April 12, 2004
Chief Executive Officers of
All Primary (Urban) Co-operative Banks
Management of Advances
The Reserve Bank of India has been issuing instructions relating
to management of advances from time to time. In order to enable the primary
(urban) co-operative banks to have all the currently operative instructions
on the subject at one place, a Master Circular has been prepared which is enclosed.
2. Please acknowledge receipt of this Master Circular to
the concerned Regional Office of this Department.
Chief General Manager-in-Charge
Encl: As above.
Management of Advances
2. Working Capital Requirements upto Rs.1 crore
3. Working Capital Requirements
above Rs. 1 crore
4. Credit Administration
5. Other Guidelines
6 Monitoring of Wilful Defaultors
7. Rehabilitation of Sick SSI units
8. Specific Lending Activities
Annexure I Classification/reporting of data in regard to Assessment
of working capital limits Rs.1 crore
Annexure II Guidelines for Relief Measures
Annexure III Format for reporting of borrowal accounts classified
as doubtful, loss or suit filed with outstanding of Rs.1crore and above to be
submitted to RBI. 30
Annexure IV Format for reporting of data on wilful Defaulters
Annexure V Guidelines for Rehabilitation of Sick SSi Units
Appendix List of circulars consolidated in the Master Circular
MANAGEMENT OF LOANS AND ADVANCES
1.1. In the context of rapid growth of primary (urban) co-op.
banks (PCBs), qualitative aspects of lending, such as adequacy of lending
to meet credit requirements of their borrowers and effective supervision
and monitoring of advances have assumed considerable importance.
Previously working capital finance provided by the banks to trade and industry
was regulated by the Reserve Bank of India through a series of guidelines/instructions
issued. There were various quantitative and qualitative restrictions on
bank’s lending. The banks were also expected to ensure conformity with the
basic financial disciplines prescribed by the RBI from time to time under
Credit Authorisation Scheme (CAS).
1.2 However, consistent with the policy of liberalisation and financial
sector reforms, several indirect measures to regulate bank credit such as
exposure norms for lending to individual/group borrowers, prudential norms
for income recognition, asset classification and provisioning for advances,
capital adequacy ratios, etc. were introduced by RBI and greater operational
freedom has been provided to banks in dispensation of credit.
1.3 Banks are now are expected to lay down, through their boards,
transparent policies and guidelines for credit dispensation, in respect
of each broad category of economic activity, keeping in view the credit
exposure norms and various other guidelines issued by the Reserve Bank of
India from time to time. Some of the currently applicable guidelines are
detailed in the following paragraphs.
2. Working Capital requirements
UPTO Rs. 1 crore
2.1 The assessment of working capital requirement of borrowers, other
than SSI units, requiring fund based working capital limits upto Rs.1.00
crore and SSI units requiring fund based working capital limits upto to
Rs.5.00 crore from the banking system may be made on the basis of their
projected annual turn over.
2.2 In accordance with these guidelines, the working
capital requirement is to be assessed at 25% of the projected turnover to
be shared between the borrower and the bank, viz. borrower contributing
5% of the turnover as net working capital (NWC) and bank providing finance
at a minimum of 20% of the turnover.
2.3 The banks may, at their discretion, carryout the assessment based
on projected turnover basis or the traditional method. If the credit requirement
based on traditional production/processing cycle is higher than the one
assessed on projected turnover basis, the same may be sanctioned, as borrower
must be financed upto the extent of minimum 20 per cent of their projected
2.4 The banks may satisfy themselves about the reasonableness of the
projected annual turnover of the applicants, both for new as well as existing
units, on the basis of annual statements of accounts or any other documents
such as returns filed with sales-tax/revenue authorities and also ensure
that the estimated growth during the year is realistic.
2.5 The borrowers would be required to bring in 5 per cent of their
annual turnover as margin money. In other words, 25 per cent of the output
value should be computed as working capital requirement, of which at least
four-fifth should be provided by the banking sector, the balance one-fifth
representing the borrower's contribution towards margin for the working
capital. In cases, where output exceeds the projections or where the initial
assessment of working capital is found inadequate, suitable enhancement
in the working capital limits should be considered by the competent authority
as and when deemed necessary. For example, in case, annual turnover of a
borrower is projected at Rs. 60.00 lakh, the working capital requirement
will be computed at Rs. 15.00 lakh (i.e. 25%) of which Rs. 12 lakh (i.e.
20%) may be provided by the banking system, while Rs. 3.00 lakh (i.e. 5
%) should be borrower's contribution towards margin money.
2.6 Drawals against the limits should, however, be allowed against
the usual safeguards so as to ensure that the same are used for the purpose
intended. Banks will have to ensure regular and timely submission of monthly
statements of stocks, receivables, etc., by the borrowers and also periodical
verification of such statements vis-à-vis physical stocks by their
2.7 In regard to the above, few clarifications to some of the issues
raised by banks are given in Annexure I.
3. Working Capital Requirements ABOVE Rs. 1 crore
3.1 Method of Assessment
3.1.1 The revised guidelines in respect of borrowers other than SSI
units, requiring working capital limits above Rs.1 crore and for SSI units
requiring fund based working capital limits above Rs.5 crore, from the banking
system bestow greater level of flexibility to the primary (urban) co-operative
banks in their day-to-day operations without diluting the prudential norms
for lending as prescribed by Reserve Bank of India.
3.1.2 The earlier prescription regarding
Maximum Permissible Bank Finance (MPBF), based on a minimum current ratio
of 1.33:1, recommended by Tandon Working Group has been withdrawn. Banks
are now free to decide on the minimum current ratio and determine the working
capital requirements according to their perception of the borrowers and
their credit needs.
3.1.3 Banks may evolve an appropriate
system for assessing the working capital credit needs of borrowers whose
requirement are above Rs.1 crore. Banks may adopt any of the undernoted
methods for arriving at the working capital requirement of such borrowers.
a. The turnover method, as prevalent for
small borrowers may be used as a tool of assessment for this segment
b. Since major corporates have adopted cash
budgeting as a tool of funds management, banks may follow cash budget
system for assessing the working capital finance in respect of large
c. The banks may even retain the concept
of the MPBF with necessary modifications.
3.2 Norms for Inventory/Receivables
3.2.1 In order to provide flexibility in the assessment of credit
requirements of borrowers based on a total study of borrowers' business
operations, i.e., taking into account the production/processing cycle
of the industry as well as the financial and other relevant parameters
of the borrower, the banks have also been permitted to decide the levels
of holding of each item of inventory as also of receivables, which in
their view would represent a reasonable build-up of current assets for
being supported by bank finance.
3.2.2 Reserve Bank of India no longer prescribes detailed norms for
each item of inventory as also of receivables.
3.3 Classification of Current Assets and Current
3.3.1 With the withdrawal of MPBF, inventory norms and minimum current
ratio, the classification of current assets and current liabilities ceases
to be mandatory. The banks may decide on their own as to which items should
be included for consideration as current assets or current liabilities.
3.3.2 Banks may also consider evolving suitable internal guidelines
for accepting the projections made by their borrowers relating to the
item 'Sundry Creditors (Goods)' appearing as an item under 'Other Current
Liabilities' in the balance sheet.
3.4 Bills Discipline
In respect of borrowers enjoying fund-based working
capital credit limits of Rs. 5 crores and more from the banking system,
the banks are required to ensure that the book-debt finance does not exceed
75 per cent of the limits sanctioned to borrowers for financing inland credit
sales. The remaining 25 per cent of the credit sales may be financed through
bills to ensure greater use of bills for financing sales.
3.5 Grant of Ad hoc Limits
To meet the contingencies, banks may decide on the quantum
and period for granting ad hoc limits to the borrowers based on their commercial
judgement and merits of individual cases. While granting the ad hoc
limits the banks must ensure that the aggregate credit limits (inclusive
of ad hoc limits) do not exceed the prescribed exposure ceiling.
3.6 Commitment Charge
The levy of commitment charge is not mandatory and it
is left to the discretion of the financing banks/ consortium/syndicate.
Accordingly, banks are free to evolve their own guidelines in regard to
commitment charge for ensuring credit discipline.
3.7 Consortium Arrangement
The mandatory requirement of formation of consortium
for extending working capital finance under multiple banking arrangement
has been withdrawn.
3.8 Syndication of Credit
The syndication of loans is an internationally practised
model for financing credit requirements. The banks are free to adopt syndication
route, irrespective of the quantum of credit involved, if the arrangement
suits the borrower and the financing banks.
3.9 Loan System for Delivery of Bank Credit
In order to bring about an element of discipline in the utilisation of
bank credit by large borrowers, instill efficiency in funds management,
loan system for delivery of bank credit was been introduced for borrowers
enjoying working capital credit limits of Rs.10 crore and above from the
banking system and the minimum level of loan component for such borrowers
was fixed at 80 per cent. These guidelines have been revised by RBI, in
the light of current environment of short-term investment opportunities
available to both the corporate and the banks. In case any primary (urban)
co-operative bank is having borrowers with MPBF of Rs. 10 crore and above
where it has participated under consortium/syndication, it should ensure
strict compliance with the undernoted guidelines.
3.9.2 Loan Component and Cash Credit Component
- Banks may change the composition of working capital by increasing
the cash credit component beyond 20 per cent or to increase the loan
component beyond 80 per cent, as the case may be, if they so desire.
- Banks are expected to appropriately price each of the two components
of working capital finance, taking into account the impact of such decisions
on their cash and liquidity management.
- If a borrower so desires, higher loan component can be granted by
the bank; this would entail corresponding pro-rata reduction in the
cash credit component of the limit.
- In the case of borrowers with working capital (fund based) credit
limit of less than Rs. 10 crore, banks may persuade them to go in for
the Loan System by offering an incentive in the form of lower rate of
interest on the 'loan component' as compared to the 'cash credit component'
The actual percentage of 'loan component' in these cases may be settled
by the bank with its borrower clients.
- In respect of certain business activities which are cyclical and seasonal
in nature or have inherent volatility, the strict application of loan
system may create difficulties for the borrowers. Banks, may with the
approval of their respective Boards, identify such business activities
which may be exempt from the loan system of credit delivery.
3.9.3 Ad hoc Credit Limit
The ad hoc/additional credit for meeting temporary requirements may
be considered by the financing bank only after the borrower has fully utilised/exhausted
the existing limit.
