What are the safeguards employed to ensure that the provisions of compromise settlement with borrowers classified as fraud or wilful defaulter, are not mis-utilized?

Compromise settlement of loans is not available to borrowers as a matter of right, rather it is a discretion to be exercised by the lenders based on their commercial judgement. The prudential guidelines provide sufficient safeguards with regard to such settlements considered by the lenders: All such decisions are required to be taken by lenders as per their Board approved policies, instead of adopting an ad-hoc approach in each case. The circular further strengthens the regulatory guidance by mandating that all such cases of compromise settlement involving borrowers classified as fraud or wilful defaulter must be approved by the Board. Such settlements shall be without prejudice to the criminal proceeding underway or to be initiated, if under consideration of the lenders against such borrowers. As already mentioned, the extant penal provisions continue to remain applicable in such cases. Wherever recovery proceedings are pending before a judicial forum, any settlement arrived at with the borrower shall be subject to obtaining a consent decree from the concerned judicial authorities. The Boards of lenders have been entrusted with the oversight of the overall trends in approvals of all compromise settlements, including specifically the breakup of accounts classified as fraud, red-flagged, wilful defaulter and quick mortality accounts.