The Government of Maharashtra has extended the One-Time Loan Settlement (OTS) Scheme for Urban Cooperative Banks (UCBs) until March 31, 2026. This extension follows the recommendations of the Commissioner and Registrar of Cooperative Societies, Maharashtra State, Pune, and is intended to help UCBs recover overdue loans and reduce the burden of non-performing assets (NPAs).
Introduced in 2002, the scheme has been periodically extended, reflecting its continued relevance. Each year, a new deadline has been set, and now the cutoff date for eligible loan accounts has been updated to March 31, 2024, from the earlier March 31, 2023. Over the years, it has helped many cooperative banks improve asset recovery and restore financial discipline.
Significantly, the terms of the scheme have been amended to provide greater relief to borrowers. Previously, the interest rate on overdue amounts was 8% simple interest, but it has now been reduced to 6%, easing the repayment burden.
In the case of deceased borrowers, the earlier provisions allowed banks to continue recovering dues even after the loan account had progressed to the ‘Loss Asset’ category. However, under the revised one-time settlement scheme, recovery in such cases is now limited to the outstanding balance as on the date the account was classified as ‘Doubtful-1’.
This means that no interest or additional charges beyond that stage will be recovered. While this change may lead to a marginal loss for the bank, it provides substantial relief to the families of the deceased borrowers by capping the liability at an earlier stage of classification.
The scheme applies to all loans categorized as doubtful or loss assets as of March 31, 2024, including those that were downgraded from substandard assets. It also includes accounts under litigation or recovery proceedings.
However, loans disbursed in violation of RBI guidelines, loans granted to current or former directors and their close relatives (without RBI’s prior permission), and loans exceeding Rs 50 crore (unless approved by the Cooperative Commissioner) are excluded.
Under the revised rules, the settlement amount is to be calculated as per RBI’s Master Circular dated July 1, 2015. Banks will charge 6% simple interest on the outstanding principal and overdue interest from the date the account was first classified as Doubtful-1. In the case of deceased borrowers, a special formula will apply. If the final settlement amount is less than the sum already repaid, the account will be closed without any refund.
Borrowers must deposit 5% of the total outstanding amount at the time of applying. After approval, they can either pay the entire amount within a month or pay 25% upfront and the rest in 11 monthly installments, with 6% interest. A 12-month grace period is also available at 10% interest, and any delay in EMIs will attract 2% penalty interest.
It is important to note that this scheme is voluntary, not mandatory. Only those urban cooperative banks that choose to adopt it, especially weaker banks or those facing difficulty in recovering NPAs, can implement the scheme and pass on its benefits to borrowers. Once adopted, banks must apply it uniformly to all eligible accounts without discrimination.
A dedicated sub-committee including the Chairperson, two or three Board members, and the Chief Executive Officer will oversee implementation. Applications must be processed fairly, and rejected cases must receive a written explanation. Banks are strictly prohibited from sanctioning fresh loans to help borrowers repay under this scheme. Guarantors are allowed to apply in case the principal borrower does not.
To maintain transparency, banks are required to display scheme details at branches, provide account statements to borrowers on request, and report all settlements to their general body. Additionally, UCB federations have been instructed to run awareness campaigns so more borrowers and banks can benefit from the scheme.
