Page 25 - Banking Finance October 2023

ARTICLE

the project deserves certain concessions from banks in the to evolve its own One Time Settlement Scheme (OTS) as per
form of reduction in the rate of interest, granting more time the RBI guidelines. For effective implementation of the
to pay bank dues in suitable instalments, additional finance, bank loan compromise scheme, it is necessary to bring the
reducing promoter's contribution, financing of cash losses notice of OTS to the eligible defaulters and mobilize as many
until the project breaks even etc. Towards this end, Reserve proposals as possible to avail of benefits compromise .It is
Bank of India (RBI) issues guidelines on debt restructuring also necessary , to go in for compromise settlement timely.
from time to time. Each bank is required to have a board Such proposals should be carefully prepared by the branch
approved scheme on debt restructuring. This also calls for manager keeping in mind the bank policy on loan
certain changes needed in the original loan agreement as compromise. Otherwise, these may become vigilance cases.
part of debt restructuring. Overall experience of banks It is always better to involve all staff members in mobilizing
seems to be satisfactory in debt restructuring wherever compromise proposals. Care should be taken that the
enough cash surplus is generated. recovery through compromise should not throw a wrong
signal to the borrowers at large who are regular in loan
This holds good in respect of rehabilitation of sick units. For repayment.
rehabilitation of sick units, Reserve Bank of India (RBI) issues
guidelines on identification of a sick unit, preparation of Over the years, banks have succeeded to recover bank dues
rehabilitation package, implementation of the package. In through loan compromise. If the decision is to go in for
general, success in rehabilitation exercise has not been compromise, all issues must be first sorted out through the
encouraging. Lastly, as a last resort, loan compromise and Court in the form of a consent decree, so that it will be
loan write off shall be considered which are currently widely binding on all defendants. In cases of more than one
talked about with the recent framework on these two has judgement debtor, the consent of all parties is a must. In
been brought about by RBI in June 2023. For effective any case, the decision on compromise should be on the basis
implementation of the framework, there a felt need to of merit of each case. Similarly, the bank should carry out
create its awareness on the part of officers in banks. Towards cost : benefit analysis to estimate the loss which may arise
this end, the article discusses concept, process and RBI in case compromise is accepted as against the benefit which
framework of loan compromise and write off for the benefit may accrue if the money so recovered is invested profitably.
of bank officers. Before negotiation, valuation of the assets should be done
and information about the borrower and his personal assets
Loan Compromise: should be collected from the market.
Loan compromise means 'agreeing to a borrower's request
of accepting a part of outstanding dues in the books of the Compromise proposals can be entertained either at pre-
bank as full and final payment or allowing for the non- litigation stage or at post-litigation/decree stage. At the
compliance of the terms of the loan, after analyzing the pre-litigation stage, concessions are offered in the form of
alternative courses of action, genuineness and capacity of re-schedulement / re-phasement of unpaid loan instalments
the borrower to repay'. It is also called as 'voluntary debt under bank schemes on debt restructuring or rehabilitation
reduction' or 'scaling down of dues', mainly interest amount
and bank charges. In a situation, where the borrower's
ability/capacity to repay the bank's dues and its ability to
recover the same by other means are limited, a compromise
proposal works well. Government of India (GOI) announces
compromise settlement schemes under certain
circumstances.

For instance, in 2008, the GOI introduced Agriculture Debt
Waiver and Relief Scheme for small, marginal and other
farmers. In addition, each bank is also given an autonomy

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