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INTRODUCTION
The urban cooperative banking system has witnessed phenomenal growth during the last
one and a half decades. From 1307 urban cooperative banks (UCBs) in 1991, the number of
UCBs has risen to 2105 in the year 2004. Deposits have increased by over 1100 percent from Rs.
8600 crore to over Rs.100, 000 crore, while advances have risen from Rs. 7800 crore to over
Rs.65,000 i.e. by 733 percent during the above 15-year period. This growth path has been
possible mainly on account of the enabling policy environment in the Post 1991 period, which
encouraged setting up of new urban cooperative banks. Further, the deregulation of interest rates,
as available to commercial banks, enabled the UCBs to mobilize vast deposits, which, together
with the liberal licensing policy propelled the growth of UCBs in terms of numbers as also in
size. This significant growth in business, which has come about in a competitive environmentwas largely due to the efforts and the ability of the sector to harness resources from the small
depositors.
Thus, while the sector has shown spectacular growth during the last decade exhibiting
substantial potential for sustained growth, there are certain infirmities in the sector that have
manifested in the form of weakness of some of the entities resulting in erosion of public
confidence and causing concern to the regulators as also to the sector at large. There is, thus, a
need to harness the benefit of rapid growth and mitigate the risk to which individual banks and
the system are exposed by providing a regulatory and supervisory framework that will address
the problems of the sector as also the shortcomings of dual control.
Over the years, primary (urban) cooperative banks have registered a significant growth
in number, size and volume of business handled. As on 31st March, 2003 there were 2,104 UCBs
of which 56 were scheduled banks. About 79 percent of these are located in five states, - Andhra
Pradesh, Gujarat, Karnataka, Maharashtra and Tamil Nadu. Recently the problems faced by a
few large UCBs have highlighted some of the difficulties these banks face and policy endeavours
are geared to consolidating and strengthening this sector and improving governance.
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Under state purview:-
The constitutional reforms which led to the passing of the Government of India Act in 1919
transferred the subject of “Cooperation” from Government of India to the Provincial
Governments. The Government of Bombay passed the first State Cooperative Societies Act in
1925 “which not only gave the movement its size and shape but was a pace setter of cooperative
activities and stressed the basic concept of thrift, self help and mutual aid.” Other States
followed. This marked the beginning of the second phase in the history of Cooperative Credit
Institutions.
There was the general realization that urban banks have an important role to play in economic
construction. This was asserted by a host of committees. The Indian Central Banking Enquiry
Committee (1931) felt that urban banks have a duty to help the small business and middle class
people. The Mehta-Bhansali Committee (1939), recommended that those societies which had
fulfilled the criteria of banking should be allowed to work as banks and recommended an
Association for these banks. The Co-operative Planning Committee (1946) went on record to say
that urban banks have been the best agencies for small people in whom Joint stock banks are not
generally interested. The Rural Banking Enquiry Committee (1950), impressed by the low cost
of establishment and operations recommended the establishment of such banks even in places
smaller than taluka towns.
The first study of Urban Co-operative Banks was taken up by RBI in the year 1958-59. The
Report published in 1961 acknowledged the widespread and financially sound framework of
urban co-operative banks; emphasized the need to establish primary urban cooperative banks in
new centers and suggested that State Governments lend active support to their development. In
1963, Varde Committee recommended that such banks should be organised at all Urban Centres
with a population of 1 lakh or more and not by any single community or caste. The committee
introduced the concept of minimum capital requirement and the criteria of population for
defining the urban centre where UCBs were incorporated.
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CO - OPERATIVE BANK IN INDIA
The beginning co-operative banking in India dates back to about 1904, when official
efforts were made to create a new type of institution based on principles of co-operative
organization & management, which were considered to be suitable for solving the problems
peculiar to Indian conditions. The philosophy of equality, equity and self help gave way to the
thoughts of self responsibility and self administration which resulted in giving birth of co-
operative. The origin on co-operative movement was one such event-arising out of a situation of
crisis, exploitation and sufferings. Co-operative banks in India came into existence with the
enactment of the Agricultural Credit Co-operative Societies Act in 1904. Co-operative bank
form an integral part of banking system in India. Under the act of 1904, a number of co-operative
credit societies were started. Owing to the increasing demand of co-operative credit, anew act
was passed in 1912, which was provided for establishment of co-operative central banks by a
union of primary credit societies and individuals.
Co-operative Banks in India are registered under the Co-operative Societies Act. The
cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations
Act 1949 and Banking Laws (Co- operative Societies) Act, 1965.
