Loan defaulters will now find it difficult to rid themselves of all their liabilities through the one-time settlement scheme. Public sector lenders plan to insert a clause that will bar them from withdrawing criminal cases against private persons, irrespective of a settlement.
Officials who attended the meeting told Business Standard the move was initiated as several loopholes were noticed in the OTS scheme. It was also found that there was no uniform policy across banks for the amount on which a settlement could be made.
Public sector banks often resort to OTS schemes with borrowers to recover a part of the outstanding amount and minimise the losses on account of non-performing assets.
It was noticed that, in the recent past, banks had gone in for an OTS scheme multiple times with the same borrower for the same or less than the settlement money received earlier.
"Banks have to rely on collaterals (as the underlying asset) for OTS schemes as primary securities are not available by the time the fraud surfaces. Instructions were issued for the OTS scheme and sharing of information on the borrower's accounts among the multiple financing banks," a bank executive said.
It was also observed that securities are distress-valued and, even if the value of the collateral is more than the loan outstanding, settlement is done on a lesser amount. In addition, CBI officials pointed out that there was a high degree of under-reporting of frauds by banks.
According to RBI data, out of the 44 cases of frauds of Rs 1 crore (Rs 10 million) or more, 33 cases were not reported by banks. "Banks reported there is hesitation on the part of CBI to take up cases of frauds involving over Rs 1 crore (Rs 10 million)," the Central Vigilance Commissioner said.
According to RBI data, during 2008-2009, public sector banks reported 3,425 frauds as against 3,004 in the previous year, representing an increase of 14 per cent.
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