Our companies are in high bank loan debts
Tirath Raj Singh
(Querist) 07 February 2020
This query is : Resolved
Our companies are in high bank loan debts and we unable to pay our debts, our property papers are with banks, what are the possible ways out of this situation other than bankruptcy
Raj Kumar Makkad
(Expert) 07 February 2020
Explore the possibilities of One Time Settlement with the banker. Generally banks adopt this policy.
Raj Kumar Makkad
(Expert) 08 February 2020
1
OTS POLICY
The One Time Settlement Policy of the Bank covers all sectors including
MSME. The OTS policy in line with SIDBI Scheme for OTS settlement of
MSMEs has since been approved by the Bank for implementation. While
general provisioning under the SIDBI Policy and our OTS Policy are in
Conformity with each other, a few variations in the method of computing
OTS acceptable amount in tune with SIDBI guidelines is now implemented
as detailed below:
• Our existing OTS policy is based on the Net Present Value of the
available security factored at 12% ,reckoning 4 years as the realisation
period of the security which works out to 62% of the value of the
property.
• OTS policy of SIDBI is based on the Distress Sale Value (DSV)of the
security (assessed by two independent valuers). The DSV is reckoned
at 75 % of the realizable market value as per SIDBI guidelines.
OTS policy for sick non-viable MSMEs
• Our policy will cover all NPA accounts including these assets where
action is initiated under Sarfaesi Act, Lok Adalats, DRTs, Decreed
accounts subject to obtaining consent decree from Court DRT/Lok
Adalat.
• Accounts falling under willful default Fraud /Malfaesance shall be
considered on a case to case basis with permission of CO
• Consortium if any with 75 % lenders consent
Settlement under OTS for MSME borrowers under NPA category
Security value or Notional amount due whichever is higher as under:
1) Security value
In order to adopt a more flexible approach to MSME borrowers in the
OTS policy in respect of value of the property and also taking into
account SIDBI guidelines in this regard, security value as lower of ‘a’ or
‘b’ given below:- the following approach:
a) 75 % of the FMV of the property
OR
b) Net Present Value as per our existing policy outlined herein
Note
9 Fresh valuation, if the previous valuation is more than 1 year old.
9 Two valuations if the approved value is more than Rs 5 crores.
9 If the variation is more than 10 %, third valuation to be obtained
2
OTS policy for sick non-viable MSMEs
2) Notional Amount Due from the borrower
A. Outstanding as on date of NPA
B. ADD SI from NPA date till OTS app settlement date at BR
C. ADD Bills Returned unpaid/ Invoked Guarantees after date of NPA
D. ADD Int on the above till OTS date
E. ADD other expenses
F. ADD Legal expenses
G. Less Recoveries made after NPA date
H. Less countervailing Interest on the above
I. NET Notional amount due from the party
OTS amount will be HIGHER of 1 and 2 above
OTS in case of LOSS Assets
Our bank’s OTS policy covers all accounts in NPA category
PAYMENT PERIOD FOR OTS AMOUNT
• OTS amount should preferably paid within six months from the date of
approval of OTS;
• 25% upfront and balance within six months without any interest
• If paid within a year, then interest at Base Rate from the sixth month
to one year to be paid
• In exceptional cases, payment of OTS can be extended upto two
years within interest.
Factors to be reckoned at the time of OTS offer
1. Realizable value of securities
2. Present status of the unit
3. Possibility of better recovery through other means
4. Provisions made
5. Consideration by other lenders ,if any
6.Impact of sacrifice on profitability
7.The premise of OTS to benefit both sides
If the borrowers fail to meet the OTS commitment all concessions will be
Withdrawn and the bank will proceed with legal process for recovery of
dues
• All other general provisions under our present OTS policy will apply to
OTS for sick non-viable MSMEs also.
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Dr J C Vashista
(Expert) 09 February 2020
Very educative and practical approach to your problem (if any) has been explained and advised by expert Mr. Raj Kumar Makkar. I agree.
Nothing more to add.
T. Kalaiselvan, Advocate
(Expert) 20 February 2020
There are two major consequences of failing to repay your debts.
Your application is approved only if your Credit Score is found favourable. If you default on your payments, your credit rating will go down. This will make taking loans in the future difficult, if not impossible.
Second, the property which was used as collateral for the loan can be repossessed and later auctioned by the lender after following a due legal process.
All borrowers are provided with the opportunity and have the right to approach the bank if there is any difficulty in repaying the installments and to choose an option to restructure their debt to enable a smooth repayment process
There are situations like death, ill-health or accidents that can unintentionally break the repayment schedule. In such cases, banks will give justifiable holidays to the customer or his family.
The Reserve Bank of India’s guidelines says that banks should give reasonable time to pay up and also forbids using ‘muscle power’ to recover loans. There is a laid down code of conduct which banks need to adhere to.
If a borrower is unable to maintain the terms and conditions of his loan, he can request the lender to relax the same. This may lead to a reduction of charges, lowering of interest rate, lengthening of the loan tenure, a moratorium on interest, etc.
This option is usually exercised when a borrower is unable to repay his loan to the extent that his interest accrued is larger than the principal amount.
The borrower may be bankrupt or in no position to make further payments. He may get the option to settle the loan through a small payment. Recently, a bank offered a settlement offer to its NPAs in the education loan sector, in which up to 90% of the principal and 100% of the interest were waived off.