3.9.4 Sharing of Working Capital Finance
- The ground rules for sharing of cash credit and loan components may
be laid down by the consortium, wherever formed, subject to the stipulations
contained in Para. 3.9.2 above.
- The level of individual bank's share shall be governed by the norm
for single / group borrowers credit exposure.
3.9.5 Rate of Interest
Banks are allowed to fix separate lending rates for 'loan
component' and 'cash credit component'.
3.9.6 Period of Loan
The minimum period of the loan for working capital purposes
may be fixed by banks in consultation with borrowers. Banks may decide
to split the loan component according to the need of the borrower with
different maturity bases for each segment and allow roll over.
In regard to security, sharing of charge, documentation,
etc., banks may themselves decide on the requirements, if necessary, in
consultation with the other participant banks.
3.9.8 Export Credit
Export credit limit would be allowed in the form hitherto
granted. The bifurcation of the working capital limit into loan and cash
credit components, as stated in paragraph 3.9.2 (i) above, would be effected
after excluding the export credit limits (pre-shipment and post-shipment).
3.9.9 Bills Limit
Bills limit for inland sales may be fully carved out
of the 'loan component'. Bills limit also includes limits for purchase
of third party (outstation) cheques/bank drafts. Banks must satisfy themselves
that the bills limit is not misutilised.
3.9.10 Renewal/Roll-over of Loan Component
The loan component, may be renewed/rolled over at the
request of the borrower. However, banks may lay down policy guidelines
for periodical review of the working capital limit and the same may be
scrupulously adhered to.
3.9.11 Provision for Investing Short Term Surplus Funds of Borrowers
The banks, at their discretion, may permit the borrowers
to invest their short term/temporary surpluses in short-term money market
instruments like Commercial Paper (CP), Certificates of Deposit (CDs)
and in Term Deposit with banks, etc.
The loan system would
be applicable to borrowal accounts classified as 'standard' or 'sub-standard'.
4. Credit Administration
4.1 No Objection Certificate
The primary (urban) co-operative banks should not finance
a borrower already availing credit facility from another bank without obtaining
a 'No Objection Certificate' from the existing financing bank.
4.2 Opening of Current Accounts
Before permitting the parties to open current accounts/sanctioning
post-sale limits, the banks should invariably obtain the concurrence of the
banks which have sanctioned main limits.
4.3 Certification of Accounts of Non-Corporate Borrowers
by Chartered Accountants
As per the Income Tax Act, 1961, filing of audited balance
sheet and profit & loss account is mandatory for certain types of non-corporate
entities. Therefore, the banks must insist on the audited financial statements
from the borrowers enjoying large limits; since such borrowers would, in any
case, be submitting audit certificates to the income-tax authorities, based
on audit of their books of accounts by a Chartered Accountant.
4.4 Defaults in Payment of Statutory Dues by Borrowers
4.4.1 It has been observed that many of the borrowers enjoying credit
facilities from primary (urban) co-operative banks default in payment of
Provident Fund, Employees State Insurance and other statutory dues. Despite
this, such borrowers continue to carry on operations with the assistance
of bank finance without meeting their statutory, obligations.
4.4.2 In the case of insolvency/winding up of a borrowing employer,
under the law, there are certain priorities in regard to the recovery of
statutory dues e.g., employees contribution towards provident fund deducted
from wages of the employee members for a period of more than six months
and not paid to the Commissioner, are a first charge on the assets of borrowers.
4.4.3 In the circumstances, the banks should safeguard their interest
vis-à-vis such statutory dues and, therefore, it would be desirable
for the banks to ensure that provident funds and similar other dues are
paid by the borrowers promptly. For the purpose, the banks should incorporate
an appropriate declaration in their application forms for grant/renewal/
enhancement of credit facilities so as to ensure that the position regarding
the statutory dues is disclosed therein.
4.4.4 Where warranted, banks should satisfy themselves about genuineness
of the party's declaration in this regard. Thus, the sanction/renewal/ enhancement
of credit facilities can be utilised by banks as a leverage for enforcing
necessary discipline on the part of their borrowers.
4.4.5 In respect of the corporate borrowers and non-corporate borrowers,
the amount of statutory dues should normally be reflected in their annual
accounts which should be duly certified by the auditors, and hence, the
banks should have no difficulty in ascertaining the position of their statutory
dues. Nonetheless, in addition to duly audited annual accounts, banks should
also obtain a specific certificate from the Chartered Accountant as regards
the position of statutory dues, if the audited accounts do not clearly indicate
4.4.6 After ascertaining the quantum of statutory dues, the banks
should ensure that they are cleared by the borrowers within a reasonable
period and that too through internal generation of funds. The non-payment
of statutory dues is one of the symptoms of incipient sickness of an industrial
unit. Therefore, it is in the interest of both the lender and borrower to
give high priority to the clearance of these dues. Apart from insisting
on the borrowers to indicate a definite programme for clearance of arrears,
banks may consider suitable restrictions on the outflow of funds by way
of dividends, repayment of loans from promoters or their friends, relatives
or inter-corporate borrowings etc., till the overdue statutory liabilities
4.5 Sanction of Advances
4.5.1 Irregularities/Deficiencies in Credit Sanction
The banks should, take suitable precautions
to avoid irregular practices such as sanctioning of advances beyond discretionary
powers and/or without proper credit appraisal in order to minimise chances
4.5.2 Delegation of Powers
- The Board of Directors should delegate specific powers to the Branch
Managers and other functionaries at the Head Office level as also to
the Chairman in the matter of sanction of advances and expenditure.
A system should also be introduced to ensure that powers are exercised
within the limits prescribed and any transgressions are immediately
reported to Head Office.
- The internal inspectors should examine during the course of inspection
of branches whether powers have been exercised properly and any unauthorised
exercise of powers should immediately be brought to the notice of Head
Office. Similarly, sanction beyond discretionary powers by the Chairman,
Chief Executive Officer and other executives at the Head Office should
also be reported to the Board of Directors.
4.5.3 Oral Sanction
The higher authorities at various levels should
desist from the unhealthy practice of conveying sanction of advances orally
or on telephone.
4.5.4 Proper Record of Deviations
(i) Only in exigencies, where sanctions are made on telephone/oral instructions
of higher functionaries or sanctions beyond discretionary powers have
to be resorted to, the following steps should be taken:
- Record of such instructions/sanctions should be maintained by the
sanctioning/disbursing authorities explaining the circumstances under
which sanctions were made.
- Written confirmation of the competent sanctioning authority should
be obtained by the disbursing authority/ official within a week/fortnight.
- Sanctions within discretionary powers should also be reported to Head
Office within a stipulated time and Head Office should meticulously
follow up receipt of such returns.
- Head Office should diligently scrutinise the statements/ returns and
should initiate stringent action against erring functionary(ies) if
he/they is/are found to have indulged in unauthorised sanctioning.
(ii) Officials should exercise powers delegated
to them judiciously and should not exceed their discretionary powers for
granting loans and advances. Violation, if any, in this regard should
be viewed seriously and the guilty should be punished suitably.
4.6 Monitoring Operations in Loan Accounts
4.6.1 Diversion of Funds
Some of the bank clients are known to be making large
cash withdrawals. It is quite possible that such cash withdrawals may
be used by the account holders for undesirable or illegal activities.
While cash withdrawals cannot be refused, banks should keep a proper vigil
over requests of their clients for cash withdrawals from their accounts
for large amounts.
4.6.2 Post-Sanction Monitoring
- It is the primary responsibility of banks to be vigilant and ensure
proper end use of bank funds/monitor the funds flow. It is, therefore,
necessary for banks to evolve such arrangements as may be considered
necessary to ensure that drawals from cash credit/overdraft accounts
are strictly for the purpose for which the credit limits are sanctioned
by them. There should be no diversion of working capital finance for
acquisition of fixed assets, investments in associate companies/subsidiaries,
and acquisition of shares, debentures, units of Unit Trust of India
and other mutual funds, and other investments in the capital market.
This has to be so, even if there is sufficient drawing power/undrawn
limit for the purpose of effecting drawals from the cash credit account.
- Post sanction follow-up of loans and advances should be effective
so as to ensure that the security obtained from borrowers by way of
hypothecation, pledge, etc. are not tampered with in any manner and
- Drawals against clearing cheques should be sanctioned only in respect
of first class customers and even in such cases the extent of limits
and the need therefor should be subjected to thorough scrutiny and periodical
review. Banks should not issue banker’s cheques/pay orders/demand drafts
against instruments presented for clearing, unless the proceeds thereof
are collected and credited to the account of the party. Further, banker’s
cheques/pay orders/demand drafts, should not be issued by debit to cash
credit/over draft accounts which are already overdrawn or likely to
be overdrawn with the issue of such instruments.
- Drawals against clearing instruments should be normally confined to
bank drafts and government cheques and only to a limited extent against
third party cheques.
- Cheques against which drawals are allowed should represent genuine
trade transactions and strict vigilance should be observed against assisting
- Drawals against cheques of allied/sister concerns should not be permitted
and the facility of drawal against clearing cheques should normally
be of temporary nature and should not be allowed on a regular basis
without proper scrutiny and appraisal.
- Bills of an accommodation nature should never be purchased and the
officials responsible for purchase of such bills should be punished
- In case a borrower is found to have diverted finance for the purpose
other than for which it was granted, banks must recall the amounts so
diverted. In addition, banks may charge penal interest on the amount
- Where borrowers fail to repay the amounts diverted from cash credit
accounts for uses other than for which the limit was sanctioned, banks
should reduce the limits to the extent of amount diverted. The above
aspects relating to safe guards are only illustrative in nature and
- The primary responsibility for preventing misuse of funds rests with
the management of banks. For the purpose, highest standards of integrity
and efficiency are imperative in urban banks which are the trustees
of public money. The banks should, therefore, take appropriate steps
to review and tighten their internal administration and control measures
so as to eliminate the scope for misuse/diversion of funds and malpractices.
- Banks should take serious view of instances of misuse of power, corruption
and other malpractices indulged by the members of staff and erring staff
members should be given punishments befitting the seriousness of the
irregularity. Light punishments such as issue of warning, stoppage of
increments, transfer, etc. may not prove a deterrent in all cases. Quick
disposal of enquiries by the banks and award of deterrent punishment
would be necessary in all such cases, The Board should take more active
interest in these matters.
