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REVISED/PROPOSED GUIDELINES OF OTS 2010

 

The present OTS guidelines which were revised /modified in the year 2009 were valid upto 5.11.2010 but the Board has extended the validity period upto 31.12.2010/upto the date of Board meeting (whichever is earlier), by circulation. While approving the existing guidelines of OTS the Board had desired that these guidelines be reviewed after one year and if required necessary modifications/amendment put up for consideration & decision. The existing OTS guidelines were prepared keeping in view the quality of residual portfolio, the most of which consisted of D-3 and Loss Assets Category. While reviewing the guidelines and its results it is observed that the recovery of the Corporation upto 15.11.2010 has improved by about 25% over the recovery of corresponding period of last year upto 15.11.2009. It has also revealed that more-than 70% of the cases settled under present OTS guidelines have been fully honoured by the borrowers. Now portfolio has further reduced and we have to deal with most harder and difficult cases, therefore, the policy and guidelines in practice with other financial institutions, and particularly PICUP has been considered to formulate the modified guidelines which could be more rational and practicable / approachable to the defaulting borrowers who are willing to square up their NPA accounts by way of settlement to a reasonable amount. In this regard, certain inputs from the guidelines of PICUP 2010 have been taken into consideration to modify guidelines to deal with the borrowers of mixed basket of portfolio with the Corporation consisting of tiny, small and medium scale units. While preparing the revised guidelines due weightage to value of security has been given in settlement formula to arrive at indicative settlement amount. It is also significant to mention that in recent inspection of A.G. Auditors they have observed that in earlier guidelines the OTS amount was taken on the basis of matrix or valuation of mortgaged assets whichever was higher, whereas as per existing guidelines approved on 6.11.2009 lower amount than valuation is being accepted if valuation is more than the amount of OSP + Exp. + OSI and unit has ever been in production / operation after 01.04.99. If the unit has not done any production/operation after 01.04.99 then OTS is being done on valuation if it is more than OSP + Exp. + OSI. As such according to the AG auditors above change in guidelines was not in the interest of the Corporation. However, in order to settle old NPAs and effecting recovery of dues from them OTS guidelines incorporating certain modifications on the basis of polices of other F.Is. and our experience in settlement of accounts, are proposed as below :

 

OTS GUIDELINES 2010

 

1.             ELIGIBILITY

 

 

The following type of cases shall be eligible for OTS under proposed guidelines: -

 

i)             The account should be NPA as on the date of the application.

ii)          The purchaser's account, which has become NPA shall be considered for OTS where down payment has been received.

iii)           Seed Capital Assistance/Soft Loan granted under the scheme of the IDBI & SIDBI which have also become NPA shall also be eligible.

iv)           The proposed guidelines will also cover cases pending before DRT/BIFR/Courts. However, in such cases borrower shall have to withdraw the case from respective court and submit affidavit in this regards.

v)            Cases of fraud, theft of machines and where FIR has been lodged may be considered. However, in such cases the valuation shall be done assuming that no Plant & machinery is missing and in such cases OTS amount will be loaded additionally with depreciated value of removed Plant & machinery at the time of theft or 10% of the OTS amount arrived as per applicable Settlement formula, whichever is lower.

vi)           The cases in which lease assistance has been granted and in which monthly lease rental is overdue for more than six months, shall also be eligible.

vii)          The existing cases where OTS have been cancelled shall also be considered for revival as given under this category in the note.

 

 

2.             CUT-OFF DATE

 

The Cut-off date shall be 31st March of relevant financial year for all cases of SS, D-1, D-2 & D-3 category of NPA. The cut-off date for cases under Loss category shall be the date on which 50% of the sale proceeds (after the sale of assets) have been received or agreement to sale executed after giving the possession. Standard & Sub-standard cases shall not be eligible for OTS except in exceptional circumstances as given in subsequent paras of the note. The cut off date in such type of cases shall also be 31st March of relevant financial year as explained above.

 

3.             Rating Module to Settle Account

 

Keeping in view the fact that the major portfolio of the Corporation comprises of D-3 and Loss Assets a simplified and transparent formula with rationalized rating module is proposed to arrive at indicative OTS amount.  Due OTS GUIDELINES 2010 weightage to value of security has been given in the module for arriving at indicative settlement amount. This type of approach is being followed in PICUP also. The following tables would be considered to provide necessary score to arrive at indicatives OTS amount : -

 

Table-1

Formula for arriving at OTS amount

 

Sl

No

Score obtained

Particular

1.

1 to 70     OSP + Expenses

2.

71 to 75

OSP + Expenses + 50% OSI at gross documented rate of interest.

3.

76 to 80

OSP + Expenses + 75% OSI at gross documented rate of interest.

4.

81 to 85

OSP + Expenses + 100% OSI at gross documented rate of interest.

5.

86 and above

OSP + Expenses + 100% OSI at gross documented rate of interest + 25% Compound interest.

The indicative OTS amount shall not exceed the valuation of mortgaged assets subject to the condition that there is no write off. Thus in any case the OTS amount will not be less than OSP + expenses.

 

The parameters for awarding above scores of Table-1 are as below:

 

Table-2

Parameters for providing score

 

Sl. No.

Parameters

Maximum score

1.

Status of the unit

02

2.

Prime/Collateral security

85

3.

Net worth of the guarantors

05

4.

Amount paid by the borrower

08

5.

Total

 

6.