ROLE OF CO-OPERATIVE BANKING IN INDIA:
Co-operative Banks are much more important in India than anywhere else in the world. The
distinctive character of this bank is service at a lower cost and service without exploitation. It
has gained its importance by the role assigned to them, the expectations they are supposed to
fulfill, their number, and the number of offices they operate. Co-operative banks role in rural
financing continues to be important day by day, and their business in the urban areas also has
increased phenomenally in recent years mainly due to the sharp increase in the number of
primary co-operative banks. In rural areas, as far as the agricultural and related activities are
concerned, the supply of credit was inadequate, and money lenders would exploit the poor
people in rural areas providing them loans at higher rates. So, Co-operative banks mobilize
deposits and purvey agricultural and rural credit with a wider outreach and provide institutional
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credit to the farmers. Co-operative bank have also been an important instrument for various
development schemes, particularly subsidy-based programmes for poor.
The Co-operative banks in rural areas mainly finance agricultural based activities like:
1. Farming
2. Cattle
3. Milk
4. Hatchery
5. Personal finance
The Co-operative banks in urban areas finance in activities like:-
1. Self-employment
2. Industries
3. Small scale units
4. Home finance
5. Consumer finance
6. Personal finance
Definition of Co- operative bank:-
“A Co-operative bank, as its name indicates is an institution consisting of a number of
individuals who join together to pool their surplus savings for the purpose of eliminating the
profits of the bankers or money lenders with a view to distributing the same amongst the
depositors and borrowers.”
The Co-operative Banks Act, of 2007 (the Act) defines a co-operative bank as a co-
operative registered as a co-operative bank in terms of the Act whose members –
1. are of similar occupation or profession or who are employed by a common employer or
who are employed within the same business district; or
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2. have common membership in an association or organisation, including a business,
religious, social, co-operative, labour or educational group; or
3. have common membership in an association or organisation, including a business,
religious, social, co-operative, labour or educational group; or
4. Reside within the same defined community or geographical area.
PRINCIPLES OF CO-OPERATIVE BANK
The 7 co-operative principles are :
1. Voluntary and open membership.
2. Democratic member control.
3. Member economic participation.
4. Autonomy and independence.
5. Education.
6. Training.
7. Information.
ACTIVITIES OF CO- OPERATIVE BANK
1. Co-operative bank performs all the main banking functions of deposit mobilisation,
supply of credit and provision of remittance facilities.
2. Co-operative Banks belong to the money market as well as to the capital market.
3. Co-operative Banks provide limited banking products and are functionally specialists
in agriculture related products. However, co-operative banks now provide housing
loans also.
4. UCBs provide working capital loans and term loan as well.
5. To use excess funds of some societies temporarily to make up for shortage in another,
6. To supervise and guide affiliated societies.
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STRUCTURE OF CO-OPERATIVE BANKING IN INDIA
NABARD
CO-OPERATIVE
BANK
NATIONALIZED
BANKS
NON-GOVERNMENT
INSTITUTIONS
INITIAL
INDIVIDUAL
MIDDLEMEN
/DALAL‟S
GOLA GHAR TRADITIONAL
MONEY
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BENEFITS OF CO - OPERATIVE BANKS:-
Many advantages of co operative credit/banking system have been claimed:-1. Co operatives, like money-lenders, can possess intimate knowledge of the character and
financial position of their members, of and the local production possibilities and chances of
growth.
2. Co operative have lower administrative costs on account of voluntary services rendered by
their members
3. They instill among their members a strong feeling of responsibility for prompt payment of
interest and repayment of loans.
4. They promote thrift and savings among their members and mobilize their small savings for
productive or useful purposes.
5. The procedure of deposit and withdrawal of a co operative credit society or bank is far less
complicated, since personal identification and such other problems do not exist.
6. Co operative may provide loans to their members at lower rates of interest and save them
from the clutches of shylock – type money – lenders.
7. They make their members financially more secure.
8. They are suitable to help people of small means.
9. Advantages for members of Co operative Bank and societies:-
Tangible Intangible
-Membership certificates. - Personal advice.
- Co-operative shares. - Extra information.
- Incentive loans for start-ups. - Seminars.
- Simple procedures for obtaining loans. - Publications.
- Discounts. - Seminars.
- Special offers, e.g. mobile telephone,
subscriptions.
- Special events.
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- Priority in business relations. - Influence based on one man one vote.
- Financial support for local projects or
sponsoring.
- Influence and say.
- Member councils.
- Social involvement.
- Determining the use of social funds and
sponsoring.
FEATURES OF CO- OPERATIVE BANK:-
1. Customer's owned entities : in a co-operative bank, the needs of the customers meet the
needs of the owners, as co-operative bank members are both. As a consequence, the first aim
of a co-operative bank is not to maximize profit but to provide the best possible products and
services to its members. Some co-operative banks only operate with their members but most
of them also admit non-member clients to benefit from their banking and financial services.