4.7 Annual Review of Advances
For an effective monitoring of the advances,
it is imperative for the banks to undertake an exercise for review of
the advances on a regular basis. Apart from the usual objective of such
a review of assessing the quality of operation, safety of funds, etc.
the review should specifically attempt to make an assessment of the working
capital requirements of the borrower based on the latest data available,
whether limits continue to be within the need-based requirements and according
to the bank's prescribed lending norms.
5. Other Guidelines
5.1 Relief Measures to Persons Affected by Natural Calamities
5.1.1 The primary (urban) co-operative banks are expected to provide
relief and rehabilitation assistance, in their area of operation to people
in areas affected by natural calamities such as droughts, floods, cyclones,
5.1.2 The Government of India, has evolved, in consultation with the
RBI and the IBA, a set of broad guidelines (Standing Guidelines) indicating
the steps to be taken by the banks in calamity affected areas. The Standing
Guidelines, duly modified, are given in Annexure II.
5.1.3 In order to avoid delay in taking relief measures on the
occurrence of natural calamity, banks should evolve a suitable policy
framework with the approval of the Board of Directors. An element of flexibility
may be provided in the measures so as to synchronise the same with the
measures which could be appropriate in a given situation in a particular
State or District and parameters, in this regard, may be decided in consultation
with SLBC/DCC, as the case may be.
5.1.4 Banks should get the documentation settled as per revised
guidelines in consultation with their legal departments, taking into account
the relevant provisions of the Contract Act and the Limitations Act and
may issue appropriate instructions to their offices in respect of documentation
in relation to cases covered by these guidelines.
5.1.5 Whenever required, RBI advises the banks to follow these
guidelines in respect of persons affected by riots and disturbances.
5.2 Disclosure of Information on Defaulting
Borrowers of Banks and Financial Institutions
5.2.1 The Reserve
Bank of India has been collecting information regarding defaulting borrowers
and suit filed accounts of scheduled commercial banks and financial institutions
for circulation among banks and financial institutions to put them on guard
against such defaulters.
5.2.2 Similar information
has also to be collected from scheduled primary (urban) co-operative banks.
These banks are, therefore, required to submit to the Reserve Bank of India
as at the end of September and March every year, the details of the borrowal
accounts which have been classified as doubtful, loss or suit filed with
outstanding (both under funded and non-funded limits) aggregating Rs. 1
crore and above as per the format given in Annexure III.
5.2.3 The Reserve
Bank of India is circulating to the banks and financial institutions the
information on the defaulters (i.e., advances classified as doubtful and
loss). The banks and financial institutions may make use of the information
while considering the merits of the requests for new or additional credit
limits by existing and new constituents.
5.2.4 The Reserve
Bank of India has also been publishing a list of borrowal accounts against
which Banks and Financial Institutions have filed suits for recovery of
advances (outstanding aggregating Rs.1.00 crore and above) based on information
furnished by scheduled commercial banks and financial institutions. Such
list published as on 31 March each year in Compact Disc (CD) form and updated
on quarterly basis is available with RBI, Publications Division at the following
Division of Reports, Review and Publications
Reserve Bank of India
Amar Building, Ground Floor
P.B. Road, P.B. No. 1036
Fort, Mumbai 400 001.
The said list and its quarterly up dates are
also placed on RBI's Website (www.rbi.org.in)
5.2.5 It is likely that some of the borrowers named in the list of suit
filed accounts may approach the scheduled primary (urban) co-operative banks
for their credit requirements. The information available in the above publication
will be of immense use to scheduled primary (urban) co-operative banks,
while considering requests for fresh/additional credit limits. The banks
can verify the list to ensure that the defaulting borrowing units as also
their proprietors/partners/ directors etc. named in the published list of
suit-filed accounts, either in their own names or in the names of other
units with which they are associated, are not extended further credit facilities.
5.2.6 The banks may make enquiry, if any, about the defaulters from the
reporting bank/ financial institution.
6 MONITORING OF WILFUL DEFAULTERS
6.1 Collection and dissemination of
information on cases of wilful default of Rs. 25.00 lakh and above
6.1.1 Pursuant to the instructions of the Central Vigilance Commission
for collection of information on wilful defaultors by RBI and dissemination
to the reporting banks and financial institutions, a Scheme has been framed
under which the banks and financial Institutions viz. IDBI, IFCI and ICICI
will be required to submit the details of the wilful defaulters. The scheduled
primary (urban) co-operative banks have also been brought within the ambit
of the scheme.
6.1.2 The details of the scheme are given below:
- The scheme has come into force with effect from 1st April 1999. Accordingly,
scheduled primary (urban) co-operative banks are required to report on
a quarterly basis, all cases of wilful defaults which occurred, or are
detected after 31st March 1999 in the proforma given in Annexure IV.
- The scheme covers all non-performing borrowal accounts with outstanding
(funded facilities and such non-funded facilities which are converted
into funded facilities) aggregating Rs. 25.00 lakh and above.
6.2 Wilful Default
'A wilful default would be deemed to have occurred,
(a) The unit has defaulted in meeting its
payment / repayment obligations to the lender even when it has the capacity
to honour the said obligations.
(b) The unit has defaulted in meeting its payment
/ repayment obligations to the lender and has not utilised the finance from
the lender for the specific purposes for which finance was availed of but
has diverted the funds for other purposes.
( c ) The unit has defaulted in meeting its payment
/ repayment obligations to the lender and has siphoned off the funds so
that the funds have not been utilised for the specific purpose for which
finance was availed of, nor the funds are available with the unit in the
form of other assets.
6.3 Diversion and siphoning of funds
6.3.1 Diversion of funds would be construed to
include any one of the undernoted occurrences:
(a) utilisation of short-term working capital
funds for long-term purposes not in conformity with the terms of sanctions;
(b) deploying borrowed funds for purposes
/ activities or creation of assets other than those for which the loan
(c) transferring funds to the subsidiaries
/ Group companies or other corporates by whatever modalities;
(d) routing of funds through any bank other
than the lender bank or members of consortium without prior permission
of the lender;
(e) investment in other companies by way
of acquiring equities / debt instruments without approval of lenders;
(f) shortfall in deployment of funds vis-à-vis
the amounts disbursed / drawn and the difference not being accounted for.
6.3.2 Siphoning of funds should be construed
to occur if any funds borrowed are utilised for purposes unrelated to the
operations of the borrower, to the detriment of the financial health of
the entity or of the lender. The decision as to whether a particular instance
amounts to siphoning of funds would have to be a judgement of the lenders
based on objective facts and circumstances of the case.
6.4 Cut-off limits
While the penal measures normally be attracted
by all the borrowers identified as wilful defaulters or the promoters involved
in diversion / siphoning of funds, keeping in view the present limit of
Rs.25 lakh fixed by the Central Vigilance Commission for reporting of cases
of wilful default by scheduled banks to RBI, any wilful defaulter with an
outstanding balance of Rs.25 lakh or more would attract the penal measure
stipulated at para 6.6 below. The limit of Rs.25 lakh may also be applied
for the purpose of taking congnisance of the instances of `siphoning '/
`diversion' of funds.
6.5 End-use of Funds
In cases of project financing, banks should seek
to ensure end use of funds by, inter alia, obtaining certification from the
Chartered Accountants for the purpose. In case of short-term corporate / clean
loans, such an approach ought to be supplemented by `due diligence' on the
part of lenders themselves, and to the extent possible, such loans should
be limited to only those borrowers whose integrity and reliability were above
board. Scheduled pcbs, therefore, should not depend entirely on the certificates
issued by the Chartered Accountants but strengthen their internal controls
and the credit risk management system to enhance the quality of their loan
portfolio. Needless to say, ensuring end-use of funds by banks should form
a part of their loan policy document for which appropriate measures should
be put in place.
6.5.1 The following are the illustrative measures
that could be taken by the lenders for monitoring and ensuring end-use of
- Meaningful scrutiny of quarterly progress
reports / operating statements / balance sheets of the borrowers ;
- Regular inspection of borrowers' assets charged
to the lenders as security;
- Periodical scrutiny of borrowers' books of
accounts and the no-lien accounts maintained with other banks;
- Periodical visits to the assisted units;
- System of periodical stock audit, in case
of working capital finance;
- Periodical comprehensive management audit
of the `Credit' function of the lenders, so as to identify the systemic
weaknesses in the credit-administration.
6.6 Penal measures
In order to prevent the access to the capital markets
by the wilful defaulters, a copy of the list of wilful defaulters is forwarded
by RBI to SEBI as well. It has also been decided that the following measures
should be initiated by schedule pcbs against the wilful defaulters
- No additional facilities be granted to the listed wilful defaulters.
In addition, the entrepreneurs / promoters of companies where banks have
identified siphoning / diversion of funds, misrepresentation, falsification
of accounts and fraudulent transactions should be debarred from institutional
finance for floating new ventures for a period of 5 years from the date
the name of the wilful defaulter is published in the list of wilful defaulters
by the RBI.
- The legal process, where warranted, against the borrowers/guarantors
and foreclosure of loans should be initiated expeditiously. The lenders
may also initiate criminal proceedings against wilful defaulters, wherever
- Wherever possible, the banks should adopt a proactive approach for a
change of management of the wilfully defaulting borrower unit. It would
be imperative on the part of the banks to put in place a transparent mechanism
for the entire process so that the penal provisions are not misused and
the scope of such discretionary powers is kept to the barest minimum.
It should be ensured that a solitary or isolated instance is not made
the basis for imposing the penal action.
6.7 Treatment of Group
While dealing with wilful default of a single borrowing
company in a Group, the banks should consider the track record of the individual
company, with reference to its repayment performance to its lenders. However,
in cases where a letter of comfort and/or the guarantees furnished by the
companies within the Group on behalf of the wilfully defaulting units are
not honoured when invoked by scheduled banks, such Group companies should
also be reckoned as wilful defaulters.
6.8 Role of Auditors
6.8.1 In case any falsification of accounts on the part
of the borrowers is observed by banks, they should lodge a formal complaint
against the auditors of the borrowers, with Institute of Chartered Accountant
of India (ICAI) if it is observed that the auditors were negligent or deficient
in conducting the audit to enable the ICAI to examine and fix accountability
of the auditors.
