Publications

With a view to futher simplifying access to bank credit by exporters especially small and medium exporters and

making it borrower friendly in terms of procedure and credit terms, the Ministry for Commerce and Industry had proposed issuance of a Gold Card to creditworthy exporters with good track record (Exim Policy 2003-04). Accordingly, the Reserve Bank has worked out a Gold Card Scheme (Scheme) in consultation with select banks and exporters. The Scheme envisages certain additional benefits based on the performance record of exporters. The Gold Card holder would enjoy simpler and more efficient credit delivery mechanism in recognition of his good track record.

• Exporters whose accounts have been classified as ‘standard’ continuously for a period of three years and there are no irregularities/adverse features in the conduct of the accounts should be considered as having good track record.
• The scheme would not be applicable to those exporters who are blacklisted by the Export Credit and Guarantee Corporation (ECGC) or included in the Reserve Bank’s defaulter’s list/ caution list or making losses for the past three years or having overdue export bills in excess of 10 per cent of the current year’s turnover.
• A Gold Card under the Scheme should be issued to all eligible exporters including those in the small and medium sectors who satisfy the conditions laid down.

• Based on a transparent rating mechanism, banks should decide the terms and conditions of credit including the rate of interest, with a softer bias towards Gold Card holders.
• Banks should ensure that the PCFC requirements of Gold Card holders are met by giving them priority over non-export borrowers regarding granting loans against foreign currency non-resident (banks) {FCNR(B)} funds, etc.
• Banks should consider granting term loans in foreign currency in deserving cases out of their FCNR(B), resident foreign currency (RFC) etc., funds. (Banks should not grant such loans from their overseas borrowings under the 25 per cent window or overseas lines of credit.)
• Banks should stipulate the time frame for disposal of applications received for sanction of credit under the Scheme as follows :

• For disposal of fresh applications - 25 days
• Renewal of limits - 15 days
• Sanction of ad hoc limits - 7 days

• A stand-by limit of not less than 20 per cent of the assessed limit should be additionally made available to facilitate urgent credit needs for executing sudden orders. In the case of exporters of seasonal commodities, the peak and off-peak levels should be appropriately specified.
• Banks should suitably rationalise and simplify the format for application for export credit limits to capture only those particulars which are relevant for sanctioning export credit. For export credit under the Scheme, banks should adopt with suitable modifications, the simplified application form for working capital credit facilities devised by the Indian Banks’ Association (IBA).

• In case of unanticipated export orders, banks should relax the norms for inventory taking into account the size and nature of the export order.
• The exporter’s record of performance should be reviewed periodically with a view to passing on the benefit of better terms and conditions including rate of interest for better performance.

The Gold Card should be issued for a period of three years and should be automatically renewed for a further period of three years unless there are adverse features/irregularities in the account. In case of any misuse of the card or observance of any violation of the terms and conditions, banks would have the right to recall the Card any time.

Issuing banks may decide on the facility of further value addition to their cards through supplementary services like ATM, Internet banking, International debit/credit cards.

Each bank should clearly lay down the benefits it proposes to offer to Gold Card holders and place the same on its website for wider dissemination of the information.

The Hon’ble Union Finance Minister has announced certain measures for improving flow of credit to agriculture, which are required to be implemented by all scheduled commercial banks. Accordingly, banks have been advised to take action as under :

Banks may reschedule/restructure the debts of farmers as on March 31, 2004, who have suffered production and income losses on account of successive natural calamities, i.e., drought, flood, or other calamities which might have occurred in the districts for two or more successive years during the past five years. Such rescheduling/restructuring may be done provided the concerned state government has declared such districts as calamity affected. Accordingly, the interest outstanding/accrued in the accounts of such borrowers (crop loans and agriculture term loans) up to March 31, 2004 may be clubbed with the principal outstanding therein as on March 31, 2004, and the amount thus arrived at would be repayable over a period of five years, at current interest rates, including an initial moratorium of two years.

As regards crop loans and agricultural term loans which have already been restructured on account of natural calamities, only the overdue instalments including interest thereon as on March 31, 2004 should be taken into account for the proposed restructuring.

On restructuring as indicated above, the concerned farmers would become eligible for fresh loans. The rescheduled/ restructured loans as also the fresh loans issued to the farmers should be treated as current dues and should not be classified as non-performing assets (NPA). While the fresh loans would be governed by the NPA norms as applicable to agricultural loans, in the case of rescheduled/restructured loans, the NPA norms would be applicable from the third year onwards, i.e., on expiry of the initial moratorium period of two years.

Banks have been advised to formulate guidelines with the approval of their boards of directors on one-time settlement (OTS) for small and marginal farmers, who have been declared as defaulters as on June 24, 2004 and have become ineligible for fresh credit. Banks should complete the exercise of notifying defaulters of the OTS guidelines by September 30, 2004. All applications for OTS received from defaulters should be processed within one month of their receipt. Banks should ensure that the settlement is done without discrimination and in a transparent manner so that farmers can access fresh credit.

Banks should review by September 30, 2004, all cases of small and marginal farmers where credit has been denied on the sole ground that a loan account was settled through compromise or write-offs.

In order to mitigate the acute distress that farmers might be facing due to the heavy burden of debt from non-institutional lenders (e.g. moneylenders) and to provide them relief from such indebtedness, banks may, subject to the guidelines to be approved by their boards of directors, advance loans to such farmers, against appropriate collateral or group security.

