The Hindu Business Line : IBA to come up with norms on compromise settlement of loans

Mumbai, April 23 The Indian Banks’ Association, the apex self-regulatory body for banks in India, plans to come up with dos and don’ts on compromise settlement of loans by assimilating the best practices on the subject from various banks, according to its Chief Executive, Dr K. Ramakrishnan.

Underscoring the fact that wilful defaulters of bank loans cannot escape criminal proceedings regardless of them arriving at a compromise one-time settlement with the bank, the IBA chief executive said, “we plan to codify the dos and don’ts on compromise settlement and recovery policies by collating information from various banks.” IBA’s move comes in the wake of a couple of cases coming to light wherein banks arrived at compromise settlement with wilful defaulters, informed the Court about the same, and closed cases even as the Central Bureau of Investigation (CBI) was in the midst of pursuing criminal cases against the borrowers.

Banks, according to Dr Ramakrishnan, should ensure that when they enter into compromise one-time settlement with wilful defaulters it is done so without affecting the criminal proceedings, which is initiated by the CBI at the bank’s behest, against the borrower.

A wilful defaulter is one who deliberately does not pay his/ her dues despite adequate cash flow and good networth; siphons off funds to the detriment of the defaulting unit; does not use the bank loan that has been disbursed to purchase assets or sells the assets for personal gains; misrepresents / falsifies records; disposes of / removes securities without bank’s knowledge; indulges in fraudulent transactions by the borrower.

The CBI investigates wilful loan default cases, referred to it by banks, of Rs 1 crore and above while the local police comes into the picture in case the default amount involved is less than Rs 1 crore.

“Chiefs of select banks met the Vigilance Commissioner and the CBI Director in early February 2009 to consider the issue of compromise settlement entered into by banks with wilful defaulters. It was agreed that banks will keep the CBI in the loop in cases which have been referred to it when arriving at one-time settlement with wilful defaulters,” said the IBA chief executive.

Notwithstanding the fact that the wilful defaulter has gone in for compromise settlement with the bank, criminal proceedings will continue in the court, he explained.

Bank chiefs will be meeting the Vigilance Commissioner and the CBI Director once in six months to take stock of cases pertaining to wilful bank loan defaulters.

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