6.8.2 With a view to monitoring the end-use of funds, if
the lenders desire a specific certification from borrowers' auditors regarding
diversion / siphoning of funds by the borrower, the lender should award
a separate mandate to the auditors for the purpose. To facilitate such certification
by the auditors scheduled pcbs will also need to ensure that appropriate
covenants in the loan agreements are incorporated to enable award of such
a mandate by the lenders to the borrowers / auditors.
6.9 Filing of Suits to Recover Dues from Wilful
- There are few cases where the amount outstanding is substantial but
the banks have not initiated any legal action against the defaulting borrowers.
It may be noted that the cases of wilful defaults have an element of fraud
and cheating and therefore, should be viewed differently.
- Scheduled pcbs should examine all cases of wilful defaults of Rs. 1.00
crore and above and file suits in such cases, if not already done. Banks
should also examine whether in such cases of wilful defaults, there are
instances of cheating/fraud by the defaulting borrowers and if so, they
should also file criminal cases against those borrowers. In other cases
involving amounts below Rs. 1.00 crore, banks should take appropriate
action, including legal action, against the defaulting borrowers.
7. GUIDELINES FOR REHABILITATION OF SICK SMALL
SCALE INDUSTRIAL UNITS
(i) The Reserve Bank of India, had constituted
a Working Group on Rehabilitation of Sick SSI units, under the Chairmanship
of Shri S. S. Kohli, to review the existing guidelines in regard to rehabilitation
of sick small scale units and to recommend the revision of the guidelines
for rehabilitation of currently sick and potentially viable SSI units, making
them transparent and non-discretionary. The revised guidelines are detailed
in Annexure V. Reserve Bank of India has accepted all the major recommendations
of the Group.
(ii) The emphasis of the rehabilitation effort
in case of SSI units is on early detection of signs of incipient sickness,
adequate and intensive relief measures and their speedy application rather
than giving a long span of time to the units for rehabilitation.
(iii) The banks should take a sympathetic attitude
and strive for rehabilitation, in respect of units in the SSI sector, particularly
wherever the sickness is on account of circumstances beyond the control
of the entrepreneurs. Banks are also advised to take a pro-active stance
in providing timely assistance for rehabilitation of small scale units,
which are affected by the industrial down turn and delays in payments against
supplies made by them to large scale and other units.
(iv) In the case of units which are not applicable
of revival, banks should try for a settlement and \or resort to other recovery
(v) It may be noted that the enclosed guidelines
are applicable to industrial units which were being financed by the bank
before they turned into sick units. Primary (urban) co-operative banks are
not expected to take over financing of sick industrial units, particularly,
those financed by commercial banks earlier, in view of the risks involved.
8. SPECIFIC LENDING ACTIVITIES
8.1 Bridge Loans/Interim Finance
8.1.1 The grant of bridge loan/interim
finance by pcbs to any company (including finance companies) is totally
8.1.2 The ban on sanction of bridge loans/interim
finance is also applicable in respect of Euro issues.
8.1.3 The banks should not circumvent these
instructions by purport and/or intent by sanction of credit under a different
nomenclature like unsecured negotiable notes, floating rate interest bonds,
etc. as also short-term loans, the repayment of which is proposed/expected
to be made out of funds to be or likely to be mobilised from external/other
sources and not out of the surplus generated by the use of the asset(s).
8.1.4 If any bank has sanctioned and disbursed
any bridge loan/interim finance, it should report the same to the concerned
Regional Office of the Urban Banks Department with full particulars and
certifying that the loans are utilised strictly for the purpose for which
the public issue and/or market borrowing was intended. Thereafter, the concerned
banks should immediately take steps to ensure timely repayment of such bridge
loans/interim finance already sanctioned and disbursed and under no circumstances,
should the banks allow extension of time for repayment of existing bridge
8.1.5 These instructions are issued by
the Reserve Bank of India in exercise of powers conferred by the Sections
21 and 35A read with section 56 of the Banking Regulation Act, 1949.
8.2 Advances to Builders/Contractors
8.2.1 The builders/contractors, who generally require, huge funds, take
advance payments from the prospective buyers or from those on whose behalf
construction is undertaken and, therefore, may not normally require bank
finance for the purpose. Any financial assistance extended to them by banks
may result in dual financing. The banks should, therefore, normally refrain
from sanctioning loans and advances to this category of borrowers
8.2.2 However, where contractors undertake comparatively small construction
work on their own, (i.e. when no advance payments are received by them for
the purpose), the banks may consider extending financial assistance to them
against the hypothecation of construction materials, provided such loans
and advances are in accordance with the by-laws of the bank.
8.2.3 The banks should frame comprehensive prudential norms relating to
the ceiling on the total amount of real estate loans, single/aggregate exposure
limit for such loans, margins, security, repayment schedule and availability
of supplementary finance taking into account guidelines issued by RBI and
the policy should be approved by the bank's Board.
8.2.4 Banks should undertake a proper scrutiny of the relevant loan applications,
and satisfy themselves, among other things, about the genuineness of the
purpose, the quantum of financial assistance required, creditworthiness
of the borrower, his repayment capacity, etc. and also observe the usual
safeguards, such as, obtaining periodical stock statements, carrying out
periodical inspections, determining drawing power strictly on the basis
of the stock held, maintaining a margin of not less than 40 to 50 percent,
etc. They should also ensure that materials used up in the construction
work are not included in the stock statements for the purpose of determining
the drawing power.
8.2.5 The banks may also take collateral security, wherever available.
As the construction work progresses the contractors will get paid and such
payments should be applied to reduce the balance in the borrowal accounts.
If possible, the banks, could perhaps enter into a tripartite agreement-with
the borrower and his clients, particularly when no collateral securities are
available for such advances. Thus, the banks should ensure that bank credit
is used for productive construction activity and not for activity connected
with speculation in real estate.
8.3 Financing of Leasing/Hire Purchase
8.3.1 Enrolment of Financial Companies as
- Primary (urban) co-operative banks are normally not expected to enroll
non-banking financial institutions like investment and financial companies
as their members since it would be in contravention of the State Co-operative
Societies Act concerned and will also not be in conformity with the provisions
of model by-law No. 9 recommended for adoption, by all banks.
- Therefore, the primary (urban) co-operative banks are not permitted
to finance such type of non-banking financial companies (NBFCs).
8.3.2 Norms for financing Leasing/Hire Purchases
- As in the case of finance and investment companies, admission of non-banking
financial companies which are not engaged exclusively in leasing/hire
purchase business as members may be contrary to the provisions contained
in the state co-operative societies act concerned and model bye-law No.9
referred to above. It will, therefore, be necessary for banks to obtain
prior approval of the concerned Registrar of Co-operative Societies before
admitting them as members.
- Even financing the leasing/hire purchase companies by primary (urban)
co-operative banks on a large scale is not favoured by the Reserve Bank
of India, since the banks are basically required to cater to the credit
needs of the people of small means.
- Presently banks with working capital funds aggregating Rs. 25 crore
and above, only are permitted take up the financing of leasing/hire purchase
companies that too only in consortium with other scheduled commercial
banks. The banks should observe the following norms, while financing such
(a) The level of finance to leasing/hire
purchase companies depends on the net owned funds of the companies, subject
to the overall ceiling on their borrowings upto ten times of their owned
(b) Bank credit to companies exclusively
engaged in equipment leasing and hire purchases and such leasing/hire
purchase companies which are predominantly engaged in equipment leasing/hire
purchase business (i.e., at least 75 per cent of assets are in equipment
leasing/hire purchase and 75 per cent of their gross income is derived
from these two types of activities as per their last audited balance sheet)
may be extended within the ceiling of three times of the net owned funds
within the overall ceiling of their borrowings upto ten times of net owned
( c) In the case of other equipment leasing/hire
purchases companies (i.e. companies whose assets in equipment leasing/hire
purchase business are less than 75 per cent and whose gross income derived
from these two types of activities as per the last audited balance sheet
is less than 75 per cent of its gross income), the credit limit has to
be within two times of their net owned funds from the present level of
8.4 Working Capital Finance to Information
Technology (IT) and Software Industry
8.4.1 Banks are permitted to decide on their own the loan policy and
the manner of estimating the working capital finance based on MPBF method
or any other method to be approved by their Board of Directors. The stance
of Reserve Bank policy towards operational freedom to banks remains unchanged.
At the same time, Reserve Bank recognises the fact that the banks are
not comfortable with extending aggressive credit support to a relatively
new area of software industry unlike other traditional industries, due
to several factors which make the assessment of credit needs and follow
up thereof difficult, if not insurmountable.
8.4.2 In order to bring about uniformity in approach,
the Reserve Bank has formulated guidelines for information of banks, on
various aspects of lending to information technology and software industry
to facilitate free flow of credit. The same were enclosed to our circular
DS.SUB.No.4/13.05.00/98-99 dated 5 October 1998, addressed to scheduled
PCBs. Banks are, however, free to modify the guidelines based on their
own experience without reference to Reserve Bank to achieve the purpose
of the guidelines in letter and spirit.
8.4.3 These guidelines have been framed based on the
recommendations made by the study group appointed by Reserve Bank to study
the modalities of credit extension to software industry as also taking
into account the suggestions made by the industry associations.
8.4.4 This being a relatively new area of credit deployment,
primary (urban) co-operative banks may take adequate steps to develop
expertise in this area. Besides other measures which banks might take,
the need for training Staff for developing them in acquiring skills of
project appraisal in this new area of activity need not be over-emphasised.
It has to be ensured that the concerned staff is well aware of the requirements
of the industry and remain in tune with the latest developments so that
the higher standards of project appraisal can be maintained before extending
the working capital finance to Information Technology and software industries.
Management of Advances
Clarifications in regard to Assessment of Working Capital
[Ref. para 2.7]
Issues raised by banks
Whether banks should sanction working capital limits computed on the basis of a minimum of 20 per cent of the projected annual turnover/output value or whether it is intended that banks should also arrive at the requirement based on the traditional approach of production/processing cycle and thereafter decide the quantum of need-based finance. If the traditional approach is followed the working capital finance arrived at could be either more than or less than 20 per cent. In case it is less than 20 per cent, whether banks should still give 20 per cent ?