2. Democratic member control : co-operative banks are owned and controlled by their
members, who democratically elect the board of directors. Members usually have equal
voting rights, according to the co-operative principle of "one person, one vote".
3. Profit allocation : in a co-operative bank, a significant part of the yearly profit, benefits or
surplus is usually allocated to constitute reserves. A part of this profit can also be distributed
to the co-operative members, with legal or statutory limitations in most cases. Profit is
usually allocated to members either through a patronage dividend, which is related to the use
of the co-operatives products and services by each member, or through an interest or a
dividend, which is related to the number of shares subscribed by each member.
Co-operative banks are deeply rooted inside local areas and communities. They are involved in
local development and contribute to the sustainable development of their communities, as their
members and management board usually belong to the communities in which they exercise their
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activities. By increasing banking access in areas or markets where other banks are less present -
SMEs, farmers in rural areas, middle or low income households in urban areas - co-operative
banks reduce banking exclusion and foster the economic ability of millions of people. They play
an influential role on the economic growth in the countries in which they work in and increase
the efficiency of the international financial system. Their specific form of enterprise, relying on
the above-mentioned principles of organization, has proven successful both in developed and
developing countries.
Cooperative banking is retail and commercial banking organized on a cooperative basis.
Cooperative banking institutions take deposits and lend money in most parts of the world.
Cooperative banking, as discussed here, includes retail banking carried out by credit unions,
mutual savings banks, building societies and cooperatives, as well as commercial banking
services provided by mutual organizations (such as cooperative federations) to cooperative
businesses.
A co-operative bank is a financial entity which belongs to its members, who are at the same time
the owners and the customers of their bank. Co-operative banks are often created by persons
belonging to the same local or professional community or sharing a common interest. Co-
operative banks generally provide their members with a wide range of banking and financial
services (loans, deposits, banking accounts…). Co-operative banks differ from stockholder banks
by their organization, their goals, their values and their governance. In most countries, they aresupervised and controlled by banking authorities and have to respect prudential banking
regulations, which put them at a level playing field with stockholder banks. Depending on
countries, this control and supervision can be implemented directly by state entities or delegated
to a co-operative federation or central body.
OBJECTIVES OF CO-OPERATIVE BANK:-
1. The co-operative system world over has emerged with a distinct objective namely to
safeguard the interests of its members and to provide financial assistance to those who are
unable to get financial help from other institutions.
2. Still a large number of people in the urban, semi urban and villages are unable to receive the
benefits. They have not benefited from the new developments to a desired extent.
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3. The co-operatives can play a very significant role in the traditional areas like small
borrowers; retail and petty traders transport operators and other weaker sections of the
society.
4. Primary urban co-operative banks play an important role in meeting the growing credit needs
of urban and semi-urban areas.
5. UCBs mobilize savings from the middle and lower income groups and purvey credit to small
sections of the society.
6. The basic idea of establishing the co-operative bank is still relevant but they have to change
their working style and adopt modern means of ICT. Hence it would be useful to discuss in
brief the basic philosophy behind establishing the cooperative institutions. Today there are
over 2000 primary urban cooperative banks with a deposit of over Rs60000 crores. Early
history of cooperative movement throughout the world shows that cooperative organizations
began with consumer‟s cooperatives. The first Co-operative society known as Rochdale
Pioneer was formed by 28 flannel weavers in England in 1843 to protect themselves against
the organized sector.
7. The movement later spread on to the other fields of economic activities. But the ultimate aim
of co-operatives was the protection of poor sections of the society by pooling the available
sources with them to help their members by providing financial assistance to face the
competition from the organized sector.
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Types co-operative banks:-
There are two main categories of the co-operative banks:-
Short term lending oriented co-operative Banks - within this category there are
three sub categories of banks viz state co-operative banks, District co-operative banks and
Primary Agricultural co-operative societies.
Long term lending oriented co-operative Banks - within the second category there
are state co-operatives and rural development banks.
The co-operative banking structure in India is divided into following main 5 categories:
Urban Co-op Banks:-
Co operative credit societies established in urban areas are referred to as urban co
operative banks. In most states, however, no clear-cut definition of an urban co operative
bank is statutorily followed.
In Maharashtra State, only those urban credit societies can be called as „banks‟ which
conduct banking business in accordance with section 277F of the Indian Companies Act. 1913 or
section 5(b) of the Banking Regulation Act, 1949 and should have a paid-up share capital
exceeding Rs. 20,000.
