State Bank of India has launched a one-time settlement (OTS) scheme for recovering bad loans in its micro, small and medium enterprises portfolio. To make the scheme attractive, the bank is also offering discounts to borrowers.
India's largest bank has seen a net increase of Rs 3,902 crore in bad loans in its MSME portfolio in the first nine-months of the current financial year.
Given the increase in bad loans, the bank has launched a non-discretionary and non-discriminatory scheme of OTS to give relief to MSME borrowers affected by the downturn in the economy.
Chronic, non-performing assets (doubtful or loss) in the MSME sector with investment in plant and machinery of up to Rs 10 crore are covered under the OTS scheme, said a bank official.
Many MSME units have been affected by the sharp rise in interest rates and fall in demand for their products.
Corporate portfolio
In the first nine-months of the current financial year, the highest net increase in bad loans for SBI was in the corporate portfolio (Rs 6,469 crore), followed by the MSME portfolio.
It is difficult to give corporates an OTS as banks usually have large exposure to them. Hence, banks prefer taking the legal recourse to make recoveries, said a senior banker.
Overall, SBI has recorded a net increase of Rs 14,772 crore in bad loans in the first nine-months of the current financial year.
As on December-end 2011, MSME advances accounted for 16 per cent of the bank's overall lending portfolio of Rs 8,46,266 crore.
As per the terms of the OTS, the application for compromise will be processed on deposit of a minimum of 5 per cent of the amount outstanding as on the date the account is declared an NPA.
The deposit is to commit the borrowers to the OTS process. The bank will receive applications for compromise settlement up to July 31, 2012.
A borrower has to pay 25 per cent (including the 5 per cent already deposited at the time of application) of the compromise amount upfront on sanction of the OTS by the bank. The balance amount of the compromise has to be paid within six months of the date of sanction without interest or 12 months with interest.
The bank has also thrown in an incentive to make the OTS attractive. It will give 15 per cent and 10 per cent discount on the OTS amount to those borrowers who make full payment within one month and three months, respectively, from the date of approval of the OTS.
Keywords: one-time settlement, SBI, micro, small and medium enterprises, NPAs, MSME portfolio, interest rates, discounts offer,
Comments:
It is a better OTS scheme to be implemented by SBI to reduce the rising NPA level; an incentive to the prompt borrower to repay the dues early. Let other banks also follow the SBI way to implement similar schemes to their borrowers.
SBI has always been a trend setter be it Agri, SME or other category of loans to different
Sectors. The same way it has come out with an OTS on the spirit of the RBI -OTS
introduced in 2000-01 and later years. Congrats ! To the Central Management Team for the
Timely introduction of the Scheme to mitigate the suffering of the Non - Wilful category of
Borrowers who would otherwise have to face legal cases endlessly not being able to exit
Honourably for all the ills of Slowdown of the Economy. Let us hope other Banks too follow
Suit before it is late to improve their Bottomline in the Financial Year to come.
Lending to agriculture,horticulture and related activities come under priority sectors,which have very less assured support from climate,market,seed,inputs,insurance & fund. The non willful defaulters of agri sector be given more relief than MSME sector as one rescue measure for them while considering OTS for them by the largest bank of the nation. from:U.N.BARMA posted on aprl 17,2012
Whether after OTS amount paid is it possible to take new loan
its not a viable ots scheme.There is no relief available in this scheme for MSE SECTOR.How a settlement scheme can be treated as a settlement scheme if it is void of any secrefise from the Bank.Why a borrewer shall opt for this scheme if he has to pay the entire dues and interest up to the time of payment.I doubt if SBI do not allow substintial concession,this scheme is bound to floop. SBI please take a note. Any scheme made for the sake of making a scheme is useless. The long pending list of NPA is bound to inmcrease with such OTS scheme.
There is no reason why banks do not give relief under one time settlement (OTS) scheme to agriculture loans against gold.Please elaborate on this point and let me know whether banks at branch level are not providing relief even though it is policy of both the RBI and government in case of agriculuture loans.
The so called non-discretionary scheme is nothing but discretion of the bank to offer the scheme to such select borrower where the bank feels in trouble -total security is much less than the loan amount and bank official are facing action for honest willing borrowers who have lost whole of their capital in new ventures but have given valuable property to the banks as collateral security no scheme is being offered even banks have given in writing to such borrowers as to why should we agree for one time settlement as the total security is more than the loan due. When the scheme is applicable up to 31st July 2012 a new item giving reference to some statement of a senior officer of a nationalised bank appearing in a daily paper on 7th June, 2012 that the scheme has been withdrawn by the banks is again misleading for the borrowers. Any detailed information from Knowledgeable individual?
Please Email the Editor