The assessment of working capital credit limits should be done both as per projected turnover basis and traditional method. If the credit requirement based on production/ processing cycle is higher than the one assessed on projected turnover basis, the same may be sanctioned as RBI guidelines stipulate bank finance at minimum of 20 per cent of the projected turnover. On the other hand if the assessed credit requirement is lower than the one assessed on projected turnover basis, while the credit limit can be sanctioned at 20 per cent of the projected turnover, actual drawals may be allowed on the basis of drawing power to be determined by banks after excluding unpaid stocks. In the case of Selective Credit Control commodities the drawing power should be determined as indicated in the RBI directive.
Whether projected turn over/output value basis 'gross sales'
The projected turnover/output value may be interpreted as projected 'Gross Sales' which will include excise duty also.
Whether the 5 per cent promoter's stake (Net Working Capital) should be reckoned with reference to the projected turnover or with reference to the working capital arrived at based on production/ processing cycle.
In terms of extant guidelines the working capital requirement is to be assessed at 25 per cent of the projected turnover to be shared between the borrower and bank viz. borrower contributing 5% of the turnover as NWC and bank providing finance at a minimum of 20 per cent of the turnover. The above guidelines were framed assuming an average production/processing cycle of 3 months (i.e. working capital would be turned over four times in a year). It is possible that certain industries may have a production cycle shorter/longer 3 months. While in the case of a shorter cycle, the same principle could be applied as it is the intention to make available atleast 20 per cent of turnover by way of bank finance. In case the cycle is longer, it is expected that the borrower should bring in proportionately higher stake in relation to his requirement of bank finance. Going by the above principle, at least 1/5th of working capital requirement should be brought in by way of NWC.
Whether 5 per cent NWC should be reckoned with reference to turnover or with reference to available long term sources; in other words is the prescribed NWC the minimum amount?
Since the bank finance is only intended to support need-based requirement of a borrower if the available NWC (net long term surplus funds) is more than 5 per cent of the turnover the former should be reckoned for assessing the extent of the bank finance
Whether drawing power should continue to be regulated through stocks and whether unpaid stocks deducted for arriving at drawing power ?
It is left to the discretion of banks. However, in arriving at drawing power, unpaid stocks are not financed as it would result in double financing. The drawing power should conform to Reserve Bank of India directives in the case of Selective Credit Control commodities
Since the present instructions cover traders as well, and most trade is done at market credit, whether the credit limits should be assessed as 20 per cent of the turnover per se and actual drawing regulated through stocks ?
In the case of traders, while bank finance could be assessed at 20 per cent of the projected turnover, the actual drawals should be allowed on the basis of drawing powers to be determined by banks after ensuring that unpaid stocks are excluded. In the case of SCC commodities the RBI directive should be scrupulously followed.
Management of Advances
Guidelines for Relief Measures by Banks in Areas Affected
by Natural Calamities
[Vide para 5.1.2]
- Periodical but frequent occurrence of droughts, floods, cyclones, tidal
waves and other natural calamities cause heavy toll of human life and wide
spread damage to economic pursuits of human beings in one area or the other
of the country. The devastation caused by such natural calamities call for
massive rehabilitation efforts by all agencies. The State and local authorities
draw programmes for economic rehabilitation of the affected people. The developmental
role assigned to the commercial banks and co-operative banks, warrants their
active support in revival of the economic activities.
- Since the area and time of occurrence and intensity of natural calamities
cannot be anticipated, it is imperative that the banks have a blue-print of
action in such eventualities so that the required relief and assistance is
provided with the utmost speed and without any loss of time. This presupposes
that all the branches of commercial banks and their Regional and Zonal Officers
will have a set of standing instructions spelling out the action that the
branches will have to initiate in the calamity affected areas immediately
after the requisite declaration by the district/State authorities. It is necessary
that these instructions should also be available with the State Government
authorities and all the District Collectors so that all concerned are clear
as to the action that would be taken by the banks' branches in the affected
- The precise details in regard to the provision of credit assistance by the
commercial banks, will depend on the requirements of the situation, their
own operational capabilities and the actual needs of the borrowers. This can
be decided by them in consultation with the district authorities.
- Nevertheless, to enable banks to take uniform and concerted action expeditiously,
particularly to provide the financial assistance to agriculturist, small scale
industrial units, artisan, small business and trading establishments affected
by natural calamities, the following guidelines are commended.
- To facilitate co-ordination and expeditious action by the financing institutions,
the convenors of the concerned District Consultative Committee (DCC) of the
affected districts should convene a meeting immediately after the occurrence
of natural calamities. In the event of the calamity covering a larger part
of the State, the convenors of the State Level Bankers' Committee (SLBC) will
also convene a meeting immediately to evolve a co-ordinated programme of action
for implementation of the programme in collaboration with the State/district
authorities while determining the quantum of assistance required by a person
affected by the natural calamity, the banks may take into consideration the
assistance/subsidy received by him from the State Government and/or other
- Divisional/Zonal Managers of commercial banks should be vested with certain
discretionary powers so that they do not have to seek fresh approvals from
their Central Offices to the line of action agreed to by the District/State
Level Bankers' Committees. For example, such discretionary power would
be necessary in respect of adoption of scale of finance, extension of loan
periods, sanction of new loans, keeping in view the total liability of the
borrower (i.e. arising out of the old loan where the assets financed are damaged
or lost on account of natural calamity as well as the new loan for creation/repair
of such assets, margin, security, etc.).
- Identification of the Beneficiaries
The bank branches should obtain from the concerned Govt.
authorities list of affected villages within their area of operation. From
among the identified persons, assessment of loss sustained by the existing
constituents of the banks would be easier. In the case of fresh borrowers,
however, discreet enquiries should be made in this regard and assistance of
the Govt. authorities should be sought wherever available for ascertaining
genuineness of their requirements. For providing conversion facilities in
respect of crop loans, procedure for identification of areas where such facilities
have to be provided has been indicated under crop loans in paragraph 12 below.
- Each branch will provide credit assistance not only to its existing borrowers
but also to other eligible persons within its command area provided they are
not covered by any other financial agency.
- Credit requirements of the borrowing members of the co-operatives will be
met by the Primary Agricultural Co-operative Societies (PACs)/LAMPS/FSS etc.
Branches of commercial banks may, however, finance the non-borrowing members
of the co-operative societies, for which the latter will issue the usual 'No
objection' certificates speedily.
Immediate assistance including finances would be needed for
protecting and rejuvenating standing crops/orchards/plantations etc. Equally
important will be repair and protection of livestock sheds, grains and fodder
storage/structures, drainage, pumping, and other measures and operations to
repair pump-sets, motors, engines and other necessary implements. Subject
to seasonal requirements, next crop financing would be taken up.
- Agricultural Loans
The bank assistance in relation to agriculture would be needed
in the form of short-term loans for the purpose of raising crops and term loans
for purchase of milch/draught animals, repairs of existing tube-wells and pump-sets,
digging of new tube-wells and installation of new pump-sets, land reclamation,
silt/sand removal, protection and rejuvenation of standing crops/orchard/plantations,
etc., repairs and protection of livestock sheds, grain and fodder storage structures,
11. Crop Loans
In the case of natural calamities, such as droughts, floods
etc., Government authorities would have declared annewari to indicate the extent
to which the crops are damaged. However, where such declaration has not been
made banks should not delay in providing conversion facilities, and the District
Collector's certificate that crop yield is below 50 percent of the normal yield
supported by the views of the DCC in the matter (for which a special meeting
may have to be convened) should be sufficient for invoking quick relief arrangements.
The certificate of the Collector should be issued crop -wise covering all crops,
including food-grains. Issuing of such certificates in respect of cash crops,
may, however, be left to the discretion of the Collector.
- Guidelines for Providing Conversion Facilities
The following guidelines are suggested for providing conversion
- Banks may, of their own, decide the quantum of fresh loans to be granted
to the affected borrowers taking into consideration, amongst others, the extent
of the crop loss/scale of finance and their repaying capacity.
- Amount of principal as well as interest in respect of short-term loans due
in the year of occurrence of natural calamity may be converted into term loans
or the repayment period may be rescheduled suitably. The period of conversion/re-schedulement
to be granted may vary depending on the intensity of calamity and the extent
of crop loss and distress caused to the farmers. Amounts not collected during
the year of occurrence of the calamity should be converted into term loans
for a period upto 3 years and for small and marginal farmers upto 5 years
in the normal circumstances. However, where the damage to crops arising out
of the calamity is very severe and has caused acute distress to the farmers
or if the calamity is for two successive years, banks may, at their discretion
and in consultation with Task Force/Steering Committee of SLBC, grant extensions
of the converted loans for longer periods ranging upto 5 to 7 years. In extreme
cases of hardships arising out of the very severe loss to the crops or occurrence
of three successive crop failures and the debt burden being found to be beyond
the immediate repaying capacity of the borrower, conversion for longer period
upto a maximum period of 9 years may also be considered by banks, in consultation
with the Task Force/SLBC.
- Pending conversion of short-term loans, banks may grant fresh crop loans
to the affected farmers.
- Conversion of short-term production loans may be taken up by banks at the
time of sanction of fresh crop loans to the affected farmers without waiting
for the due dates which are taken into account in normal course of sanction
of such loans.
- Similarly, instalments of principal/interest in respect of term loans may
be rescheduled for a period of 3 years which could be extended for longer
period in the circumstances mentioned at (ii) above.
- Where relief in the form of conversion/re-schedulement of loans is extended
to the farmers, such converted/rescheduled dues should be treated as current
dues and banks should not compound interest in respect of the loans so converted/
- Banks may not levy any penal interest and consider waiving penal interest,
if any, already charged in regard to the loans converted/ rescheduled.
- (i) To be effective, the assistance to farmers will have to be disbursed
with utmost speed. For this purpose the lead bank and the district authorities
concerned should evolve a procedure whereby identification of borrowers, issuance
of certificates regarding Government/co-operative/bank dues, title of the
applicant to land etc. is secured simultaneously.
