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CITY UNION BANK LTD,


CENTRAL OFFICE,KUMBAKONAM

NON-DISCRETIONARY ONE TIME SETTLEMENT SCHEME


FOR RECOVERY OF NON-PERFORMING LOANS
OF MICRO AND SMALL ENTERPRISES [MSE] BORROWERS

1] NEED FOR THE SCHEME:

In the light of the recommendations of the Working Group headed by


Dr.K.C.Chakrabarty on the ‘Credit Delivery to the Micro and Small Enterprises Sector
(MSE) Sector ‘ and the Banking Codes Standards Board of India’s Code of Commitment
for the MSE borrowers, Reserve Bank of India through its circular bearing reference
number RPCD. SME&NFS. BC.No.102 /06.04.01/ 2008-09 dated 4th May, 2009 has
advised all the scheduled commercial banks to have their own non-discretionary One
Time Settlement (OTS) scheme for recovery of non-performing loans of MSE borrowers
and to place the same in the respective banks’ website in order to provide a wide
publicity of the scheme. Accordingly, this ‘Non-discretionary One Time Settlement (OTS)
Scheme for recovery of non-performing loans of Micro and Small Enterprises borrowers’
has been evolved.

2] OBJECTIVES OF THE SCHEME:

The main objectives of this scheme are as follows;

1) To provide avenues to the MSE borrowers to opt for One Time Settlement
to the advantage of the bank as well as its MSE clients

2) To allow reasonable time to the eligible MSE borrowers to submit their


applications and to make payment of the dues

3) To give wide publicity to this One Time Settlement Scheme by placing it


on the bank’s website and through other possible modes of dissemination

4) To enable the Officials of the bank to make quick and


judicious decisions on One Time Settlement

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3] ELIGIBLE BORROWERS:

Borrowers who are coming under the Micro and Small Enterprises Sector as
defined in the Micro, Small and Medium Enterprises Development Act, 2006 and whose
accounts have become Non-performing assets are eligible to avail the benefits under
this OTS scheme.

4] DEFINITION OF MICRO AND SMALL ENTERPRISES :

The following definitions of Micro and Small Enterprises sector as outlined in the
Micro, Small and Medium Enterprises Development Act, 2006 shall form the basis for
categorizing the eligible borrowers.

A] Enterprises engaged in the manufacture or production, processing or


preservation of goods:

1) Micro (Manufacturing) Enterprise:

A Micro (Manufacturing) Enterprise is an enterprise where investment in plant


and machinery (original cost excluding the land and building and the items
specified by the Ministry of Small Scale Industries) does not exceed Rs.25
lakh.
2) Small (Manufacturing) Enterprise:

A Small (Manufacturing) Enterprise is an enterprise where investment in


plant and machinery (original cost excluding the land and building and the
items specified by the Ministry of Small Scale Industries) is more than Rs.25
lakh but does not exceed Rs.5 crore.

B] Enterprises engaged in providing or rendering services :

1) Micro (Service) Enterprise:

A Micro (Service) Enterprise is an enterprise where investment in equipment


does not exceed Rs.10 lakh.
2) Small (Service) Enterprise:

A Small (Manufacturing) Enterprise is an enterprise where investment in


equipment is more than Rs.10 lakh but does not exceed Rs.2 crore.

These shall include Small Road & Water Transport Operators, Small Business,
Retail Trade, Professional and Self Employed Persons and all other service enterprises.
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5) INELIGIBLE CASES:

i) Cases of fraud, malfeasance and willful defaults will not be eligible.


ii) Central Government/State Government guaranteed accounts will not be
considered under this scheme (Other than the accounts covered under
Guarantee from ECGC/DICGC/CGFT).

6) COVERAGE:

6.1 All NPAs in the MSE sector with an outstanding balance of Rs.5.00 Crore and below
shall be eligible under this Scheme.

6.2 Cases pending before Courts/DRTs/BIFR shall be eligible, subject to the consent
decree/order being obtained from the Courts/DRTs/BIFR.

6.3 Cases where Bank has issued notice or taken action Under Section 13(4) of the
Securitisation and Reconstruction of Financial Assets and Enforcement of Security
Interest Act (SARFAESI-2002) shall be eligible under this scheme..

6.4 Eligible written off accounts shall be covered under this scheme.

7) SETTLEMENT FORMULA:

Depending upon the age of such NPAs, discount may be offered on the balance
outstanding as on the date of account becoming NPA amount as under :

1) Age of doubtful or loss NPAs is more than 5 years - Maximum of 40%

2) Age of doubtful or loss NPAs is more than 3 years but upto 5 years – Maximum of
30%

3) Age of doubtful or loss NPAs is more than 1 year but upto 3 years -Maximum of
20%

4) Doubtful and loss NPA accounts upto 1 year - Maximum of 10%.

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8) PAYMENT SCHEDULE

1) The settled amount must be paid within a maximum period of 6 months from the
date of arriving at OTS.

2) Applications shall be processed only after the deposit of 5% of the eligible amount to
ensure the borrower’s willingness.

3) The borrower has to pay atleast 20% of the settlement amount (inclusive of 5% paid
at the time of submitting the application) at the Front End.

4) No interest shall be charged if the entire amount of settlement is paid within the
stipulated period.

9) GENERAL CONDITIONS :

9.1 The value of security should be as per the valuation report given by the Approved
Valuer, which should not be more than one year prior to the date of OTS proposal.

9.2 Wherever the borrower seeks payment of the compromise amount in


instalments, post dated cheques for the installments permitted may be
obtained.

9.3 Default clause to be included in the proposal. That is even if a single installment
of compromise amount is not paid, the OTS/settlement shall stand cancelled and the
bank is entitled to receive the entire amount due to the Bank as per the Books/Suit
claim in case suit has already been filed in respect of the accounts.

9.4 Prior consent/approval from ECGC/DICGC/CGFT wherever applicable/required shall


be obtained.

9.5 In the letter, if any, to be addressed to the parties for communicating sanction of
OTS/Compromise, it shall be ensured that;

a) the amount of sacrifice (i.e. Write off and/or Waiver) is never


Communicated / disclosed.

b) there is a specific mention to the effect that in case


Compromise amount is not paid within the stipulated time, the
Concession offered/OTS sanction would automatically
Stand cancelled and withdrawn and as per the terms the Bank
shall reserve the right to proceed legally for recovery of entire dues.
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10) ISSUE OF ‘NO DUE CERTIFICATE’

Wherever the borrower settles the dues with the bank as per the OTS by availing
concession, in such cases, the Bank at the request of the borrower may issue a ‘No
Due Certificate’ with a clause indicating that the borrower has settled the dues
under OTS.

*
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