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Money & Banking - Non-Performing Assets
Industry & Economy - SSI


Subjective interpretation could derail OTS scheme

Our Bureau

Chennai , March 4

SMALL-scale industry associations fear that the subjective interpretation of the RBI notification regarding the one-time settlement (OTS) scheme could render the scheme ineffective.

The RBI guidelines speak of `non-discretionary and non-discriminatory' approach. In other words, banks should adopt the `settlement formula' prescribed by the RBI for recoveries under the scheme. In contrast, however, banks have begun to call for proposals from the "eligible borrowers." An advertisement from Andhra Bank calls upon eligible borrowers to "submit their proposals", while another from Vijaya Bank on the same subject says that the borrowers can "submit their applications."

Neither of the advertisements bring out the point that the settlement will be under a `non-discretionary and non-discriminatory' formula, prescribed by the RBI.

Advertisements like these give an impression that this is yet another invitation for negotiations, when there is really nothing to negotiate about, says Mr D.E. Ramakrishnan, President, Industrial and Financial Reconstruction Association for Small and Tiny Enterprises (INFRASTE), a small scale industries body.

In a memorandum to RBI, Mr Ramakrishnan has observed that even the calculation of the amount due from the borrowers is at variance with the RBI-prescribed scheme. An account is classified as NPA if the principal or interest is not serviced for a period of six months. It is classified as `doubtful' if the account continues to be an NPA for the next 18 months.

The RBI notification says that the amount due should be taken as the amount in the account on the day it turned an NPA. Instead, banks calculate the interest due over the 18-month period after the account turned NPA, to arrive at the total amount due. This, according to Mr Ramakrishnan, is not the intention of the RBI and banks do this only to "garner revenue."

Again, the RBI notification says that the guidelines will cover also the cases that are pending before Courts/DRT/BIFR. "The intention of the RBI is that the compromise arrived at under the OTS should be taken to the Court or DRT for approval of the judge of the Tribunal. However, bank advertisements say that the OTS exercise will be "without prejudice to suits, legal proceedings pending before courts... " This again gives an impression that in case the banks are not satisfied with the outcome of the OTS negotiations, they would continue with their legal proceedings.

Further, RBI has asked banks to give "adequate publicity through various means".

INFRASTE calls for all banks to give identically worded advertisements. Better still, the Indian Banks Association should take it upon itself to release advertisements on behalf of all the banks. IBA doing it could result in better publicity to the scheme, says Mr Ramakrishnan.

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