(ii) Possibilities of organising credit camps, where Block
Development and Revenue officials, Co-operative Inspectors, Panchayat Pradhans
etc. could help finalise the applications on the spot, could be explored in
consultation with the district authorities where such credit camps are being
organised. The State Government will also arrange with the Collectors to issue
an executive order for the following officers or their authorised representatives
to assume respective duties and responsibilities as envisaged under implementation
of credit camps programme:
- Block Development Officer
- Co-operative Inspector
- Revenue Authority/Village Revenue Assistant
- Bank official operating in the area
- Gram Panchayat Pradhan
(iii) In order to avoid delay, the forms in which the State
Government Officers have to give certificates at the Credit Camps may be got
printed in sufficient numbers by the respective District Magistrates.
- In considering loan applications for the ensuing crop season the current
dues of the applicants to the State Government may be ignored, provided the
State Government declare a moratorium for a sufficiently long period on all
amounts due to the government as on the date of occurrence of the natural
- Scale of Finance
Scale of finance in respect of different crops will be uniform
in a district. The scales will be fixed taking into account the prevailing conditions
and norms presently adopted by different lending agencies. In fixing the scales,
minimum consumption needs of borrowers will be taken into account. The concerned
District Magistrate and Managers of branches of banks operating in the district
would be advised to adopt the scales so laid down.
16. Development Loans - Investment Costs
(i) The existing term loan instalments will have to be rescheduled/postponed
keeping in view the repaying capacity of the borrowers and the nature of natural
- Droughts, floods or cyclones etc. where only crop for that year is damaged
and productive assets are not damaged.
- Floods or cyclones where the productive assets are partially or totally
damaged and borrowers are in need of a new loan.
(ii) In regard to natural calamity under category (a),
the banks may postpone the payment of instalment during the year of natural
calamity and extend the loan period by one year except (subject to the following
- Those cultivators who had not effected the development or investment
for which the loan was obtained or had disposed of the equipment or machinery
purchased out of the loan.
- Those who are income tax payers.
- In the case of drought, those who are having perennial sources of irrigation
except where water supply was not released from canals or irrigation facility
was not available from other perennial sources.
- Tractor owners, except in genuine case where there is loss of income and
consequential impairment of their repaying capacity.
- Under this arrangement the instalments defaulted wilfully in earlier years
will not be eligible for rescheduling. The banks may have to postpone payment
of interest by borrowers. While fixing extension of period the commitment
towards interest may also be taken into account.
- In regard to category (i)(b) above, i.e., where the borrower's assets are
totally damaged, the rescheduling by way of extension of loan period may be
determined on the basis of overall repaying capacity of the borrower including
his repayment commitment on the old term loans and towards the conversion
loan (medium term loan) on account of postponing of repayment of short-term
loans and the fresh crop loan. In such cases, the repayment period of total
loan (including interest liability) less the subsidies received from the Government
agencies, compensation available under the insurance schemes, etc. may be
fixed having regard to the repaying capacity of the borrower subject to a
maximum of 15 years, depending upon the type of investment as well as the
economic (useful) life of the new asset financed, except in cases where loans
relate to land shaping, silt removal, soil conservation etc. Thus in the case
of loans for agricultural machineries, viz. pump-sets and tractors, it should
be ensured that the total loan period does not generally exceed 9 years from
the date of advance.
- Apart from rescheduling existing term loans, banks will provide to affected
farmers diverse type of term loans for developmental purposes, such as:
(i) Minor Irrigation
Term loans for repairs to wells, pump-sets, etc. which are
to be quantified after assessing the extent of damage and estimated cost of
Where the drought animals have been washed away, requests
for fresh loans for a new pair of bullocks/he-buffaloes may be considered.
Where loans are given for purchase of new cattle or where farmers have bought
milch cattle, reasonable credit may be given for purchase of fodder or feed.
(iii) Milch Cattle
Term loan for milch cattle will be considered depending upon
breed, milk yield, etc., the loan amount will include repairs to shelters,
purchase of equipment and feed.
Considering the proneness of areas to cyclones and other
natural calamities, the cattle should be insured instead of Risk-cum-Mortality
Fund established for similar purpose in other safe areas. Milch animals/draught
cattle should be branded for identification as also to serve as safeguard
against their re-sale by the beneficiaries.
(v) Poultry and Piggery
For poultry piggery and goatery, loans will be considered
as per norms of different banks.
In the case of borrowers who have lost their boats, nets
and other equipment, re-phasing of payment of existing dues may be allowed
on merits. Fresh loans may be granted to them with loan maturity of 3/4 years.
Loans for repairs to boats of the existing borrowers may also be considered.
In cases where subsidy is available, the quantum of loan should be reduced
to that extent. In States where substantial subsidy towards the cost of boats,
nets. etc., is likely to be available, proper co-ordination with the concerned
State Government Department in this regard must be ensured. Apart from complying
with other norms and conditions for grant of advances, assistance may be sought
from the Department of Fisheries, which may be expected to take measures which
would enable banks to proceed with financing for this purpose. The boats should
be comprehensively insured against all risks including natural calamities
as far as possible.
- Land Reclamation
- It is likely that financial assistance will be required for reclamation
of lands covered by sand casting. Normally, sand/silt deposits upto 3 inches
will either be ploughed back into the soil or removed by the farmers without
any need for financial assistance. Loan applications will, however, be considered
in cases where immediate cultivation is possible and reclamation (removal
of sand) is necessary. Wherever reclamation finance for saline lands is warranted,
the cost of reclamation not exceeding 25 percent of the scale allowed for
crop loan may be advanced along with the crop loan.
- For other activates like Sericulture, Horticulture, Floriculture, Betelvine
growing etc., banks will advance loans for investment and working capital
under their existing schemes and follow usual procedures laid down by them.
The working capital finance may be provided until such period the income from
the plantation is adequate to take care of such expenditure.
- However, additional need based crop loans, if necessary would be given for
revitalisation/rejuvenation of standing crop/orchards based on individual
- The question relating to procurement and proper arrangement for supply of
adequate quantity of seeds and various types of fertilisers will have to be
discussed with the State Government and District Administration in each district.
Similarly, for the purpose of ensuring adequate irrigation facilities, the
State Government will undertake repairs to Government owned shallow and deep
tube-wells and River Lift Irrigation System damaged by floods and other natural
calamities. As for fisheries, the fisheries department of the State Government
will make arrangement to obtain fingerlings/and supply them to those who wish
to revive tank fishing with bank finance.
- The State Government will have to consider preparation of schemes which
would enable commercial banks to obtain refinance at NABARD rates for amounts
advanced by banks for the said purpose.
- Consumption Loans
In view of the damage to crops and property, existing borrowers
need consumption loans for sustenance till the flow of income is resumed.
For this purpose, Rs. 75/- is admissible for ‘general consumption’. In view
of the special situation obtaining in the affected areas and the need for
consumption loan for general purposes, the banks may extend for 'general consumption'
loan upto Rs. 250/- to be released in suitable instalments over the period
upto the harvesting of the current or the next crop depending on the devastation
caused by the natural calamity or proper assessment in individual cases. This
limit may be raised to Rs. 1,000/- in the States where the State Governments
have constituted risk funds for such lendings by commercial banks.
- Artisans and Self-Employed
- For all categories of rural artisans and self employed persons including
handloom weavers, loans will be needed for repairs of sheds, replacement of
implements and purchase of raw materials and stores. In sanctioning the loan,
due allowance will be made for subsidy/assistance available from the concerned
- There may be many artisans, traders and self-employed who may not have any
banking arrangement or facility with any bank, but will now need financial
assistance for rehabilitation. Such categories will be eligible for assistance
from banks' branches in whose command areas they reside or carry on their
profession/business. Where such a person/party falls under the command area
of more than one bank, the banks concerned will meet together and sort out
- Small Scale and Tiny Units
- Rehabilitation of units under village and cottage industry sector, small
scale industrial units as also smaller of the medium industrial sector damaged,
will also need attention. Term loans for repairs to and renovation of factory
buildings/sheds and machinery as also for replacement of damaged parts and
working capital for purchase of raw materials and stores will need to be provided
- Where the raw materials or finished goods have been washed away or ruined
or damaged, banks security for working capital will naturally be eroded and
the working capital account (Cash Credit or Loan) will be out of order. In
such cases, banks will convert drawings in excess of the value of security
into a term loan and also provide further working capital to the borrower.
- Depending on the damage suffered and time needed for rehabilitation and
restarting production and sales, term loan instalments will have to be suitably
rescheduled keeping in view the income generating capacity of the unit. Short-fall
in margins will have to be condoned or even waived and borrower should be
allowed time to build up margin gradually from his future cash generation.
Wherever State Government or any agency has formulated special scheme for
providing grants/subsidy/seed money, suitable margin may be stipulated to
the extent of such grants/subsidy/seed money.
- The primary consideration before the banks in extending credit to a small/tiny
unit for its rehabilitation should be the viability of the venture after the
rehabilitation programme is implemented.
- Terms and Conditions
The terms and conditions governing relief loans will be flexible
as to security, margin, etc. In the case of small loans covered by guarantee
of Deposit Insurance and Credit Guarantee Corporation, personal guarantees
will not be insisted upon. In any case, credit should not be denied for want
of personal guarantees.
Where the bank's existing security has been eroded because
of damage or destruction by floods, assistance will not be denied merely for
want of additional fresh security. The fresh loan may be granted even if the
value of security (existing as well as the asset to be acquired from the new
loan) is less than the loan amount. For fresh loans sympathetic view will have
to be taken:
- Where the crop loan (which has been converted into term loan) was earlier
given against personal security/hypothecation of crop which would be the case
for crop loans upto Rs. 5,000/- and the borrower is not able to offer charge/mortgage
of land as security for the converted loan, he should not be denied conversion
facility merely on the ground of his inability to furnish land as security.
- If the borrower has already taken a term loan against mortgage/charge on
land, the bank should be content with a second charge for the converted term
- Banks should not insist on third party guarantees for providing conversion
- In the case of term loans for replacement of equipment, repairs, etc. and
for working capital finance to artisans and self-employed persons or for crop
loans, usual security may be obtained. Where land is taken as security in
the absence of original Title Records, a Certificate issued by the Revenue
Department Officials may be accepted for financing farmers who have lost proof
of their titles i.e. in the form of deeds, as also the registration certificates
issued to registered share-croppers.
- As per the recommendations of the RBI report on customer service, banks
will finance the borrowers who require loans upto Rs. 500/- without insisting
either on collateral security or guarantee for any type of economic activity.
