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eCircular
STRESSED ASSETS MGT

Circular No. SAMG/SMT/17/11-12 Date: 24 February
2012

All Branches / Controlling Authorities
And Departmental Heads at Head Office
SCHEME OF OTS FOR SETTLEMENT OF MSME NPA ACCOUNTS

Small Industries Development Bank of India (SIDBI) circulated a scheme of
OTS of MSME NPA Accounts duly perused by Ministry of Finance, Govt of
India.
Board of Directors of the Bank in its meeting dated 10th Februray,2012 vide
agenda item No. 324/32 approved OTS scheme of MSME NPA accounts and
a copy of duly approved scheme is annexed for information of all concerned
functionaries. The proforma of application to be obtained from the borrower
and the proforma of compromise proposal to be prepared are also enclosed
along with the scheme. The provisions of policy should be kept in view &
meticulously complied with while considering proposals for compromise in the
MSME NPA Accounts.
Please bring the contents of circular to notice of all concerned for compliance.
General Manager (HR)&
Corporate Development Officer


Annexure
SCHEME OF OTS FOR SETTLEMENT OF MSME NPA ACCOUNTS

1. COVERAGE OF THE SCHEME

The OTS scheme will cover all NPAs classified as “doubtful” and “loss” in respect of
Micro, Small and Medium Enterprises (manufacturing as well as services) as defined in
the MSMED Act, 2006.
• The OTS policy will also cover eligible cases in which the Bank has initiated
actions under SARFAESI Act, cases pending before Courts/DRTs/Lok Adalat and decreed accounts subject to obtaining consent decree from the Court/DRT/Lok Adalat. Accounts under Consortium or Multiple Banking arrangements wil also be eligible to be covered under the proposed Scheme subject to approval by 75% of the lenders by amount. • The cases of wilful default, fraud and malfeasance may be considered on case to case basis under the proposed scheme with the approval of the Executive Committee of the Board of the Bank. • In case there is no security available in the account this scheme is not applicable and the OTS offer in such accounts will be considered as per the compromise scheme of the Bank applicable in the other NPA accounts. 2. SETTLEMENT
While arriving at OTS amount, the value of security available should be the basic
criteria. Accordingly, the OTS amount in respect of NPAs(Doubtful and Loss) would be
calculated in non-discretionary and non-discriminatory manner as under:
Particulars
1. OTS for NPAs in Doubtful category
Distress Sale Value
75% of the Market Realisable Value(MRV) of al available
securities(immovable/movable) to be treated as “Distress Sale Value”.
(Two independent valuations are to be done and 75% of higher valuation
should be taken)
B Reference
Recoverable
Outstanding Balance as on the date of NPA (i.e.Principal Outstanding+Interest up till the date of NPA +Cost & Charges, if any) Add: Simple interest at documented rate of the account or Bank’s Prime Lending Rate minus 2% (BPLR-2%) / Base rate, whichever is lower, on reducing balance, from the date of NPA till the date of crystallization of OTS (i.e. upto the last date of preceding month when the OTS proposal is submitted) Less: Cash recovery i.e. cash recovery and amount of appropriation of liquid securities, after the date of NPA till the date of crystalization of OTS (i.e.upto the last date of preceeding month when the OTS proposal is submitted). OTS amount would be higher of the two amounts as worked out at A
and B
II. OTS for NPAs in Loss category
Distress Sale Value
75% of the Market Realisable Value(MRV) of al available
securitis(imovable/movable) to be teated as “Distress Sale Value”.
(Two independent valuations are to be done and 75% of higher valuation
should be taken)
OTS amount shall be the distress sale value of the security as at A
above.
3. PAYMENT PERIOD
The amount of settlement arrived at above should preferably be paid within six months from the date of letter communicating the acceptance of the proposal by the Bank. Atleast 25% of the amount of settlement shall be paid upfront and the balance amount is to be paid, without any interest, within six months from the date of acceptance of the proposal. However, the amount can be paid within overall repayment period of one year together with interest @ the existing PLR/Base Rate payable on expiry of six months till the final payment. The obtention of PDCs for future instalments will be explored from the borrowers in such cases. In exceptional cases, the repayment period may be extended upto two years and payment to be made alongwith the In case the borrower(s) /obligant(s) fail to repay the settlement amount as per approval, all the concessions allowed under the scheme will be withdrawn automatically and in that event entire dues of the Bank shall be recoverd from the borrower(s) /obligant(s) by initiating/continuing the legal process. 4. GUIDELINES
The OTS guidelines are given in the Annexure-1. Annexure-1
ONE TIME SETTLEMENT OF DUES-POLICY AND GUIDELINES
1. Factors to be considered in One Time Settlement offer
The fol owing factors would be relevant while negotiating a One Time Settlement proposal: • Realisable value of the security charged/ other attachable assets and net worth of the • Present status of the borrower unit/ company and its financial performance. • Possibility of better recovery through other means, including through legal recourse. • Assets classification and provision made in the Bank’s book. • Consideration/ approval of One Time Settlement by other lenders and comparision of terms • Impact of the One Time Settlement proposal on the Bank’s profitability. • The premise of the scheme is to benefit both the lender and the borrower. 2. One Time Settlement Application
At the time of receipt of the One Time Settlement offer from the borrower, upfront payment to the extent of at least 25% of the negotiated One Time Settlement amount should be sought to evidence commitment to the One Time Settlement process. If required, the borrower unit/ company can be advised that in case the One Time Settlement offer is not found acceptable by the Bank, such advance payment would be refunded, without interest, within a maximum period of 3 months from the date of receipt of the said amount. In case the borrower unit/ company has genuine difficulty to make the upfront payment, it should be made clear at the time of receipt of the One Time Settlement Application Form itself that upfront payment to the extent of atleast 5% of the aproved One Time Settlement shall be required to be paid at the time of issue of One Time Settlement approval letter by the Bank and its concurrence 3. Valuation of assets in One Time Settlement cases
