BP. BC. 39 / 21.04.048/ 2001- 2002

27 October 2001

All Commercial Banks
(excluding RRBs)

Dear Sir,

Monetary and Credit Policy Measures - Mid-Term Review for the year
2001- 2002 - Settlement of Non- Performing Assets (NPAs)

Please refer to the Governor's letter No. MPD. BC. 210/ 07.01.279/ 2001-2002 dated 22 October 2001 enclosing a copy of the Statement on " Mid-Term Review of Monetary and Credit Policy for the year 2001- 2002".

2. A reference is invited to paragraphs 75 to 77 of the Statement, regarding settlement of Non-Performing Assets (NPAs) by banks. In terms of Circular No. DBOD. BP. BC. 11/ 21.01.040/ 99- 00 dated 27 July 2000, we had circulated simplified, non-discretionary and non-discriminatory guidelines to provide a one-time impetus to reduction of the stock of chronic NPAs by the recovery of dues relating to public sector banks. The above guidelines covered accounts upto Rs. 5 crore in all sectors including the small scale sector, but excluded cases of willful default, fraud or malfeasance. The settlement scheme laid out by these guidelines was operative till June 2001 and all applications received upto this date were to be processed by September 2001. Some representations have been received for further extension of the scheme. Given that the purpose of these guidelines was to provide an opportunity for "one-time settlement" within the specified time period, and sufficient time has already been provided, it is not proposed to extend this scheme.

3. However, the broad framework for compromise or negotiated settlement of NPAs provided vide our Circular DBOD. No. BP. BC. 81/ 21.01.040/ 95 dated 28 July 1995 will continue to be in place. Banks are free to design and implement their own policies for recovery and write-off incorporating compromise and negotiated settlements with the approval of their Boards, particularly for old and unresolved cases falling under the NPA category. In this respect, the experience with the one-time settlement scheme may also be taken into account. It is important, however, to ensure that any scheme formulated by bank Boards is simple, non-discriminatory and transparent so that all eligible cases are accorded equal treatment.

Yours faithfully,

sd/-

( C. R. Muralidharan )
Chief General Manager