NPAs scheme for small units goes abegging

The one-time settlement (OTS) scheme to recover chronic non-performing assets (NPAs) of small and medium enterprises (SME) has evoked little response from the borrowers of public sector banks.

According to bankers, the SME borrowers find the "time bound" character of OTS scheme quite rigid compared with flexible one-to-one settlement mechanism offered by banks.

It could be mentioned that the Reserve Bank of India (RBI) had issued guidelines on OTS in August-September 2005 to recover NPAs below Rs 10 crore as on March 1, 2004.

The state-owned banks with approval of respective boards were expected to implement OTS scheme to provide relief to SME borrowers, recover old dues and clean up balance sheets.

Under the OTS, SME borrowers had to approach the bank with settlement proposal by March 31. However, in many cases, it was found that SME borrowers were not able to organise adequate funds to repay outstanding for being eligible for the OTS scheme.

Many PSBs, on the other hand, have their own board-approved settlement scheme which are more flexible to address the needs of the SME clients. These bank-specific schemes are also more liberal in settlement terms, said sources.

There were earlier two-three such schemes in the past including one for outstanding upto Rs five crore. Many SMEs took advantage of such schemes and only few NPA accounts remained as chronic, A A Taj, general manager with Union Bank of India, said.

Those cases which still remained as bad assets were hard-core NPAs. The recovery in the case of such (hardcore NPAs) was difficult even under such OTS schemes, another senior PSB official said.

According to officials of Indian Overseas Bank, SME borrowers did not find OTS attractive and recovery through this route was minimal as only five per cent of the eligible borrowers responded to the scheme.

High NPA levels are affecting bigger flow of credit to the sector. NPAs in the sector range between 16.4-19.5 per cent and there is also a growing incidence of sickness. Nearly 1.3 lakh small units with total loans outstanding of Rs 5,380.13 crore at the end of March 31, 2005 had fallen into the sick category.

According to a RBI note circulated to banks, some of the other reasons for slow credit growth in the SME sector are inadequate infrastructure facilities, delay in getting clearances from different agencies and economic and political environment.