Under the scheme, the Bank is required to obtain valuation of the assets from two independent empanelled valuers. However, in case a valuation has been carried out prior to 6 months of the One Time Settlement proposal, then only one fresh valuation need to be carried out. The valuer should indicate the market value. Higher of the two valuations shall to taken into account while negotiating One Time Settlement terms and 75% of the same would be taken as distress sale value. Branch should satisfy itself on the appropriateness of the valuation. One Time Settlement in respect of wilful defaulters/ suspected fraud
The benefit of One Time Settlement should normally not to be extended to the cases of The legal route is the only recourse available to the banks/ FIs against wilful defaulters/ suspected fraud cases. However, there may be cases where it is preceived that legal action may not ensure recovery of the Bank’s dues to a reasonable extent, keeping in view the availability of security, its nature, enforeceability, realisable value, etc. In such cases, it is, therefore, felt that out of court settlement under the One Time Settlement route would be in the Bank’s interest for recovery of maximum possible dues. In such cases, Bank may enter into compromise settlement with wilful defaulter(s)/ fraudulent borrower(s) without prejudice to the criminal cases against them. Further, all such cases of compromise settlements should be vetted/ approved by the Executive Committee (EC) of the Board of Directors of the Bank. 5. One Time Settlement in suit filed/ decreed cases
In the case of suit filed or decreed accounts, the possibility of a compromise settlement under One Time Settlement could be explored keeping in view the time involved in the legal process, the One Time Settlement option in suit filed/ decreed cases should be evaluated taking into account the present value of the realisable amount(in relation to the One Time Settlement offer), legal cost and time involved, possible deterioration in the quality of assets and further increase in the overdues to the Bank. The decreed amount along with interest thereon, as approved by the DRT/Court, shall Wherever ample security is available, the One Time Settlement amount should not be In respect of suit filed cases, it should be ensured to obtain proper “Consent Order” confirming the terms of One Time Settlement from the DRT/Court and the One Time Settlement approval letter should be issued to the borrower unit/company. In the event of the agreed One Time Settlement payment not forthcoming and legal recourse being pursued again, the decreed amount/ ledger outstanding, as the case may be, should be taken into consideration for pursuing the case in DRT Court. 6. One Time Settlement in BIFR/Winding up cases
In respect of cases already referred to BIFR or companies which are under the orders of winding up, it will not be possible to obtain the One Time Settlement proposal directly from the borrowers, unless specific approval from BIFR/Court is obtained. However, in case the One Time Settlement offer is received from the guarantors/ mortgagors/ pledgors to settle the dues of the borrower unit/ company, a prior confirmation in writing should be obtained from the guarantors/mortgagors/pledgors concerned to the effect that the One Time Settlement amount would be paid out of resources to be arranged by them in their personal capacity and the Banks should satisfy themselves of such arrangement for payment before issuing/ accepting the One Withdrawal of One Time Settlement approval
In respect of cases where the borrower unit/company is not found to be honouring the One Time Settlement terms, even after persistent follow up, it would be necessary to withdraw the One Time Settlement aproval and initiate/pursue appropriate legal action Release of security documents/ issue of No dues Certificate
• Only after the approved One Time Settlement amount along with interest thereon has been received in full as per the terms of One Time Settlement, the security documents should be released to the borrower unit/company/ other charge holders, as applicable. No dues Certificate, if required, should also be issued only thereafter. • If one unit of a borrower is elligible for OTS but other is not, security will not be released whethrer cross collateralized or not till the currency of other loan. This fact should be 9. Follow-up
The One Time Settlement approval accorded by the Bank might not necessarily result in full recovery of the settlement amount in case the borrower unit/company does not honour its commitment. It would, therefore, be prudent to maintain proper follow-up in the One Time Settlement cases also. The normal follow-up requirements such as renewal of insurance policy, periodic site visits, calling for progress reports/ financial statements, attending Board meetings, wherever applicable, should be ensured to the extent possible as per the extant instructions so as to take care of the Bank’s interests. 10. Delegation of Powers
• Powers for concessions/remissions/foregoing of dues arising out of a compromise proposal will be in accordance with the scheme of delegation of powers which have been circulated vide Head Office Circular no. OPD/ONP/9/08-09 dated 21.03.2009. • As the scheme is non-discretionary and non-discriminatory, the proposals will be sanctioned without going through the Screening Committee process. • In the event of a loan having been sanctioned by official, now in position to sanction the OTS, the decision on the compromise settlement in such cases should be taken by the 11. Staff Accountability
While considering the account for settlement through compromise, the examination of Staff Accountability aspect is to be kept under consideration by the sanctioning authority. Bank’s policy of examining the staff accountability has been circulated vide Head Office Circular No. SAMG/SMT/10/11-12 dated 07.09.2011. The Branch Manager
State Bank of Patiala,
…………………Branch
Dear Sir,
One Time Settlement Scheme MSME

