The need for OTS arises due to the fact that whenever the recovery proceedings are initiated and legal notices are issued to recover dues from the defaulting borrowers, the defaulters in most of the cases obtain different kinds of stay orders from different Courts and the matter remains pending for a long time. During this period the lenders are not able to recover their interest/principal dues from such borrowers as the matter remains subjudice. In order to improve the recovery from all such cases and also from the chronic defaulters and in order to reduce the Non Performing assets (NPAs), the mechanism of OTS of dues was evolved.
There is an increase in tendency from banks to prefer one time settlement (OTS) as against enforcement of security interest or recovery through legal route. The trend is gaining momentum because of the tardy legal process involved.
Objectives of OTS
The Scheme aims at One Time Settlement with the MSME NPA borrowers, where the exposure of the Bank is not more than Rs.25 lacs per borrower, to ensure speedy settlement of the accounts without going into long drawn recovery process.
The amount of settlement is payable in one lump sum. In case lump sum payment could not be made, at least 25% of the settlement amount shall be payable as upfront and the balance amount of 75% be payable within 3 months from the date of acceptance of the OTS proposal by the Bank with interest @ IVRR (simple) from the date of settlement till the date of final payment.
Declared OTS Policies of Institutions (Commom Factors)- Standardization, No pick and choose poliy, transparency, eligibility (willful defaulters to be excluded), Deligation power (Decision making authority), maxizing returns & Minimizing costs, realizing value of the possessed security, commercial decision, options available to banks and the lenders
10.16 Subsequent to the introduction of the SARFAESI Act, 2002, the Reserve Bank issued fresh guidelines for one-time settlement scheme in January 2003 for compromise settlement of chronic NPAs up to Rs.10 crore in PSBs. These guidelines cover: (a) all NPAs in all sectors, irrespective of the nature of business, which have become doubtful or loss assets as on March 31, 2000 with outstanding balance of Rs.10 crore and below on the cut-off date; (b) NPAs classified as sub-standard as on March 31, 2000, which have subsequently become 'doubtful' or 'loss' assets; and (c) cases in which the banks have initiated action under the SARFAESI Act, 2002 and also cases pending before Courts/Debt Recovery Tribunals (DRTs)/Board for Industrial and Financial Reconstruction (BIFR), subject to consent decree being obtained from the Courts/DRTs/ BIFR. The last date for receipt of applications from borrowers under the scheme is September 30, 2003.
10.17 Guidelines for the special One-Time Settlement (OTS) scheme for loans up to Rs.50,000 to small and marginal farmers by PSBs were operative up to December 31, 2002. They were extended up to March 2003 in view of requests received from banks and the drought/flood situation in various parts of the country.
10.18 The Reserve Bank issued guidelines to commercial banks and FIs to enable them to make increasing use of Lok Adalats. They were advised to participate in the Lok Adalats convened by various DRTs/DRATs for resolving cases involving Rs.10 lakh and above to reduce the stock of NPAs.
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