- One-time settlement of dues by defaulters may rise in the next few months as banks’ aggressive move to recover loans and the Reserve Bank of India’s push to make bankruptcy courts the central mechanism for recoveries could lead to some promoters losing their businesses. This would also ensure that banks don’t clog the bankruptcy courts with cases where the default amount is not high.
- People familiar with the development said banks have begun aggressively negotiating one-time settlement (OTS) on the insistence of the finance ministry and the central bank, which want speedy clean-up of bank balance sheets.
- “Several cases where defaulters had proposed one-time settlement are being brought back to the table to improve recovery,” said a banker. “We are also proposing this scheme to promoters who seem willing to pay up dues.”
- Banks are taking this approach in both large and small value cases, the banker said on the condition of anonymity. RBI had recently reviewed the top 500 exposures of banks that are partly or wholly classified as non-performing assets (NPAs) and has given its recommendations, which include referral of the top 12 NPAs for resolution under the Insolvency and Bankruptcy Code, 2016 (IBC).
- The regulator had recommended that for other large NPAs, banks should figure out a resolution within six months and if a viable resolution is not reached within six months, the banks must begin liquidation proceedings.
- “RBI has set us a deadline and we are taking all measures to improve recovery rates from defaulting accounts, including OTS,” said another banker.
- “In the past OTS decisions would come under suspicion and hence decision making was slow, but we have been assured by authorities that this has to be pursued aggressively,” the person said.
- ET had recently reported that banks were aggressively pursuing OTS to recover dues worth Rs 6,000 crore from telecom and technology company GTL Ltd. The Manoj Tirodkar promoted company had made a one-time settlement offer to lenders to repay 60 per cent of the outstanding debt, which amounts to about Rs 4,000 crore.
- “The behaviour and personality of borrowers are unlikely to change. There are sick companies, not sick promoters. As far as insolvency is concerned, banks will eventually have to provide for 100 per cent of the bad loans,” the CEO said on condition of anonymity.
- In March this year, State Bank of IndiaBSE 1.04 % had allowed one-time settlements for tractor and farm equipment loans that made up about Rs 6,000 crore of doubtful and loss cases on its books.
- In 2015, SBI had opened a one-time settlement scheme for its retail, wholesale and small and medium enterprise (SME) borrowers, which led to bad loan recovery worth Rs 800-850 crore from the segment.
- Recently, SBI chairman Arundhati Bhattacharya had said that banks may not rush to resolve cases or recover dues via the insolvency code as the ecosystem required for the new law had not been fully created.
- In a sudden missive to banks on June 23, RBI demanded a steep increase in provisioning requirements for loans being referred to bankruptcy courts. The regulator also told banks to set aside at least 50 per cent of the loan amount as likely losses for all cases referred to the insolvency process.
via non-performing loans: Government, RBI nudge banks to pursue one-time settlement to recover non-performing loans
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