In reference to the above we submit that we obtained Cash Credit/ Demand
Loan/ Term Loan of Rs……………… (Rs………………………………….) from
your branch for our firm M/s……………………………………………………. Our
said loan account is running irregular and is NPA and eligible for compromise
under the OTS scheme MSME.
We give our consent to pay the above settlement amount as under:
1. Lump-sum Rs……………………, out of which 25% of this amount is being
paid as upfront and the remaining amount will be paid with in six months from
the date of acceptance of the proposal.
OR

2. Lump-sum Rs……………………, out of which 25% of this amount is being
paid as upfront and the remaining amount will be paid with in overall
repayment period of ------------------- months from the date of acceptance of the
proposal, together with interest @ the existing Base Rate payable on expiry of
six months till the final payment.
We request you to sanction the same.
Yours faithfully,
(Proprietor/ Partner / Director)
M/s ……………………………
…………………………………
…………………………………
(Rs in lacs)
1. Proposal: - (i) Acceptance of compromise offer of Rs _______ lacs against
outstanding of Rs ______ lacs and total dues of Rs ________ lacs as under.
Particulars Amount
rate ) From______ to______ i.e. tentative date of approval of i ) Waiver of accrued/ notional interest of Rs__________ lacs. i i) Write off of ______________ lacs iv)Removal of Rs ___________ lacs from AUCA. v) Waiver of legal action against the borrower and the Guarantors on receipt of the entire compromise amount by the Bank. vi) The proposal falls within the powers vested with__________ as the net loss exceeds Rs_______ lacs and/ or outstanding in live ledger exceeds _______ lacs. SYNOPSIS
2. Status of Activity

