In order to bring the impact of NPA under control, the government is making every possible effort. The one-time NPA account settlement for recovery of NPAs below Rs.10 crore is proposed by the Reserve Bank of India, and it is to be implemented by all public sector banks.
This scheme offers a simplified, non-discretionary and non-discriminatory mechanism for one-time settlement of chronic NPAs in the SME sector. And it is the reason, it is becoming highly popular.
Guidelines for one-time settlement of dues in the SME sector are as follows.
Coverage
As per the revised guideline, NPA in SME that has become doubtful with an outstanding balance of Rs.10 crore and below on the date on which the account was classified as doubtful will be eligible for coverage.
These guidelines will cover cases on which the banks have initiated action under the SARFAESI Act, 2002 and they also cover cases pending before Courts/DRTs/BIFR.
What is the Settlement Formula?
The settlement formula is divided into two categories.
NPAs classified as Doubtful or Loss as on March 31, 2004
According to the formula, the minimum amount that will be recovered under the revised guidelines in one-time NPA account settlement classified as doubtful or loss as on March 31,2004 will be 100% of the outstanding balance in the account as of the date on which it was declared as doubtful NPAs.
NPAs classified as sub-standard as on March 31, 2004
In such cases when become doubtful or loss subsequently, the minimum amount that shall be recovered in respect of NPAs classified as sub-standard as on March 31, 2004, which became doubtful, or loss subsequently would be 100% of the outstanding balance in the account as of the date on which the account was categorized as doubtful NPAs. And in addition, the interest at the existing Prime Lending Rate from April 1, 2004, till the date of final payment will also be considered.
Payment
As far as the amount of NPA account settlement is concerned, it will be paid in one lump sum. If the borrower is unable to pay 100 percent, then at least 25 percent of the amount should be upfront, and the remaining 75 percent will be recovered within one year along with interest at the existing prime lending rate from the date of settlement up to the date of final payment.
Sanctioning Authority
The decision will be taken by the competent authority under the delegated powers. Banks shall submit a report on the progress in the one-time NPA account settlement of chronic NPAs under the revised guidelines every quarter to the Board of Directors.