Review OTS standards for loan collection: Karnataka HC

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Questions about why a borrower is allowed to pay only 70% on the secured portion and the remaining 30% is waived

The Karnataka High Court advised the Ministry of Finance and the Reserve Bank of India to review the One Time Settlement Scheme (OTS) standards allowing banks to collect loans while questioning why paying only 70% of the collateral part of the loan under the OTS is required even when a larger amount could be realized from the pledged assets.

“We do not understand why a borrower is allowed to pay only 70% on the secured part and the remaining 30% is canceled. This means that even when a security can make more money, borrowers are absolved by paying only 70% value. Although this is a political and undisputed issue, it is appropriate that those concerned within the Ministry of Finance and the RBI reconsider the program, ”the High Court said.

Judge PS Dinesh Kumar made these observations while rejecting with a cost of ₹ 2 lakh a petition filed by a certain Balakishan Boob, who is a guarantor of M / s. Bhagwan Cotton Ginners Pvt. Ltd., Raichur.

“It is quite strange that banks lend money without appropriate tangible collateral and offer to receive part of it under the OTS program. Logically, this is absurd because banks deal with money belonging to depositors. The renunciation of a part of the loaned money, whatever its name, directly leads to inflation and will have a negative impact on the economic health of the nation, ”observed the court.

On the petitioner’s assertion that OTS is non-discriminatory and non-discretionary in nature and according to standards OTS should be reflected in the general ledger balance on the date of declaration of the loan as ‘non-performing asset (NPA), the court observed, “If this assertion is to be accepted, any borrower / guarantor can choose to repay as they see fit several years after the declaration of NPA. It is the antithesis of economic progress. In the financial market, money has to grow day by day.

The petitioner had questioned the Bank of Maharashtra’s decision to reject the petitioner’s request on behalf of the company for the OTS 2020-21 program. The bank said the petitioner failed to honor the extended OTS benefit in 2018-19 and continued to make OTS claims every year thereafter. While noting that the company’s overall contributions were around 14 crore and that the pledged assets were valued at around 50 crore, the bank said the petitioner was offering a refund of around ₹ 5 crore under of the OTS.

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