Chairmen and managing directors of banks will have the power to waive off or write off up to Rs 50 lakhs. Account officers responsible for a particular NPA have been barred from participating in the deliberation of SAC.

In a circular issued last week, the Reserve Bank further said that NPAs, which were not three-years old as on March 31, 1999 and those arising after that date, will not be covered for compromise settlements. The Reserve Bank guidelines will apply only to chronic NPAs in the small-scale, small business, trading and personal segments. Cases pending before the Courts as well as exsiting debt recovery tribunals (DRTs) willalso be covered provided that a consent decree is obtained in such instances, but NPAs involving fraud or malfeasance are to be excluded.

The Reserve Bank circular follows a proposal put forward by finance minister Yashwant Sinha in the Union Budget to encourage state-run banks to set up SACs so that chronic cases, especially those relating to the small sector are settled in a timely and speedy manner.

Bank boards are to draw up the broad guidelines and procedures for the SAC's functioning. SACs are to be authorised to sanction compromise settlements withing the powers delegated to its chairman. On the constitution of the SAC, the Reserve Bank has said that it may be set up at the Board (head office) and zonal office level. In case of banks not having a zonal office, the SAC may be set up at the regional office.

The reference date for the purpose of compromise settlement in respect of eligible small scale units could be the amount outstanding as on the date of tranfer to the protested billa account; anaccount of similar nature; or the amount as on the date of which the account was first categorised as stick or as an NPA.

The terms of compromise settlement could include waiver of the compound and penal rate of interest, and charging of simple interest: approximatyly at 10 per cent per annum from the material date.

The Reserve Bank has further stated that the amount of settlement arrived at should normally be paid in one lumpsum, but banks could structure the repayment over a period not exceeeding a year from the date of settlement in case of difficulty on the borrowers part. In cases of such reshedulement, the borrower is to pay at least 25 per cent of the settlement amount up front.

Highlight Box

* Compromise settlements to be restricted to 3-yr old NPAs

* Settlement guidelines not to be operative beyond 30 Sept, 2000.

* CMDs of banks given power to waive up to Rs 50 lakh

* Specific NPA account officer barred from joining SAC deliberations

* Decree order needed for cases pendingbefore courts, DRTs

* Bank boards to draw up guidelines for SAC's functioning

* Compromise settlement to include waiver of compound and penal interest

* Simple 10 per cent interest to be charged in settlements

* Settlement amount to be paid in one lumpsum or at least 25 per cent.