Less Other attendant Factors (02 marks for each discount factors with maximum of 10 points)

 

Net Score (for Table-I)

 

For awarding score on the basis of above parameters following sub parameters would be considered.: -

 

3.1         Status of the Unit ( 1 of Table-2) :

 

The present business activity of the unit / borrower / guarantor and genuineness of the problems/difficulties of the borrower and his willingness to enter into OTS should be kept in view for giving scores. The present level of operations of the unit/borrower(s)/guarantor be kept in mind to award score in the range of "0 to 2" Table 2 based on the following broad considerations : -

 

Table-3

 

Sl. No.

Parameters

Maximum

 

 

score

1.

Unit not started production

00

2.

Started    production    but    closed

01

 

subsequently.

 

3.

Partially Running.

02

 

3.2         Valuation of Prime/Collateral security (2 of Table-2)

 

The existing guidelines for valuation as per OTS guidelines 2009 states that latest Circle rate or market rate, whichever is higher, shall be considered for valuation of land and depreciated value should be considered for valuation of Building & Plant and machinery. It may be worthwhile to mention that Govt. authorities are increasing the circle rate of land quite frequently to increase revenue collection whereas it has been observed from the feed back from field offices that in Bundelkhand and Eastern Region there is no corresponding increase in the market rate. In Western and Central U.P. markets rates have increased correspondingly with circle rate. Therefore, it is felt imperative to modify norms of valuation of land in Bundelkhand, eastern U.P. and some small backward distt./areas of the state where development has not taken place and demand for land has not picked up much.

 

3.2.1     For valuation purpose entire area of the state may be categories as below:

 

i.              Land in Noida, Gr. Noida and Ghaziabad District.

ii.             Land in Industrial Area/Estate i.e. UPSIDC, GIDA, DIC etc.

iii.            Private land in Bundelkhand, Eastern U.P.  and some small Distt./Town of other areas.

iv.           Land in other Distt./areas i.e. other than i, ii & iii above.

 

I)             Value of the land in Noida/Gr. Noida/Ghaziabad-

If the land is located in Noida/Gr. Noida and in Ghaziabad the guidelines of valuation i.e. market rate or the rate fixed by the authority, circle rate, whichever is higher, shall be considered.

 

II) Value of the land in Industrial area/Estate i.e. UPSIDC, GIDA DIC etc-

If the land is located at Indl. Area / Estate of UPSIDC, GIDA, DIC etc. the present guidelines of valuation of the land i.e. circle rate, market rate or present rate fixed by the authority, which ever is more, shall be considered. If in any case authority rates are being considered then proper justification be given if they are lower than the circle rate.

 

III) Value of private land in Bundelkhand, Eastern U.P. and some small Distt./Town of other areas.

 

If market rate of land is lower than the revised Circle rate of land then average of two (Circle rate and market rate) be considered for valuation in the following manner:-

 

a)    If market rate is less by / upto 20% of Circle rate then the average of Circle Rate and market rate as per our Technical Officer would be considered.

b)    If market rate is less by more than 20% of Circle rate then the valuation of the land should also be got done through Govt. approved Valuer apart from Tech. Officer and thereafter average of three i.e. Circle rate, market rate assessed by outside valuer and market rate assessed by Technical Officer shall be considered to arrive at the rate to assess the value of the land.

 

The list of districts of Bundelkhand, Eastern U.P. and some small distt./town of other areas where above guidelines for average valuation of land shall apply, is annexed at Annexure-I.

 

IV) Value of Land in other Distt./areas i.e. other than i, ii & iii above.

 

The present guidelines for valuation of land in above distts./areas shall continue to be applicable i.e. market rate/circle rate which ever is higher be taken into account.

 

3.2.2 It is observed quite often that different procedure is adopted by various offices in disposal of land if the unit is located in agricultural area.

In order to streamline the valuation of land in agricultural area where there is no unit nearby and/or no abadi, out of town area then the following methodology may be adopted:-

 

a)    If the land is at main road then 150% of the Circle rate of agricultural land or market rate whichever is higher.

b)    If the land is not on main road then 130% of the Circle rate of agricultural land or market rate whichever is higher.

 

3.2.3 These guidelines for valuation of land will apply for both sale and OTS cases.

 

3.2.4 Scoring method for value of prime and collateral security:-

The scores under this head of valuation would be awarded as compared to OSP percentage as below:-

 

Table-4

 

Score of security/value as percentage of OSP

 

Sl

Value of mortgaged

Score to be allotted.

 

 

No.

security  (Prime  + Coll.)

 

 

 

1

Less than 100% of OSP

 

65

 

2.

Equal to 100% of OSP

 

70

 

3.

More than 100% of

- Valuation above 100% to 125% of OSP

= 75

 

OSP

- Valuation above 125% to 150% of OSP

- Valuation above 150% of OSP

= 80 = 85

 

3.3         Net worth of the Promoter/Guarantor ( 3 of Table-2) :

 

The net worth of the promoter/guarantors shall be calculated on the basis of the immovable personal assets owned by them (as per appraisal note) but not mortgaged to the Corporation. If the personal assets are informed as sold then local inquiry about the same would be made by Regional office. The party will have to submit an Affidavit regarding personal assets of all the partners/directors as usual. The following rating module for granting score shall be applicable:-

 

Table-5

 

Sl. No.

% Value of unencumbered assets to OSP

Maximum score

1.

NIL

00

2.

Upto 25% of OSP

02

3.

26 to 50% of OSP

03

4.

51% to 75% of OSP

04

5.

Above 75% of OSP

05