Margin requirements be waived or the grants/subsidy given
by the concerned State Government may be considered as margin.
The rates of interest will be in accordance with the directives
of the RBI. Within the areas of their discretion, however, banks are expected
to take a sympathetic view of the difficulties of the borrowers and extend a
concessional treatment to calamity affected people.
- Those meeting the eligibility criteria under the Scheme of Differential
Rate of Interest should be provided credit in accordance with the provision
of the Scheme.
- In respect of current dues in default, no penal interest will be charged.
The banks should also suitably defer the compounding of interest charges.
- Applicability of the Guidelines in the case of Riots and Disturbances
Whenever, RBI advises the banks to extend rehabilitation assistance
to the riot/disturbance affected persons, the aforesaid guidelines may broadly
be followed by banks for the purpose. It should, however, be ensured that only
genuine persons, duly identified by the State Government agencies as having
been affected by the riots, etc., are extended rehabilitation/assistance.
- With a view to ensuring quick relief to the affected persons, the District
Collector, on occurrence of the riot/disturbances, may ask the Lead Bank Officer
to convene a meeting of the DCC, if necessary, and submit a report to the
DCC on the extent of damage caused to the life and property in the area affected
by riots/disturbances. If the DCC is satisfied that there has been extensive
loss to life and property, the relief, as per aforesaid guidelines, may be
extended to the people affected by riots/disturbances. In certain centres
where there are no DCCs, the District Collector may request the Convenor SLBC
of the State to convene a meeting of the bankers to consider extension of
relief to the affected persons. The report submitted by the Collector and
the decision thereon of DCC/SLBC may be recorded and should form a part of
the minutes of the meeting. A copy of the proceedings of the meeting may be
forwarded to the concerned Regional Office of the RBI.
- It should be ensured that only genuine persons duly identified by the State
Administration, as having been affected by the riots/disturbances are provided
Management of Advances
Details of the borrowal accounts which have been classified
as doubtful, loss or suit filed with outstanding (both under
funded and non-funded) aggregating Rs. 1.00 crore and above
[Vide para 5.2.2]
Name of the Bank :
1. Name of the Company/firm
2. Registered address of the company/firm
3. Names of the directors/partners of defaulting company/firm
4. Name of the branch
5. Type of facilities and limits sanctioned under each facility
6. Amount outstanding
7. Nature and value of securities held in each category
8. Asset classification of the defaulting account (specify doubtful, loss or
9. Date of classifying the account as doubtful / loss / suit filed
Management of Advances
Format for Reporting of Data on Wilful Default
[Vide para 6.1.2 (i)]
Information should be furnished to the Reserve Bank of India
in floppy diskette in format specified as below :
a) Input media : 3.5' floppy disk file
b) File Characteristics : ASCII or dbf file
The field - wise description of various items is as follows
1) Serial Number : 9 (4) Unique number to be given
to each of the records
2) Bank-branch name : x (14) As in the case of Basic
3) Party 's name : x (45) The legal name
4) Registered address : x (96) Registered Office address
5) Amount outstanding : 9(6) Total amount outstanding
in Rs. Lakhs
6) Name of directors : x(336) To be divided into 14
sub-fields of 24 bytes each
7) Status : Suit filed or non-suit filed
ANNEXURE - V
GENERAL GUIDELINES FOR REHABILITATION OF
SICK SSI UNITS
[vide para 7(i)]
1. It is of utmost importance to take measures to ensure
that sickness is arrested at the incipient stage itself. The branch/bank officials
should keep a close watch on the operations in the account and take adequate
measures to achieve this objective. The managements of the units financed should
be advised about their primary responsibility to inform the banks if they face
problems which could lead to sickness and to restore the units to normal health.
The organizational arrangements at branch level should also be fully geared
for early detection of sickness and prompt remedial action. Banks/Financial
Institutions will have to identity the units showing symptoms of sickness by
effective monitoring and provide additional finance, if warranted, so as to
bring back the units to a healthy track.
1.1 An illustrative list of warning signals of incipient sickness
that are thrown up during the scrutiny of borrowal accounts and other related
records e.g. periodical financial data, stock statements, reports on inspection
of factory premises and godowns, etc. is given in given below, which will serve
as a useful guide to the operating personnel.
- Continuos irregularities in cash credit/overdraft accounts such as inability
to maintain stipulated margin on continuous basis or drawings frequently exceeding
sanctioned limits, periodical interest debited remaining unrealised;
- Outstanding balance in cash credit account remaining continuously at the
- Failure to make timely payment of instalments of principal and interest
on term loans;
- Complaints from suppliers of raw materials, water, power, etc.about non-payment
- Non-submission or undue delay in submission or submission of incorrect stock
statements and other control statements;
- Attempts to divert sale proceeds through accounts with other banks;
- Downward trend in credit summations;
- Frequent return of cheques or bills;
- Steep decline in production figures;
- Downward trends in sales and fall in profits;
- Rising level of inventories, which may include large proportion of slow
or non-moving items;
- Larger and longer outstanding in bill accounts;
- Longer period of credit allowed on sale documents negotiated through
the bank and frequent return by the customers of the same as also allowing
large discount on sales;
- Failure to pay statutory liabilities;
- Utilization of funds for purposes other than running the units.
- Not furnishing the required information/data on operations in time.
- Unreasonable/wide variations in sales/receivables levels vis-à-vis
level of co-operation for stock inspections, etc.
- Delay in meeting commitments towards payments of installments due, crystallized
liabilities under LC/BGs, etc.
- Diverting/routing of receivables through non-lending banks.
1.2 Further, the system of asset classification introduced
in banks will be useful for detecting advances, with are deteriorating in quality,
well in time. When an advance slips into the sub-standard category, as per norms,
the branch/bank should make full enquiry into the financial health of the unit,
its operations, etc. and take remedial action. The bank/branch officials who
are familiar with the day-to-day operations in the borrowal accounts should
be under obligation to identify the early warning signals and initiate corrective
steps promptly. Such steps may include providing timely financial assistance
depending on established need, if it is within the powers of the branch manager,
and an early reference to the controlling office where the relief required are
beyond his delegated powers. The branch/bank manager may also help the unit,
in sorting out difficulties which are non- financial in nature and require assistance
from outside agencies like Government departments/undertakings, Electricity
Boards, etc. He should also keep the term lending institutions informed about
the position of the units wherever they are also involved.
2. Definition of Sick SSI Unit :
An SSI unit be considered 'Sick' if
i) any of the borrowal accounts of the unit remains substandard
for more than six months i.e. principal or interest, in respect of any of its
borrowal accounts has remained overdue for a period exceeding one year. The
requirement of overdue period exceeding one year will remain unchanged even
if the present period for classification of an account as sub-standard, is reduced
in due course;
ii) there is erosion in the net worth due to accumulated cash
losses to the extent of 50 per cent of its net worth during the previous accounting
iii) the unit has been commercial production for at least two
This would enable banks to take action at an early stage for
revival of the units. For the purpose of formulating nursing programme, banks
should go by the above definition with immediate effect.
3. Viability of Sick SSI Units
A unit may be regarded as potentially viable if it would be
in a position, after implementing a relief package spread over a period not
exceeding five years from the commencement of the package from banks, financial
institutions, Government (Central/State) and other concerned agencies, as may
be necessary, to continue to service its repayment obligations as agreed upon
including those forming part of the package, without the help of the concessions
after the aforesaid period. The repayment period for restructured (past) debts
should not exceed seven years from the date of implementation of the package.
In the case of tiny / decentralised sector units, the period of reliefs /concessions
and repayment period of restructured debts which were hitherto, two years and
three years respectively have been revised, so as not to exceed five and seven
years respectively, as in the case of other SSI units. Based on the norms specified
above, it will be for the banks/financial institutions to decide whether a sick
SSI unit is potentially viable or not. Viability of a unit identified as sick,
should be decided quickly and made known to the unit and others concerned at
the earliest. The rehabilitation package should be fully implemented within
six months from the date the unit is declared as 'potentially viable'/'viable'.
While identifying and implementing the rehabilitation package, banks/ FIs are
advised to do 'holding operation' for a period of six months. This will allow
small-scale units to draw funds from the cash credit account at least to the
extent of their deposit of sale proceeds during of such 'holding operation'.
4.Reliefs and Concessions for Rehabilitation of Potentially
4.1 It is emphasised that only those units which are considered
to be potentially viable should be taken up for rehabilitation. The reliefs
and concessions specified are not to be given in a routine manner and have to
be decided by concerned bank/financial institution based on the commercial judgement
and merits of each case. Banks have also the freedom to extent reliefs and concessions
beyond the parameters in deserving cases. Only in exceptional cases, concessions/
reliefs beyond the parameters should be considered. In fact, the viability study
itself should contain a sensitivity analysis in respect of the risks involved
that in turn will enable firming up of the corrective action matrix.
The viability and the rehabilitation of a sick SSI unit would
depend primarily on the unit's ability to continue to service its repayment
obligations including the past restructured debts. It is, therefore, essential
to ensure that ordinarily there is no write-off of scaling down of debt such
as by reduction in rate of interest with retrospective effect except to the
extent indicated in the guidelines. Norms for grant of reliefs and concessions
by banks/ financial institutions to potentially viable sick SSI units for rehabilitation
are furnished in below:
i) Interest Dues on Cash Credit and Term Loan
If penal rates of interest or damages have been charged, such
charges should be waived from the accounting year of the unit in which it started
incurring cash losses continuously. After this is done, the unpaid interest
on term loans and cash credit during this period should be segregated from the
total liability and funded. No interest may be charged on funded interest and
repayment of such funded interest should be made within a period not exceeding
there years from the date of commencement of implementation of the rehabilitation
ii) Unadjusted Interest Dues
Unadjusted interest dues such as interest charged between the
date up to which rehabilitation package was prepared and the date from which
actually implemented, may also be funded on the same terms as at (i) above.
iii) Term Loans
The rate of interest on term loans may be reduced, where considered
necessary, by not more than three per cent in the case of tiny/ decentralised
sector units and by not more than two per cent for other SSI units, below the
iv) Working Capital Term Loan (WCTL)
After the unadjusted interest portion of the cash credit account
is segregated as indicated at (i) and (ii) above, the balance representing principal
dues may be treated as irregular to the extent it exceeds drawing power. This
amount may be funded as Working Capital Term Loan (WCTL) with a repayment schedule
not exceeding 5 years. The rate of interest applicable may be 1.5% to 3% points
below the prevailing fixed rate/minimum lending rate of the bank, wherever applicable,
to all sick SSI units including tiny and decentralized units.
v) Cash Losses
Cash losses are likely to be incurred in the initial stages
of the rehabilitation programme till the unit reaches the break-even level.
