1. Reserve Bank of India had constituted a Working Group under the Chairmanship of Dr. K.C. Chakraborty, Chairman & Managing Director of Punjab National Bank for examining the problems being faced by the Micro and Small Enterprises (MSE) sector.  The Group has submitted its report to RBI.
2. One of the recommendations made by the said Group was to have a one time settlement (OTS) Scheme for MSME Sector. Accordingly, the Reserve Bank of India has advised Banks to draw up an OTS Scheme duly approved by Bank’s Board.
3. The scheme has been approved by the Board of Directors in its meeting held on 23rd July, 2009, operative with immediate effect. 
4. The details of the scheme are given below:

4.1   ELIGIBILITY:

• All accounts under MSME sector classified as NPA as of 31st March, 2009 are eligible for settlement under the Scheme. (For the definition of MSME Sector, please refer to Micro Small & Medium Enterprises Development (MSED) Act 2006.
• All suit filed cases including decreed cases where execution proceedings have not yet started are eligible under the Scheme.
• OTS approved earlier shall not be generally covered under the Scheme, if part payment has been received and proposal is under implementation.
• Cases of willful default, fraud and malfeasance are not covered under the Scheme.

5.  SETTLEMENT AMOUNT:

5.1 Following four factors have been taken into consideration while framing the policy and deciding the quantum of settlement amount:

• Outstanding balance in Running Ledger
• Asset Classification
• Value of available securities
• Assets attached through DRT/Courts

5.2 All NPA accounts are to be grouped into following two categories for the purpose of arriving at settlement amount:

• Account with outstanding upto Rs.10.00 lacs (Category 1)
• Accounts with outstanding above Rs.10.00 lacs (Category 2)

OTS amount recoverable in this category would be worked out as under:

5.3.1 Normally, NPV of available securities are also taken into account while arriving at a settlement amount. Since borrowers under this category are small entrepreneurs with little means, requirement of NPV is dispensed with. However, cases where limits and actual outstanding amount may be much higher on the date of NPA, which subsequently came down to Rs 10.00 lacs or below on account of recoveries, due to not following the principle of appropriating recoveries first towards interest and then towards principal, such cases can be settled but under Category 2 settlement norms.

5.4  SETTLEMENT AMOUNT  FOR ACCOUNTS WITH OUTSTANDING    OVER  RS.10.00 LACS (CATEGORY 2)

OTS amount recoverable in this category would be worked out as under:

@   Apart from securities hypothecated/mortgaged, there may be certain cases where bank may have got attached certain assets through DRT/Court.  Value of such assets shall also be considered as available securities and NPV be calculated accordingly.

# Accounts where security available as above is not exceeding 10% of the outstanding.  All other cases to be treated as doubtful and dealt with accordingly.

• In case of outstanding in non-fund based limits, borrower to either get the L/Gs / LCs returned or to provide for 100% margin against such outstanding exposure.

5.6   ECGC/CGFT CLAIM SETTLED CASES:                 

5.6.1 While arriving at the running ledger outstanding, ECGC/CGFT claim settled amount credited to the account has to be reckoned, as proportionate claim settled amount is required to be refunded to ECGC/CGFT after the compromise.  In other words, running ledger balance in such accounts should be calculated adding the ECGC/CGFT claim received and credited to party’s account.

• In case of accounts where ECGC/CGFT claim amount is kept  in sundry, there will not be any change in settlement amount to be received from the party.  But, calculation of sacrifice should take into account the ECGC/CGFT amount to be retained.
• There may be cases where the borrowers get more benefit if the proposal is considered under the Bank’s existing Recovery Policy.  In such cases, branches can settle the account as per Bank’s Recovery Policy and proposal to be put up before competent authority as per Recovery Policy.  
• Wherever Borrowers have filed cases / claims against Bank, they have to give undertaking to withdraw/get withdrawn all the cases filed against the Bank including third party cases on account of devolved guarantees.

TERMS OF PAYMENT:

OTS amount has to be preferably paid in lumpsum in 3 months. In exceptional cases 25% can be paid upfront and balance in 6 equal monthly instalments with BPLR interest on reducing balance.

DELEGATED AUTHORITY:

7.1 Regional Head shall be the competent authority to approve the proposals irrespective of the sacrifice amount.

7.2 In case of Large Corporate Branches, Field General Manager (FGM) in whose command area said branch is located would be the delegated authority to approve the cases pertaining to these branches.

TIME LIMIT:

Scheme will come into operation with immediate effect and remains valid upto 31.03.2010.