TYPES OF CO-OPERATIVE BANKS
SHORT TERMLENDING
ORIENTED BANKS
URBAN CO-OPERATIVE BANKS
PRIMARYAGRICULTURALCO-OPERATIVE
SOCITIES
CENTRAL CO-OPERATIVE BANKS
LONG TERM
LENDINGORIENTED BANKS
STATE CO-OPERATIVE BANKS
RURALDEVLOPMENTS
BANKS
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Urban co operative banks are dividing into two categories:-
Unit Banking type.
Branch Banking type.
Urban co operative banks are also called Primary co operative Banks(PCBs) by the Reserve
Bank. The Reserve Bank of India defines PCBs as „small-sized‟ co operatively organized
banking units which operate in metropolitan, urban and semi-urban centres to cater mainly to
the needs of small borrowers, viz., owners of small scale industrial units, retail traders,
professionals and salaried classes‟.
The Reserve Bank of India grants banking licenses to existing/new banks and branches. The
Urban Banks Department, established in the Reserve Bank in 1984, monitors and regulates
the growth of PCBs.
A scheme called “Small Loans (co operatives Banks) Guarantee Scheme,1984” has been
introduce from July 1, 1984 to provide guarantee cover to primary and professionals, single
transport operators and self-employed persons, etc. However, out of 560 PCBs invited to join
the scheme, only 28 banks have completed all the formalities and have been admitted till end
of June 1985.
Primary Agricultural Credit Societies:
Primary agricultural credit societies lie at the root of the co operative credit structure
of the country. They are at the local or base level. In rural areas, there are PACS, which cater
to the short and medium term credit needs of the farmers. They directly deal with the
farmers.
The PACS raise their funds by way of share capital, membership fees, deposits of members
and non- members and loans from the District Central Co operative Bank and thegovernment.
The PACS grant short-term and medium-term loans only to their members against the
personal security and mortgage security. The rates of interest charged by them vary from
state to state They deposit their reserve funds with the District Central Co operative
Banks(DCCB).
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The Primary Co-operative Credit Society is an association of borrowers and non-
borrowers residing in a particular locality. The funds of the society are derived from the share
capital and deposits of members and loans from central co-operative banks. The borrowing
powers of the members as well as of the society are fixed. The loans are given to members
for the purchase of cattle, fodder, fertilizers, pesticides, implements, etc.
Central Co-op Banks:
These are the federations of primary credit societies in a district and are of two types –
those having a membership of primary societies only and those having a membership of societies
as well as individuals .The funds of the bank consists of share capital, deposits, loans and
overdrafts from state co-operative banks and joint stocks. These banks finance member societies
within the limits of the borrowing capacity of societies. They also conduct all the business of a
joint stock bank. The CCB are of two types:
PURE:- A pure CCB confines its membership to co operative organizations only It is called
the „ Banking Union‟.
MIXED:- A mixed CCB keeps its membership open to co operatives as well as individuals.
Mixed CCBs are found in the states of Assam, Andhra Pradesh, Tamil Nadu, Mysore, and
others.
The CCBs manage their funds from sources like share capital, deposits, loans from State Co
operatives Banks and Other commercial banks.
State Co-operative Banks:
The state co-operative bank is a federation of central co-operative bank and acts as a
watchdog of the co-operative banking structure in the state. Its funds are obtained from share
capital, deposits, loans and overdrafts from the Reserve Bank of India. The state co-operative
banks lend money to central co-operative banks and primary societies and not directly to
farmers. The SCBs raise its funds by way of share capital (subscribed to by the affiliated CCBs),
deposits from the public, surplus funds of the affiliated CCBs reserve funds loans from the StateBank of India, other commercial banks , and inter- bank borrowings They are also supported by
the Reserve Bank. Anywhere between 50-90% of the working capital of the SCBs are
contributed by the Reserve Bank. They have no power to supervise or control the activities of the
affiliated CCBs. SCBs serve as a leader of co operative movement in a state.
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As a bank, a SCB is expected to mobilize and create deposits for the benefit of co
operative credit movement and provide the essential banking services.
Land Development Banks:
Indian farmers need three types of credit, viz., short term, medium term and long term. Their
short term and medium term credit requirements are fulfilled by the co operative banking
institutions like PACs, CCBs and SCBs.
Farmers have to borrow also for the long term (for a period 5years to 20 years) for buying
equipments like pump sets, tractors, etc., and for other development purposes, such as
reclamation of land, fencing, digging of new wells, construction of a tank or tube-well , or
buying additional lands. Thus, a need for a special kind of institutions.
