In a move that has gladdened the entire urban cooperative banking fraternity, the Reserve Bank of India has issued instructions to regulated entities that include the UCBs, regarding compromise settlements and technical write-offs in respect of stressed accounts.
Like its commercial cousins, UCBs can also now cleanse its balance sheet. “We are more than 100 years old and this is the first time we have got a device to cleanse our balance sheet”, said Mehta calling the move a historic step by the RBI.
Now UCBs Boards can decide to write off its bad debts and this will lead to good health for the sector, said Mehta, underlining that the accumulation of NPAs and the absence of any tool to deal with them, was a big challenge for the UCB sector.
In the Statement on Developmental and Regulatory Policies released on Thursday by the RBI, it has been mandated that Regulated Entities (REs) shall put in place Board-approved policies for undertaking compromise settlements with the borrowers as well as for technical write-offs.
Compromise settlement for this purpose shall refer to any negotiated arrangement with the borrower to fully 1 settle the claims of the RE against the borrower in cash; it may entail some sacrifice of the amount due from the borrower on the part of the REs with corresponding waiver of claims of the RE against the borrower to that extent.
Technical write-off for this purpose shall refer to cases where the nonperforming assets remain outstanding at borrowers’ loan account level, but are written-off (fully or partially) by the RE only for accounting purposes, without involving any waiver of claims against the borrower, and without prejudice to the recovery of the same.
The Board approved policy shall comprehensively lay down the process to be followed for all compromise settlements and technical write-offs, with specific guidance on the necessary conditions precedent such as minimum ageing, deterioration in collateral value etc. The policies shall also put in place a graded framework for examination of staff accountability in such cases with reasonable thresholds and timelines as may be decided by the Board.
The methodology for arriving at the realizable value of the security shall also form part of the policy. The objective shall be to maximise the possible recovery from a distressed borrower at minimum expense, in the best interest of the RE.
The demand for OTS for the UCB sector was a long pending one and several co-operators have welcomed the move. Earlier, the RBI was not able to issue an order as the UCBs were under dual control. But after the amendment of BR Act 2020, such a move has been possible.
This is at least one aspect where we have gained parity with commercial banks, said many co-operators.