Page 26 - Banking Finance October 2023

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which would allow some breathing period for loan
repayment and reduce the interest burden. This, in turn,
would strengthen the repayment capacity of the borrower.
However, when such measures initiated in the account do
not yield any fruitful result and the borrower incurs heavy
cash losses, it is better to go in for compromise or scaling
down the bank dues.

Similarly in other cases, where business loss has crept in due
to one or the other genuine reasons and the borrower is
not a wilful defaulter and requests for concessions such as
waiver of penal interest, concession in interest rates, loan
repayment in suitable instalments etc., the borrower's offer
may be accepted for compromise. Regarding compromise
at the post-litigation/decree stage, the proposal for be collected from the market. Branch manager is expected
compromise shall be entertained so that the borrower's to prepare a process note for loan compromise in the light
business activity is uninterrupted. In order to avoid cost, of the broad guidelines issued by the bank.
labour and time involved in litigation matters and to have a
better image in the market, borrowers may offer a lump- The process note should contain the amount outstanding
sum amount and request the bank to withdraw the suit and other charges, efforts already made for recovery,
against them. At times, it becomes necessary, in some means or capacity of the party to repay etc. The proposal
cases, to have the settlement outside the court through an recommended by the branch should be referred to the
amicable agreement and, the antecedents of the sanctioning authority which examines several factors
defendants are such that it shall take a sympathetic view including fulfilment of terms and conditions of loan
and award a lenient decree against the defendants. compromise, post-disbursement supervision of the account,
any laxity in conduct, any act of commission or omission on
Sometimes, after obtaining the decree, if a third party the part of staff leading to the debt proving irrecoverable,
comes forward to purchase the asset, the bank may staff accountability, valuation of securities, interest to be
consider the case even for compromise. It is also possible charged in respect of settlement through instalments, etc.
that the bank may go in for compromise if the decreed asset
would not fetch more than the claim amount. In all such RBI has given autonomy to banks to come forward with a
cases, a consent decree shall be obtained through the Board approved compromise policy for different types of
Court so that it will be binding on all defendants. If the borrowers. Decisions on compromise proposals should be
concerned parties do not fulfil the promises made, the bank taken by adopting a 'committee approach'. In this regard,
shall approach the Court or Debt Recovery Tribunal to banks have been advised to set up a Settlement Advisory
initiate legal action. Committee which is given certain powers by their Board.
Thus, loan compromise is considered to be an effective
Regarding the process, loan compromise has to be decided recovery measure in genuine cases. Currently, banks are
on the basis of merit of each case. Similarly, lot of home work found to be active in loan compromise in deserving cases
should be done by the bank before negotiating with the for quick loan recovery.
borrower. It is necessary to carry out cost-benefit analysis
to estimate the loss which may arise in case compromise is Besides entertaining Loan compromise cases at the bank
accepted as against the benefit which may accrue if the level, Lokadalats are also engaged in dealing loan
money so recovered is invested profitably. Before compromise cases. In India, Lokadalats were introduced in
negotiation, valuation of the assets and collection of 1982 for providing quick and convenient legal aid. By now,
information about borrower and his personal assets should it is known for effecting mediation and counselling between

26 | 2023 | OCTOBER | BANKING FINANCE