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.
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.