Co-Op Banks To Extend Ots Plan By Six Months

The Reserve Bank of India (RBI) has asked the registrar of co-operative societies (RCS) of all states to extend by six months the one-time settlement (OTS) scheme for ridding the urban co-operative banks (UCBs) of their sticky assets. The extension is aimed at enabling some banks, which are either in dire straits or have suffered substantial erosion in net owned funds, to make recoveries.

The UCBs can now accept applications for settlement of outstanding dues up to December-end 2002 (June-end 2002 earlier) and dispose of applications by March-end 2003 (September-end 2002 earlier).

The central bank, however, has also given the RCS' the discretion to extend the facility for UCBs by a year. The Maharashtra government has already issued a notification extending the OTS by an year. While applications will be accepted up to June-end 2003, the banks are required to dispose of the cases by September-end 2003.

 

The guidelines apply to all bad loans, which have become doubtful or loss assets as on March 31, 1998, in all sectors irrespective of the nature of business/ activity/ purpose of advances. They also cover NPAs which were classified as sub-standard as on March-end 1998 and which have subsequently become doubtful or loss assets.

The categories of loans not covered by the OTS are : cases of wilful default, frauds and malfeasance; loans with tie-up arrangement for recovery (loans availed by salary earners); loans availed of or guaranteed by directors or by close relatives of directors or by firms, companies, institutions in which the directors are interested or by ex-directors of respective UCBs, loans guaranteed by government, loans due from government department/undertakings; and loans under government directed programmes.

The RCS has been charged with the responsibility of fixing the cut-off limit for individual and institutional borrowers. The cut-off limits could be fixed based on either loans outstanding or working capital of the bank or its deposits as on March 31, 2001.

As per the settlement, for NPAs classified as doubtful or loss assets as on March-end 1998, minimum amount to be recovered is 100 per cent of the outstanding balance in the account inclusive of interest as on the date on which the account was categorised as doubtful asset.

In the case of NPAs classified as sub-standard as on March-end 1998, which became doubtful or loss assets subsequently, the minimum amount to be recovered is 100 per cent of the outstanding balance in the account inclusive of interest as on the date on which the account was classified as doubtful plus interest at a rate not less than the minimum lending rate (MLR) per annum thereafter till the date of final payment.

The RBI further said that penal interest, legal charges and other charges could be waived. Amount of settlement arrived at should be recovered preferably in one lump sum.

In cases where the borrowers are unable to pay the entire amount in one lump sum, at least 25 per cent of the amount of settlement should be recovered upfront and the balance amount of 75 per cent should recovered in instalments within a maximum one year together with interest at MLR from the date of settlement up to the date of final payment.

Meanwhile, the Maharashtra government has extended by an year the OTS scheme for UCBs in the state.