Initially, the LDB were instituted in the form of co operative land mortgage banks. The
first co operative Land mortgage Bank was established at Jhind, in Punjab in 1920. However,
it did not function well. But it was really establishment of Central Land mortgage Bank in
Madras in 1929. Since, 196-67, the Central Land mortgage Banks are renamed as Land
Development Banks.
The land development banks are organised in 3 tiers namely, state, central and primary level
and they meet the long term credit requirements of the farmers for developmental purposes.
The SLDBs overseas the primary land development banks situated in the districts and tehsils
in the state.
They are governed both by the state government and Reserve Bank of India. Recently, the
supervision of land development banks has been assumed by National Bank for Agriculture
and Rural Development (NABARD). The sources of funds for these banks are the debentures
subscribed by both central and state government.
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COMMERCIAL BANK V / S CO-OPERATIVE BANK
Scheduled banks in India fall into two categories:
1) Commercial banks and
2) Co-operative banks.
Commercial banks constitute those banks driven by profit. These banks exist for no other
reason than generating capital.
Co-operative banks technically constitute cooperative institutions with an elected managing
committee, provisions for the protection of members' rights and a set of communally developed
and approved bylaws and amendments. In addition to personal finance, co-op banks exist to
handle the finances of rural activities like agricultural and livestock farms and urban activities
like entrepreneurship and home buying.
In the organized sector of the Indian money market, co operative banks and commercial banks
are parallel financial institutions. Both render almost identical banking functions of deposit
mobilization, provision of remittance facilities, and advancing of loans. Nevertheless, both
institutions are distinct in nature, scope and operations.
We may distinguish between co operative and commercial banks on the followingcounts:
CO-OPERATIVE BANK COMMERCIAL BANK
Co-operative Banks are Co- operative
organisations
Commercial banks are joint stocks banks.
Co-operative banks are governed by the Co-
operative Societies Act, 1904.
Commercial banks are governed by the
Banking Regulation Act
Co operative banks are subject to the rules laid
down by the Registrar of co operative societies.
Commercial banks are subject to the control of the
Reserve Bank of India directly
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Co-operative banks have lesser scope in
offering a variety of banking services than
commercial banks.
Commercial banks have wider scope in
offering a variety of banking services than co-
operative banks.
Co-operative banks are relatively on a much
smaller scale. Many co-operative banks follow
only unit bank system, though they are co-
operative banks with a numbers of branches
but their coverage is not countrywide.
Commercial banks in India are on a larger scale.
They have adopted the system of branch banking,
so they have countrywide operations.
Co-operative banks are private sector banks. Commercial banks in India are two types:
(1) public sector banks and
(2)private sector banks.
Co-operative banks usually cater to the credit
need of agriculturists.
Commercial banks mostly provide short-term
finance to industry, trade and commerce, including
priority like experts, etc.
Co-operative banks offer a slightly higher rate
of interest to their depositors than commercial
banks.
Commercial banks offer a less rate of interest
to their depositors than commercial banks.
In Co-operative banks, borrowers are member
shareholders, so they have some influence on
the lending policy of the banks, on account of
their voting power
Borrowers of commercial banks are only
account-holders and have no voting power as
such, so they cannot have any influence on the
lending policy of these banks.
Co-operative banks have no much scope of
flexibility on account of the rigidities of the
bye-laws of the co-operative societies.
Commercial banks on the other hand , are
free from such rigidities.
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POLICIES OF CO - OPERATIVE BANK
With a view to further expanding the outreach of primary (urban) co-operative banks
(UCBs) a additional channel for promoting financial inclusion, UCBs have been allowed to lend
to self help groups (SHGs) and joint liability groups (JLGs). UCBs may, frame a comprehensive
policy with their Board‟s approval, based on the guidelines given below, before undertaking such
activity.
POLICY:-
Lending to SHGs / JLGs would be considered as a normal business activity of the bank. The
comprehensive policy on lending to SHGs / JLGs framed with the Board‟s approval, including
the amount of loan and interest rate chargeable on loans etc., should form part of the overall
credit policy of the bank.
METHOD OF LENDING:-
UCBs may lend directly to SHGs/JLGs. Lending through intermediaries is not permitted.
Enrollment of SHG/JLG as member SHGs are small groups, formal/informal, of individuals
promoting savings habit among members. These savings are then lent by the group to the
members for income generating purposes. On the other hand, JLG is an informal group of
individuals coming together for the purpose of availing of bank loan either singly or through the
group mechanism against mutual guarantee in order to engage in similar type of economic
activities. The SHG would normally consist of 10 to 20 members whereas a JLG would normally
have 10 and 20 members. Membership matters are governed by the bye laws adopted by the
bank and provisions of the respective State Cooperative Societies Acts or the Multi State Co-
operative Societies Act, 2002. UCBs should, therefore, be guided by the provisions contained in
the respective Act and take prior approval of the Registrar of co-operative societies (RCS) /
Chief registrar of cooperative societies (CRCS), wherever required, while enrolling such
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members and granting loans to SHGs/JLGs. The byelaws of UCBs also need to provide for such
lending.
