Treatment of NPA in case loan covered by CGTMSE
Abhimanyu Saraf
(Querist) 05 December 2009
This query is : Resolved
Dear Sir,
I want to inquire as to what proceedings could be undertaken by Public Banks in case the whole amount of loan is covered under CGTMSE (Credit Gurantee Trust for Medium and Small Enterprises). The borrower is in the photographic industry and since the industry is near closure globally. So the NPA is not voluntary but market driven.
Please Reply at the earliest..!!!
Abhimanyu
A V Vishal
(Expert) 05 December 2009
You have not stated the category under which the loan is sanctioned viz.Micro Enterprises, Women entrepreneurs/ Units located in North East Region (incl. Sikkim) other than credit facility upto Rs.5 lakh to micro enterprises or All other category of borrowers. Further your query is also silent the amount of the loan sanctioned.
A V Vishal
(Expert) 05 December 2009
Invocation of guarantee
(i) The lending institution may invoke the guarantee in respect of credit facility within a maximum period of one year from date of NPA, if NPA is after lock-in period or within one year of lock-in period, if NPA is within lock-in period, if the following conditions are satisfied: -
a. The guarantee in respect of that credit facility was in force at the time of account turning NPA.
b. The lock-in period of 18 months from either the date of last disbursement of the loan to the borrower or the date of payment of the guarantee fee in respect of credit facility to the borrower, whichever is later, has elapsed;
c. The amount due and payable to the lending institution in respect of the credit facility has not been paid and the dues have been classified by the lending institution as Non Performing Assets. Provided that the lending institution shall not make or be entitled to make any claim on the Trust in respect of the said credit facility if the loss in respect of the said credit facility had occurred owing to actions / decisions taken contrary to or in contravention of the guidelines issued by the Trust
d. The credit facility has been recalled and the recovery proceedings have been initiated under due process of law. Mere issuance of recall notice under SARFAESI Act 2002 cannot be construed as initiation of legal proceedings for purpose of preferment of claim under CGS. MLIs are advised to take further action as contained in Section 13 (4) of the above Act wherein a secured creditor can take recourse to any one or more of the recovery measures out of the four measures indicated therein before submitting claims for first installment of guaranteed amount. In case the MLI is not in a position to take any of the action indicated in Section 13(4) of the aforesaid Act, they may initiate fresh recovery proceeding under any other applicable law and seek the claim for first installment from the Trust.
(rii) The claim should be preferred by the lending institution in such manner and within such time as may be specified by the Trust in this behalf.
(iii) The Trust shall pay 75 per cent of the guaranteed amount on preferring of eligible claim by the lending institution, within 30 days, subject to the claim being otherwise found in order and complete in all respects. The Trust shall pay to the lending institution interest on the eligible claim amount at the prevailing Bank Rate for the period of delay beyond 30 days. The balance 25 per cent of the guaranteed amount will be paid on conclusion of recovery proceedings by the lending institution. On a claim being paid, the Trust shall be deemed to have been discharged from all its liabilities on account of the guarantee in force in respect of the borrower concerned.
(iv) In the event of default the lending institution shall exercise its rights, if any, to takeover the assets of the borrowers and the amount realised, if any, from the sale of such assets or otherwise shall first be credited in full by the lending institutions to the Trust before it claims the remaining 25 per cent of the guaranteed amount.
(v) The lending institution shall be liable to refund the claim released by the Trust together with penal interest at the rate of 4% above the prevailing Bank Rate, if such a recall is made by the Trust in the event of serious deficiencies having existed in the matter of appraisal / renewal / follow-up / conduct of the credit facility or where lodgement of the claim was more than once or where there existed suppression of any material information on part of the lending institutions for the settlement of claims. The lending institution shall pay such penal interest, when demanded by the Trust, from the date of the initial release of the claim by the Trust to the date of refund of the claim.
The Guarantee Claim received directly from the branches or offices other than respective operating offices of MLIs will not be entertained.
11. Subrogation of rights and recoveries on account of claims paid
(i) The lending institution shall furnish to the Trust, the details of its efforts for recovery, realisations and such other information as may be demanded or required from time to time. The lending institution will hold lien on assets created out of the credit facility extended to the borrower, on its own behalf and on behalf of the Trust. The Trust shall not exercise any subrogation rights and that the responsibility of the recovery of dues including takeover of assets, sale of assets, etc., shall rest with the lending institution;
(ii) In the event of a borrower owing several distinct and separate debts to the lending institution and making payments towards any one or more of the same, whether the account towards which the payment is made is covered by the guarantee of the Trust or not, such payments shall, for the purpose of this clause, be deemed to have been appropriated by the lending institution to the debt covered by the guarantee and in respect of which a claim has been preferred and paid, irrespective of the manner of appropriation indicated by such borrower or the manner in which such payments are actually appropriated.
(iii) Every amount recovered and due to be paid to the Trust shall be paid without delay, and if any amount due to the Trust remains unpaid beyond a period of 30 days from the date on which it was first recovered, interest shall be payable to the Trust by the lending institution at the rate which is 4% above Bank Rate for the period for which payment remains outstanding after the expiry of the said period of 30 days.
Raj Kumar Makkad
(Expert) 06 December 2009
I do agree with the detailed opinion of Vishal.
Abhimanyu Saraf
(Querist) 07 December 2009
Mr. Vishal
I apologize.. Well the full details are as follows.. The santioned loan amount is Rs. 24 lacs.. The category of loan santioned is Unit in North Eastern Region...The account had been sanctioned in 2005 and since then the entrepreneur has been paying the dues diligently..Infact he has clean record till April 2009..Only in April he started facing cash crunch and other related problems. He had in August approached the bank for a One Time Settelement option but the bank refused saying that was possible only if the account was declared NPA..The photographic printing market is pretty much dead all over the world and so he has no hopes of reviving it either..Plus the Plant and machinery pledged as primary security is now valued at just over 8 lacs. So there is no way he can actually pay the loan now. The only primary security was Plant and machinery and other fixtures. The shop area is rented.
My query would be mostly from the Entrepreneurs point of view..i.e What proceedings could be undertaken against him considering it is not a voluntary case of NPA. More so what could the entrepreneur do to present his case strongly...???
