Page 27 - Banking Finance October 2023

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the two parties i.e. bank and borrower and to reduce the framework for examination of staff accountability in such
burden of work on the Court, especially with regard to small cases with reasonable thresholds and timelines as may be
loans. Large number of Lokadalats are being organized in decided by the Board.
different parts of the country and have got recognition and
patronage from every segment of the society. Based on the Through the technical write-off, no revenue is generated by
experiences of several states, a Central Act, known as Legal the bank. But, it is possible to reduce the level of NPAs. In
Services Authorities Act, 1987 was passed for providing legal general, it is believed that it is going to be non-remunerative
basis for the Lokadalats and legal authority to the either to go in for legal action to file suit or continuing the
compromise arrived at between the two parties. account in the bank's books. In these cases, it is advisable
to waive off legal action and go in for write-off. The waiver
These are presided over by two or three senior persons of legal action is suggested when : (i) the means of the
including retired senior civil servants, defence personnel and borrower are negligible, (ii) borrowers are below the
judicial officers. They take- up cases which are suitable for poverty- line, (iii) cost of recovery is higher, (iv) beneficiaries
settlement of debt for certain consideration. Parties are are absconding, (v) it is difficult to obtain periodic balance
given a good hearing while they explain their legal position. confirmation of debt-cum-acknowledgement of debt, (vi)
They are then advised to reach to some settlement due to securities are already sold by the borrower, etc.
social pressure of the senior bureaucrats, judicial officers or
social workers. If the compromise is arrived at, the parties Similarly, the write-off is also proposed under other
to the litigation sign a statement in presence of authorities circumstances such as : (i) borrowers are adjudicated as
of the Lokadalat which is expected to be filed in the court insolvent and, the bank has already realized the part of the
to obtain a consent decree. dues as a secured creditor, (ii) revenue authorities under the
State Public Recovery Act have recovered their dues and
To arrive at a reasonable compromise with the party, banks there is no further chance of any recovery, (iii) both the
may provide remission of interest. In this context, certain borrower and the guarantor are untraceable after selling
guidelines have been formulated by banks in consultation their assets, and (iv) decrees remain unexecuted several
with the Indian Banks Association (IBA). Accordingly, bank- times due to reasons beyond the control of the bank.
suits involving claims up to Rs.20 lakhs may be brought Decisions to waive the legal action or write-off are taken at
before the Lokadalat. Now-a-days, even non-suit filed cases the controlling office in the bank on the recommendation
in the doubtful and loss categories can be considered for of the branch manager.
settlement. Debt Recovery Tribunals also organize
Lokadalats. Thus, banks have taken the maximum benefit The write-off is an internal exercise and the branch staff
of Lokaadalats and recovered the loan amount particularly
from small borrowers through settlements. Over the years,
Lokadlats are known for bringing down the number of small
NPA accounts through an amicable settlement.

Loan Write-off:
As per the recent RBI circular of June 08, 2023 discussing
the Framework for Compromise settlement and loan write
off, banks should put in place the Board-approved policies
for undertaking loan compromise and technical write off.
For technical write-off, non-performing assets ((NPAs) are
written-off (fully or partially) by the bank only for accounting
purposes, without involving any waiver of claims against the
borrower, and without prejudice to the recovery of the
same. Such policies shall also put in place a graded

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