MONETARY AND CREDIT INFORMATION REVIEW
The extant instructions on share linking to borrowing would apply for lending to SHGs/JLGs.
NATURE OF LOAN:
The extant limits (individual and total) on grant of unsecured loans and advances will not
apply to loans granted to SHGs. Loans granted by UCBs to JLGs, to the extent not backed by
tangible security would, however, be treated as unsecured and would be subject to the extant
limits on unsecured loans and advances. Exposure Loans granted to SHGs/JLGs would be
governed by the extant guidelines on individual exposure limits. Amount The maximum amount
of loan to SHGs should not exceed four times of the savings of the group. The limit may be
exceeded in case of well managed SHGs subject to a ceiling of ten times of savings of the group.
The groups may be rated on the basis of certain objective parameters, such as, proven track
record, savings pattern, recovery rate, housekeeping etc. UCBs Lending to Self Help
Groups/Joint Liability Group JLGs are not obliged to keep deposits with the bank and hence the
amount of loan granted to JLGs would be based on the credit needs of the JLG and the bank‟s
assessment of the credit requirement. Margin/Security Margin security requirement will be as per
the UCB‟s Board approved policy. Documentation UCBs may prescribe simple documentation
for loans to be granted to SHGs/JLGs keeping in view the purpose of the loan and the status of
the borrower. Priority Sector Loans to SHGs/JLGs for agricultural and allied activities would be
considered as priority sector advance. Other loans to SHGs/JLGs up to Rs. 50,000 would be
considered as micro credit and hence treated as priority sector advances. Lending to SHGs which
qualify as loans to priority sector would also be treated as part of lending to weaker sections.
Opening of Savings Bank A/c, SHGs /JLGs would be eligible to open savings bank account with
UCBs.
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KYC Norms:
UCBs should adhere to know your customer (KYC) guidelines in respect of each member of the
SHG/JLG before opening savings bank account/granting loans.
LOAN POLICY:
Repo/Reverse Repo and Marginal Standing Facility Rates Repo Rate have been increased by 25
basis points from 7.25 per cent to 7.50 per cent from June 16, 2011. Reverse Repo Rate stands
adjusted to 6.50 per cent. Marginal Standing Facility Rate adjusted to 8.50 per cent from June 16,
2011 other terms and condition of the current liquidity adjustment facility (LAF) and marginal
standing facility (MSF) schemes remain unchanged. Standing Liquidity Facilities for Banks/PDs
The standing liquidity facilities provided to banks (export credit refinance) and primary dealers(PDs) (collateralized liquidity support) from the Reserve Bank would be available at the revised
repo rate, i.e., at 7.50 per cent from June 16, 2011.
FEMA:
Remittance of Assets by Foreign Nationals In order to facilitate foreign nationals employed in
India holding valid visas, to collect their pending bonafide dues in India, AD Category- I banks
may, now permit such foreign nationals to re-designate their resident account maintained in
India as NRO account, on leaving the country after their employment, subject to the conditions
that –
• The AD Category-I bank should obtain the full details from the account holder about his/her
legitimate dues expected to be received into his/her account.
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• The AD Category-I bank should satisfy itself regarding the credit of amounts, which have to be
bonafide dues of the account holder, when she/he was a resident in India.
• The funds credited to the NRO account should be repatriated abroad immediately, after
ensuring that the applicable income tax and other taxes in India have been paid.
• The amount repatriated abroad should not exceed USD one million per financial year.
• The debit to the account should be only for the purpose of repatriation to the account holder‟s
account maintained abroad.
• There should not be any other inflow/credit to this account other than the account holder‟s
legitimate dues.
• The AD Category-I bank should put in place proper internal control mechanism to monitor the
credits and debits to this account.
• The account should be closed immediately after all the dues have been received and repatriated
as per the declaration made by the account holder.
Bank-related :-
1. All banks which are included in the Second Schedule to the Reserve Bank of India Act, 1934
are Scheduled Banks. These banks comprise Scheduled Commercial Banks and Scheduled Co-
operative Banks.
2. Scheduled Commercial Banks in India are categorized into five different groups according to
their ownership and / or nature of operation. These bank groups are :-
i. State Bank of India and its Associates,
ii. Nationalized Banks,
iii. Private Sector Banks,
iv. Foreign Banks, and
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v. Regional Rural Banks. In the bank group-wise classification, IDBI Bank Ltd. has been
included in Nationalized Banks.
