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Tuesday, Sep 06, 2005

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RBI proposes one-time settlement for SMEs

Our Bureau

Mumbai , Sept. 5

IN a move that will benefit the small and medium enterprises sector, the Reserve Bank of India has asked public sector banks to provide a simplified mechanism for one-time settlement of chronic non-performing assets in this sector.

In the guidelines released today, the RBI said this move should be extended to NPAs in the SME sector, which have become doubtful, sub-standard or loss making as on March 31, 2004, with an outstanding balance of Rs 10 core or less.

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, Debt Regulatory Tribunal or Board of Industrial and Financial Reconstruction.

Cases of wilful default or fraud will not be covered, the guideline said.

The minimum amount recovered for NPAs classified as doubtful or loss would be 100 per cent of the outstanding balance in the account.

In case of NPAs that are classified as sub-standard, the minimum amount recovered would be 100 per cent outstanding balance in the account, plus interest at existing prime lending rate from April 1, 2004 up to the date of final payment.

In cases where the borrowers are unable to pay the entire amount in lumpsum, at least 25 per cent of the amount of settlement should be paid upfront and the balance amount of 75 per cent should be recovered in instalments within one year, along with interest at the existing PLR from the date of settlement up to the date of final payment.

A quarterly report should be sent to RBI. The last date for receipt of applications from borrowers will be as at the close of business on March 31, 2006.

The processing under the revised guidelines shall be completed by June 30, 2006.

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