Banks and institutions were till now going in for independent compromise settlements with corporates. Except for term loans under consortium-basis, where banks had some time gone of joint settlement with institutions, their exposure to corporates under working capital finance was never a part of a joint compromise settlements with corporates.

"We will be meeting the financial institutions on a case-to-case basis for joint settlement of NPAs. ICICI and IDBI have told us that they are willing for a joint settlement of both term loan and working capital exposure," said Bank of Baroda chairman and managing director K Kannan.

The move is expected to benefit the banks considerably as FIs' term loan exposure normally get preference overbanks' working capital dues in out of court settlements. "Whether it is term loan or working capital the exposure is to the same entity. It will benefit all if we go for joint settlements. We have found out that in many cases other institutions like LIC and GIC also has large exposures," Kannan said.

Kannan said the joint settlement will be exactly like BIFR settlements except for the fact that one does not really approach BIFR and the procedure will be faster. He said there cannot be any official standards set for the the settlements, but it has to be based on a case to case basis.

However, joint settlements of NPAs may take some time to become the standard practise. Banks are not sure how far the institutions will be willing to compromise in a joint settlement. They feel that FIs, taking mileage of their natural advantage over banks due to first charge on the project assets, will extract terms of settlements that are in their favour.

On the other hand, most of banks' exposure to a defaulting companyis under working capital finance, where the security is not fixed assets of the company but other external securities like shares and bonds. Out of banks total NPA accounts only less than 10 per cent is under term loans.

The law for banks and financial institutions regarding invoking of securities on defaults are different. According to a senior bank official, it is easier for financial institutions to bring a defaulting company to table than it is for banks.

One of the suggestions made by the government of India appointed committee on Non performing assets of PSU banks recently for immediate implementation said that "pari-passu charge of banks with the FIs on the fixed assets and reciprocal charge of FIs over current assets financed by banks should be accepted as a uniform rule as practically banks, second charge holder, is left with nothing on satisfaction of dues of FIs consequent to disposal of assets".