3. Scheduled Co-operative Banks consist of Scheduled State Co-operative Banks and Scheduled
Urban Co-operative Banks.
4. During the financial year 2009-10, the following changes have taken place in the commercial
banking system:
i) The Foreign Bank, “FirstRand Bank”, was included in the second schedule of the Reserve
Bank of India Act, 1934 with effect from July 02, 2009.
ii) The name of ABN Amro Bank N. V. was changed to Royal Bank of Scotland N. V. with
effect from March 19, 2010. These changes are reflected in the tables where individual bank‟s
data are presented.
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MASTER CIRCULAR - FINANCE FOR HOUSING SCHEMES
I. GENERAL:
The role of primary (urban) co-operative banks (UCBs) in providing housing finance has been
reviewed from time to time. These banks, with their vast network, occupy a very strategic
position in the financial system and have an important role to play in providing credit to the
housing sector. Further, housing finance to specified categories up to prescribed limits is treated
as priority sector lending, and the need for UCBs providing credit to priority sector has come to
be increasingly recognized consistent with the social objectives placed before the banking
system.
Therefore, with a view to enabling the UCBs to play a more positive role in providing finance for
housing schemes, particularly to the weaker sections of the community, these banks are
permitted to grant loans for housing schemes up to certain limits from their own resources
subject to the guidelines detailed hereunder.
The bigger banks that have large surplus resources may undertake larger lending for housing, as
this will provide a remunerative avenue for investment of their surplus funds.
Wherever, banks are still required to obtain special permission of the Registrar for financing
housing societies, in each and every case, it is suggested that these banks should obtain general
permission to finance housing societies subject to such other terms and conditions as have been
prescribed for the purpose.
I. ELIGIBLE CATEGORY OF BORROWERS:
UCBs may grant loans to the following categories of borrowers:
i. Individuals and co-operative / group housing societies.
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ii. Housing boards undertaking housing projects or schemes for Economically weaker sections
(EWS), low income groups (LIG) and Middle income groups (MIG).
iii. Owners of houses / flats for extension and up-gradation, including major repairs.
II. ELIGIBLE HOUSING SCHEMES:
The borrowers in the above categories will be eligible for finance for the following types of
housing schemes:
(a) Construction / purchase of houses / flats by individuals
(b) Repairs, alterations and additions to houses / flats by individuals
(c) Schemes for housing and hostels for scheduled castes and scheduled tribes
(d) Under slum clearance schemes - directly to the slum dwellers on the guarantee of the
Government, or indirectly through Statutory Boards established for this purpose
(e) Education, health, social, cultural or other institutions / centres which are part of a housing
project and considered necessary for the development of settlements or townships
(f) Shopping centres, markets and such other centres catering to the day- today needs of the
residents of the housing colonies and forming part of a housing project
III. TERMS AND CONDITIONS FOR HOUSING LOANS:
Finance provided by the UCBs to the eligible categories of borrowers for eligible housing
schemes will be subject to the following terms and conditions:
IV. MAXIMUM LOAN AMOUNT & MARGINS:
(i) UCBs based on their commercial judgment and other prudential business considerations,with the approval of their Board of Directors, are free to identify the eligible borrowers,
decide margins and grant housing loans depending upon repaying capacity of the borrowers.
(ii) The banks may grant housing loans up to a maximum of Rs.25.00 lakh per beneficiary of a
dwelling unit. However, Tier II UCBs (all other UCBs which are not Tier I UCBs*) may extend
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individual housing loans up to a maximum of Rs.50.00 lakh per beneficiary of a dwelling unit
subject to extant prudential exposure limits.
(ii) The maximum loan should not exceed 15 percent of capital funds of the bank in case of
individual borrowers and 40 per cent of the capital funds in 4case of group of borrowers. The
capital funds for the purpose shall include both Tier I Capital and Tier II capital.
Tier of UCBs are categorized as under:
- Banks having deposits below Rs.100 crore operating in a single district.
- Banks with deposits below Rs.100 crore operating in more than one district will be treated as
Tier I provided the branches are in contiguous districts and deposits and advances of branches in
one district separately constitute at least 95% of the total deposits and advances respectively of
the bank and
- Banks with deposits below Rs.100 crore, whose branches were originally in a single district but
subsequently, became multi-district due to reorganization of the district Deposits and advances
as referred to in the above definition may be reckoned as on 31st March of the immediate
preceding financial year.
1. Interest:Banks may, with the approval of their Boards, determine the rate of interest, keeping in view the
size of accommodation, degree of risk and other relevant considerations.