Banks may waive margin/security requirements for agricultural loans up to Rs.50,000 and in the case of agri-business and agri-clinics for loans up to Rs.5 lakh with immediate effect.

If securitised loans represent direct advances to agriculture, banks’ investment in such securitised assets would be treated as their direct lending to agriculture under the priority sector. Similarly, if the securitised assets represent indirect finance to agriculture, banks’ investment in such assets would be treated as indirect finance to agriculture. However, the loans should have been securitised by the originator banks and financial institutions on ‘without recourse’ basis and taken off their balance sheets.

Loans to storage units, including cold storage units, which are designed to store agricultural produce/products, irrespective of their location, would be treated as indirect agricultural finance under priority sector.

In order to align the repayment dates with the harvesting of crops, the Reserve Bank has decided that with effect from September 30, 2004 the following revised norms would be applicable to all direct agricultural advances :

For the purpose of these guidelines, ';long duration'; crops would be crops with crop season longer than one year and crops, which are not ';long duration'; crops, would be treated as ';short duration'; crops.

The crop season for each crop, which means the period up to harvesting of the crops raised, would be as determined by the state level bankers’ committee (SLBC) in each state.

Depending upon the duration of crops raised by an agriculturist, these NPA norms would also be applicable to agricultural term loans availed of by him. In respect of agricultural loans, other than those specified in the Reserve Bank’s master circular of August 2003 and term loans given to non-agriculturists, identification of NPAs should be done on the same basis as non-agricultural advances which, at present, is the 90 days delinquency norm.

Banks are urged to ensure that while granting loans and advances, realistic repayment schedules are fixed on the basis of cash flows/fluidity with the borrowers. This would go a long way to facilitate prompt repayment by the borrowers and thus improve the record of recovery in agricultural advances.

At present, banks are required to make provisions on NPAs on a graded scale based on the age of the NPA. However, in respect of NPAs included in ‘doubtful for more than three years’ category, the provisioning requirement on the secured portion remains unchanged at 50 per cent, irrespective of its age, till it is identified as a loss asset. With the enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the chances/extent of recovery of an asset reducing over a period of time, it is essential that banks expedite recovery of NPAs.

The Reserve Bank has decided to introduce graded higher provisioning according to the age of NPAs in ‘doubtful for more than three years’ category, with effect from March 31, 2005. Consequently, the increase in provisioning requirement on the secured portion would be applied in a phased manner over a three year period in respect of the existing stock of NPAs classified as ‘doubtful for more than three years’ as on March 31, 2004.

However, in respect of all advances classified as ‘doubtful for more than three years’ on or after April 1, 2004, the provisioning requirement would be 100 per cent. Accordingly, the provisioning norm for advances identified as ‘doubtful for more than three years’ would be as indicated below with effect from March 31, 2005 :

The portion of the advance which is not covered by the realisable value of tangible security to which the bank has a valid recourse and the realisable value is estimated on a realistic basis, provision would be to the extent of 100 per cent as hitherto.

Banks have been advised to make suitable provisions during the current year to ensure a smooth transition to the revised norm which would become effective from March 31, 2005.

In order to extend further flexibility to banks on their loan policies, the Reserve Bank has decided that -

With a view to ensuring uniformity in approach and implementation, ‘unsecured exposure’ is defined as an exposure where the realisable value of the security, as assessed by the bank/approved valuers/Reserve Bank’s inspecting officers, is not more than 10 percent, ab-initio, of the outstanding exposure. ‘Exposure’ shall include all funded and non-funded exposures (including underwriting and similar commitments). ‘Security’ means tangible security properly charged to the bank and does not include intangible securities like guarantees, comfort letters, etc.

Any credit facility in whatever form extended by lenders (i.e., banks, financial institutions (FIs) or non-banking financial companies (NBFCs) to an infrastructure facility as specified below falls within the definition of ';infrastructure lending';. In other words, infrastructure lending includes a credit facility provided to a borrower company engaged in developing, or operating and maintaining, or developing, operating and maintaining any infrastructure facility that is a project in any of the following sectors, or any infrastructure facility of a similar nature :

On a review, the Reserve Bank has decided to expand the scope of the definition of ‘infrastructure lending’ to include the projects/sectors indicated below -

Presently, banks are allowed to assume single or group borrower credit exposure up to 15 and 40 per cent of capital funds (i.e., tier I and tier II capital) respectively, with an additional allowance of 5 and 10 per cent of capital funds for infrastructure sector exposure. Banks that have difficulty in complying with the prudential credit exposure limits approach the Reserve Bank for approvals, which are considered, on a case-by-case basis.

In the light of the liberalised access of borrowers to external commercial borrowings (ECBs) and their ability to raise resources through capital/debt market, banks have been advised that -

Edited and published by Alpana Killawala for the Reserve Bank of India, Press Relations Division, Central Office, Shahid Bhagat Singh Marg, Mumbai-400 001 and printed by her at Alco Corporation, A-2, 72, Shah & Nahar Ind. Estate, Lower Parel (West), Mumbai - 400 013. Readers desirous of subscribing may remit the subscription, by way of cheque/DD payable at Mumbai to the Director, DRRP (Sales Section), DEAP, Reserve Bank of India, Amar Building, Sir P. M. Road, P. B. No. 1036, Mumbai - 400 001. Also available on Internet at www.cir.rbi.org.in