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Unit 13: Non Performing Assets

13.7.1 One Time Settlement/Compromise Scheme Notes

In May 1999, the RBI issued guidelines for the constitution of Settlement Advisory Committees
(SACs) for compromise settlements of chronic NPAs of the small sector. Modified guidelines
were issued in July, 2000 to provide a simplified, non-discretionary and non-discriminatory
mechanism for recovery of the stock of NPAs.

Under one-time settlement/compromise scheme of the RBI extended in May 2003, the time limit
for processing of applications received under the revised guidelines for compromise and
settlement of chronic NPAs of PSBs up to ` 10 crore up to December 31, 2003, which was further
extended July 31, 2004. Amount of ` 1497 crore was received through 21,311 compromise proposals
up to March 2005.
13.7.2 Lok Adalats

Lok Adalats have proved an effective institution for settlement of dues in respect of smaller
loans. These Adalats have been conferred a judicial status. The RBI issued guidelines to banks in
2001 indicating that:
1. Ceiling of amount for coverage under Lok Adalats would be ` 5 lakh;
2. The scheme may include both sent-filed and non-sent filed accounts in the doubtful and
loss category; and
3. The settlement formula must be flexible.
Furthermore, DRTs have been empowered to organize Lok Adalats to decide on cases of NPAs
of ` 10 lakh and above.
The monetary ceiling of cases to be referred to Lok Adalats organized by civil courts was
enhanced to ` 20 lakh. Furthermore, banks were advised to participate in the Lok Adalats
convened by various DRTs/DRATs for resolving cases involving ` 10 lakh and above to reduce
the stock of NPAs.
As on March 31, 2009, the number of cases filed by commercial banks with Lok Adalats stood at
5, 48,308 involving ` 11763 crore. The number of cases decided was 4, 04,378. The amount
recovered was ` 2105 crore.

13.7.3 Debt Recovery Tribunals (DRTs)

The Recovery of Debts Due to Banks and Financial Institutions Act was enacted in 1993 to
provide for the establishment of tribunals for expeditious adjudication and recovery of debts
due to banks and financial institutions and for matters connected therewith and incidental
thereto. The amendments made in 2000 to this Act and the Rules framed there under further
strengthened the functioning of DRTs.
Up to March 31, 2009, 81,173 cases involving ` 1, 30,917 crore had been filed with DRTs by the
banks. 45,088 cases involving ` 62, 849 were adjudicated with the amount recovered at ` 24, 884
crore.
On the recommendation of the Reserve Bank, the Government of India set up a working group
in July, 2004 to improve the functioning of DRTs. The working group was expected to examine
issues and recommend appropriate measures regarding: (a) the need to extend the provisions of
the Recovery of Debts Due to Banks and Financial Institutions Act to cases for less than ` 10 lakh;
(b) redistribution of the Jurisdiction of the various DRTs; (c) modification in the existing strength
of the DRTs/Debt Recovery Appellate Tribunals (DRATs); and (d) Legal and Institutional
provisions.

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