One-Time Settlement for Small Borrowal Accounts (2005)

What changed

RBI mandated a simplified one-time settlement mechanism for small borrowal accounts where the principal amount is Rs 25,000 or less and which were classified as doubtful or loss assets as on September 30, 2005. Borrowers whose accounts are settled under this mechanism become fully eligible for fresh loans. The scheme excludes cases of fraud and malfeasance.

What it means for you

Banks must implement a streamlined process to settle small NPAs, enabling borrowers to clear their dues and regain access to credit. This helps reduce the stock of small NPAs and supports financial inclusion by rehabilitating small borrowers. Banks need to design their own schemes within this framework and ensure state-specific guidelines for government-sponsored loans.

What banks were required to do at the time

• Identify all borrowal accounts with principal up to Rs 25,000 classified as doubtful or loss as on Sep 30, 2005.
• Design and implement a simplified one-time settlement scheme for these accounts, excluding fraud/malfeasance cases.
• Ensure settled borrowers are made fully eligible for fresh loans as per RBI direction.
• For government-sponsored scheme loans, coordinate with SLBC to evolve state-specific guidelines.
• Acknowledge receipt of this circular to RBI.

Who it affects

All scheduled commercial banks including RRBs and LABs, Small borrowers with NPA accounts up to Rs 25,000, Branches handling small-ticket retail and priority sector loans