Such cash losses excluding interest as may be incurred during the nursing programme
may also be financed by the bank or the financial institution, if only one of
them is the financier. But if both are involved in the rehabilitation package,
the financial institution concerned should finance such cash losses. Interest
may be charged on the funded at the rates prescribed by SIDBI under its scheme
for rehabilitation assistance.
Future cash losses in this context will refer to losses from
the time of implementation of the package up to the point of cash break-even
as projected. Future cash losses as above, should be worked out before interest
(i.e., after excluding interest) on working capital etc., due to the banks and
should be financed by the financial institutions if it is one of the financiers
of the unit. In other words, the financial institutions should not be asked
to provide for interest due to the banks in the computation of future cash losses
and this should be taken care of by future cash accruals. The interest due to
the bank should be funded by it separately. Where, however, a commercial bank
alone is the financier, the future cash losses including interest will be financed
The interest on the funded amounts of cash losses/interest
will be the rates prescribed by Small Industries Development Bank of India under
its scheme for rehabilitation assistance.
vi) Working Capital
Interest on working capital may be charged at 1.5% below the
prevailing fixed/minimum lending rate charged by the bank wherever applicable.
Additional working capital limits may be extended at a rate not exceeding the
minimum lending rate chargeable by the bank.
vii) Contingency Loan Assistance
For meeting escalations in capital expenditure to be incurred
under the rehabilitation programme, banks/financial institutions may provide,
where considered necessary, appropriate additional financial assistance upto
15 per cent of the estimated cost of rehabilitation by way of contingency loan
assistance. Interest on this contingency assistance may be charged at the concessional
rate allowed for working capital assistance.
viii) Funds for Start-up Expenses and Margin for Working
There will be need to provide the unit under rehabilitation
with funds for start-up expenses (including payment of pressing creditors) or
margin money for working capital in the form of long-term loans. Where a financial
institution is not involved, banks may provide the loan for start-up expenses,
while margin money assistance may either come from SIDBI under its Refinance
Scheme for Rehabilitation or should be provided by State Government where it
is operating a Margin Money Scheme. Interest on fresh rehabilitation term loan
may be charged at a rate 1.5% below the prevailing fixed/minimum lending rate
chargeable by the bank wherever applicable or as prescribed by SIDBI/NABARD
where refinance is obtained from it for the purpose.
All interest rate concessions would be subject to annual review
depending on the performance of the units.
ix) Promoters' Contribution
As per the extent RBI guidelines, promoter's contribution towards
the rehabilitation package is fixed at a minimum of 10 per cent of the additional
long-term requirements under the rehabilitation package in the case of tiny
sector units and at 20 per cent of such requirements for other units. In the
case of units in the decentralized sector, promoters' contribution may not be
insisted upon. A need is felt for increasing the promoters' contribution towards
rehabilitation from the present limits. It is, therefore, open to banks and
financial institutions to stipulate a higher promoters' contribution where warranted.
At least 50 per cent of the above promoters' contribution should be brought
in immediately and the balance within six months.
For arriving at promoters' contribution, the monetary value
of the sacrifices from banks, financial institutions and Government may be taken
into account, in addition to the long-term requirement of funds under the rehabilitation
package. While evolving packages, it should be made a precondition that the
promoters should bring in their contribution within the stipulated time frame.
Further, in regard to concessions and relief made available to sick units, banks
should incorporate a 'Right of Recompense' clause in the sanction letter and
other documents to the effect that when such units turn the corner and rehabilitation
is successfully completed, the sacrifices undertaken by the FIs and banks should
be recouped from the units out of their future profits/cash accruals.
4.2 Units becoming sick on account of wilful mismanagement,
wilful default, unauthorized diversion of funds, disputes among partners/promoters,
etc. should not be considered for rehabilitation and steps should be taken for
recovery of bank's dues. The definition of wilful default, will broadly cover
the following :
- Deliberate non-payment of the dues despite adequate cash flow and good net-worth.
- Siphoning off of funds to the detriment of the defaulting unit.
- Assets financed have either not been purchased or have been sold and proceeds
have been misutilised.
- Misrepresentation /falsification of records.
- Disposal/removal of securities without bank's knowledge; and.
- Fraudulent transactions by the borrower.
The views of the lending banks in regard to wilful mis-management
of funds/defaults will be treated as final.
5. Delegation of Powers
The delay in the implementation of agreed rehabilitation packages
should be reduced. One of the factors contributing to such delay was found to
be the time taken by banks having multiple branches for obtaining clearance
from the Head Office for the relief and concessions. As it is essential to accelerate
the process of clearance, the banks may delegate sufficient powers to senior
officers at various levels to sanction the bank's rehabilitation package drawn
up in conformity with the prescribed guidelines.
Management of Advances
A. List of Circulars consolidated in the Master Circular
Guidelines for Rehabilitation of Sick SSI Units
Loan System for Delivery of Bank Credit
Issue of banker’s cheques/pay orders/demand drafts
Relief measures for the persons/business affected by the earthquake in Gujarat
Reliefs/Concessions for Exporters Affected by the Earthquake
Branch Advisory Committees
Collection and Dissemination of Information on Cases of Wilful Default of Rs. 25.00 lakh and above
Guidelines for Sanction of Working Capital Finance to Information Technology (IT) and Software Industry
Reliefs/Concessions for Exporters Affected by Cyclone in Gujarat
Disclosure of information regarding defaulting borrowers of banks at-id financial institutions
Reporting of Credit Sanctions
Guidelines for lending by banks-Assessment of working capital
'Bill' finance for settlement of dues of SSI suppliers
Loan system for delivery of bank credit
Guidelines for lending by banks-Assessment of working capital-Concept of maximum permissible bank Finance - Review of policy
Loan system for delivery of bank credit
Loan system for Delivery of Bank Credit
Management of advances portfolio and control over advances
Loan System for Delivery of Bank credit
Lending to non-banking financial companies
Disclosure of information regarding defaulting borrowers of banks and financial institutions
Equipment leasing and hire purchase financing activities
Realistic assessment of credit requirement Measures to prevent diversion of funds
Credit Monitoring System-Introducing of Health Code for borrowal accounts in banks
Loan System for Delivery of Bank Credit
Introduction of a loan system for delivery of bank credits.
Assessment of Working Capital limits of less than Rs. 1 crore-Clarifications
Norms for bank lending for working capital purposes-Revised guidelines
Lending to Non-Banking Financial Companies
Bridge Loans/Interim Finance
Compliance with lending discipline-(a) Charging of uniform rates of interest for lending under consortium arrangement and (b) penal interest for non-compliance with the discipline
Guidelines on lending under consortium arrangements
Levy of commitment charge on unutilised portion of credit limit
Leading to non-Banking financial companies
Inventory/Receivables norms for various industries
Report of the in-House Group setup to review the role of Reserve Bank of India in laying down norms for bank lending for working capital purposes - Revised guidelines.
Guidelines on lending under consortium arrangements
Credit Authorisation Scheme - Co-ordination between banks and Financial institutions in ex-tending term loans
Restrictions on credit to certain sectors – Real Estate Loans
Incidence of guarantee premium payable to Deposit Insurance and Credit Guarantee Corporation
Credit Authorisation Scheme - Treatment of term loan instalments for assessment of working capital requirements
Monitoring of flow of funds
Credit Authorisation Scheme - Co-ordination between banks and Financial institutions in ex-tending term loans.
Review of inventory/receivable norms for financing vegetable and hydrogenated oil industry
Review of inventory/receivables norms for financing biscuits and bakery products industry
Inventory and Receivables Norms Basmati Rice
Restriction on Credit to Certain Sectors
Credit Authorisation Scheme Treatment of term loan instalments for assessment of working capital requirements
Guidelines for relief measures by urban banks in areas affected by recent riots
Diversion of working capital funds
Bridge Loans/Interim Finance
Inventory and Receivables norms for power Generation/Distribution Industry
Inventory and Receivables norms for certain segments of Chemical Industry Essential Oil based chemicals
Restriction on Credit to Certain Sectors
Restrictions of Drawals Under Large Cash Credit Limits
Credit Monitoring System Health Code for Borrowal Accounts in Urban Co-operative Banks
Financing of Leasing/Hire Purchase Companies
Credit Monitoring Arrangement Lending Discipline - Quarterly Information System (QIS)
Assessment of Working Capital Requirements - Inventory/Receivable Norms for Paper Industry and for Consumable Spares
Inventory/Receivables Norms for Engineering Industry
Inventory/Receivable norms for Certain Segments of Chemical Industry
Credit Monitoring System - Introduction of Health Code for Borrowal Accounts in Banks
Inventory/Receivable Norms for Various Industries
Advances to Builders/Contractors
Guidelines for Assessment of Working Capital Requirements, Opening of Letters of Credit and Issue of Guarantees
Credit Monitoring System - Introduction of Health Code for Borrowal Accounts in Banks
Defaults In Payment of Statutory Dues by Borrowers
Withholding of Credit Facilities to Borrowers to Ensure Financial Discipline
Certification of Accounts of Non-Corporate Borrowers by Chartered Accountants
Advances Granted by Urban Co-operative Banks - Diversion of Funds
Guidelines for relief measures by urban banks in areas affected by natural calamities
Banks assistance to persons affected by recent disturbances
Measures to restrict further credit expansion
Credit authorisation scheme for co-operative banks
Credit authorisation scheme for co-operative banks
Working group on industrial financing through co-operative banks - recommendations pertaining to the urban co-operative banks - action required
B. List of Other Circulars from which instructions relating to Management of Advances have also been consolidated in the Master Circular
Committee to enquire into various aspects relating
to frauds and malpractices in banks (Ghosh Committee)
||Committee to enquire
into various aspects relating to frauds and malpractices in banks primary
(urban) co-operative banks
Frauds, Mis-Appropriation, Embezzlements And Defalcation
Of Funds In Primary (Urban) Co-operative Banks