPA if the principal or interest is not serviced for six months and "doubtful" if it continues to be an NPA for 18 months). The RBI norms prohibited even the debiting of interest in an account once it became an NPA and also made it mandatory to reverse the interest debited to the account once it became an NPA.

The amount arrived at for an OTS as per the RBI formula should have excluded the notional interest accounted under different heads such as memo of interest/interest suspense account/notional interest account. But this was not done in practice at the branch level. Thus the cutoff date was used as an excuse by the banks to garner revenue, imposing an additional burden on the borrower.

Mr. Ramakrishnan said that in their latest round of advertisements on the extension of the revised OTS guidelines, the banks persisted with their own interpretation of the RBI scheme. What was more, they were intimidating or discouraging borrowers, asserting the rights of the banks under the legal process, instead of publicising the fact that borrowers involved in suit-filed cases were entitled to go in for the ND-ND OTS and get it approved by court.

"It is time the Indian Banks' Association (IBA) takes the matter in its hands, advertises the RBI scheme in a common format to make clear the rights of borrowers", he said. Considering that in some cases banks claimed that they found it easier to give the intended relief under their own OTS plan, the RBI should clarify that the borrowers would be entitled to relief under the ND-ND scheme or the banks' own OTS, whichever was more beneficial.

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