3. SECURITY AVAILABLE:
i) Primary

ii) Collateral
Detail of property
(Exact location and
measurements
iii) Value of security
valuation, if any
iv) (a) Status of staff
accountability (In terms of
H.O. cir No. SAMG/SMT/
10/11-12 dated 07.09.2011
(b)Reasons for delay if not
examined yet.
v) Brief reasons for
regulation, lack of second line of management, quitting of key personnel etc.) 4. PARTICULARS OF THE UNIT:
a)
(b) Name of associate concerns and their Bankers d. Details of Credit Facilities:- ( Rs in lacs)
Sl.
Facility
Date of Sanction
Sanction nding
at the nding
sanction
/renewal
a) Fund Based
Sub total (a)
b) Non Fund Based:
Sub total (b)

c) Off-balance sheet
d) Investments in the unit, if
Grand Total (a+b+c+d)

Credit facilities from other Bank/ FIs ( Rs In lacs as on )
S. No. Name of the Institution/ Bank
*dues of any Bank/Fl if settled under O.T. S. should be given
5. ESTIMATED NET LOSS: Rs In lacs
a NPA Amount /Amount Transferred to PB account
c Less: Recovery a f t e r d a t e o f N P A e Present outstanding in AUCA (Written off on _______ and on _______ Add: Accrued / notional interest from__________ to __________ g Add legal and other expenses paid/to be paid Less Retainable portion of DICGC/ECGC claim ii) Waiver of accrued/ notional interest and legal and other expenses 6. Position of Settlement of DICGC/ECGC Claim:
7. Position of Legal Action a) Suit filed on
Initiated
c) Has it been heard d) If decreed, date & amount e) Execution petition Filed on f) Position of execution proceeding 8. COMMENTS ON ACCOUNT BECOMING IRREGULAR
a) Whether irregularity was reported to and
confirmed by the competent authority b) When was the account last reviewed /renewed c) Whether any rehabilitation/ rephasement sanctioned. Details thereof. Reason for not becoming effective. d) Performance of group/ associate concerns e) Whether the account on becoming NPA was reviewed to the competent authority as
per existing guidelines.
9. Terms of Compromise offer: Rs In lacs
a Total amount offered compromise `
10. Provision
11. Brief History:

12. Comments on Compliance with
It is confirmed that extant guidelines of RBI for compromises have been complied with except for the following deviation:- 13. RECOMMENDATION:
(Recommending Authority)
Date

ANNEXURE-I
COMPROMISE PROPOSAL FOR NPAs IN DOUBTFUL CATEGORY
(NON-SUIT FILED)
(Rs in
Lacs)
A. Distress Sale Value
Market Realisable Value of all securities Market Realisable Value of all securities B. Reference Recoverable Amount.
Outstanding Balance as on date of NPA ( i.e. Principal Outstanding + Interest+ Cost and Charges if any) Add Simple interest at documented rate of the account or Bank’s Prime Lending Rate minus 2% (BPLR-2%) / Base rate, whichever is lower, on reducing balance, from the date of NPA till the date of Rs.-----------crystal ization of OTS (i.e. upto the last date of preceding month when the OTS proposal is submitted)i.e. from-------- to ----------- iii Less: Cash recovery i.e. cash recovery and amount of appropriation of liquid securities, after the date of NPA till the date of crystalization of OTS (i.e.upto the last date of preceeding month when the Certified that the valuations are done by the valuers who are in the list of approved panel of the Bank. COMPROMISE PROPOSAL FOR NPAs IN LOSS CATEGORY
( NON - SUIT FILED)
(Rs in
Lacs)
A. Distress
Market Realisable Value of all securities (Immovable/movable) (Valuation No. 1 dated---------) Market Realisable Value of all securities. (Immovable/movable) (Valuation No. 2 dated---------) Certified that the valuations are done by the valuers who are in the list of approved panel of the Bank. Branch Manager

Source: http://www.sbp.co.in/sme/SCHEME%20OF%20OTS%20FOR%20SETTLEMENT%20OF%20MSME%20NPA%20ACCOUNTS.pdf