2. Charging of Penal Interest:
Banks may formulate, with the approval of their Boards, transparent policy for charging penal
interest rates to be levied for reasons such as default in repayment, non-submission of financial
statements, etc. The policy should be governed by well accepted principles of transparency,
fairness, incentive to service the debt and due regard to genuine difficulties of customers.
Security.
(i) UCBs may secure housing loans either.
a. By mortgage of property, or
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b. By government guarantee where forthcoming, or
c. By both.
(ii) Where this is not feasible, banks may accept security of adequate value in the form of LIC
policies, Government Promissory Notes, shares / debentures, gold ornaments or such other
security as they deem appropriate.
3. Period of Loan:
(i) Housing loans may be repayable within a maximum period of 15 years, including moratorium
or repayment holiday.
(ii) The moratorium or repayment holiday may be granted,
a. At the option of the beneficiary, orb. Till completion of constructions, or 18 months from the date of disbursement of
first installment of the loan, whichever is earlier.
4. Graduated Installments:
(i) The installments should be fixed on a realistic basis taking into account the repaying capacity
of the borrower.
(ii) In order to make housing finance affordable, banks may consider fixing the installments on a
graduated basis, if there is reasonable expectation of growth in the income of the borrower in the
coming years. Graduated basis means fixing lower repayment installments in the initial years and
gradually increasing the installment amount in subsequent years coinciding with expected
increase in income in the subsequent years.
AGGREGATE LIMIT FOR HOUSING FINANCE:
The exposure of UCBs to housing, real estate and commercial real estate loans would, with
effect from November 15, 2010, is limited to 10 per cent of their total assets, instead of 15 per
cent of deposits.
The above ceiling of 10 per cent of total assets can be exceeded by an additional limit of 5 per
cent of total assets for the purpose of grant of housing loans to individuals for purchase or
construction of dwelling units costing up to Rs.10 lakh (changed to housing loan upto Rs.15 lakh
in terms of circular UBD.BPD.(PCB).Cir.No.47/13.05.000/2010-11 dated May 11, 2011). The
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total assets may be reckoned based on the audited balance sheet as on March 31 of the preceding
financial year. For reckoning total assets, losses, intangible assets, contra items like bills
receivables etc. would be excluded.
The exposure should take into account both fund based and non-fund based facilities.
Working capital loans given by UCBs against hypothecation of construction materials provided
to the contractors who undertake comparatively small construction on their own without
receiving advance payments as provided for in paragraph 7 of this circular is exempted from the
prescribed limit. Finance extended to the eligible category of borrowers mentioned in paragraph
2 above will only be eligible to be categorized as housing finance. While the purpose of the loan
shall determine whether the loans granted 6against the security of immovable property needs to
be classified as real estate loans, the source of repayment will determine whether the exposure is
against commercial real estate. For classification of such loans as Real Estate / Commercial Real
Estate, UCBs may be guided by the instructions contained in Annex 1
UCBs were earlier permitted to exceed the limit prescribed for grant of housing, real estate,
commercial real estate loans to the extent of funds obtained from higher financing agencies and
refinance from National Housing Bank. The said permission stands withdrawn from May 11,
2011 in terms of circular UBD.BPD.(PCB).Cir.No.47/13.05.000/2010-11 dated May 11, 2011.
ADDITIONAL / SUPPLEMENTARY FINANCE:
UCBs may extend additional finance to carry out alterations, additions, repairs to houses / flats
already financed by them subject to repayment capacity of borrowers.
In the case of individuals who might have raised funds for construction / acquisition of
accommodation from other sources and need supplementary finance, banks may extend credit
after obtaining paripassu or second mortgage charge over the property mortgaged in favor of
other lenders and /or against such other security as they may deem appropriate after due
assessment of aggregate repayment capacity of borrowers.
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The banks may also extend need-based credit up to a maximum of Rs.1.00 lakh in rural and
semi-urban areas and Rs.2.00 lakh in urban areas to the owner of a house / flat only for repairs,
additions, alterations, etc., irrespective of whether the house / flat is owner occupied or tenant
occupied, after obtaining such security as the bank may deem appropriate. They should satisfy
themselves regarding the estimated cost of repairs, additions, etc. having regard to the extent of
such repairs or additions, materials to be used, cost of labour and other charges and after
obtaining certificate/s from qualified engineers / architects in respect thereof, considered
necessary.
The terms and conditions relating to margin, interest rates, repayment period etc. in respect of
Sadditional / supplementary finance may be same as indicated in respect of loans for
construction / acquisition.
LENDING TO HOUSING BOARDS:
UCBs may extend loans to housing boards within their States. The rate of interest to be charged
on the loans to such boards may be fixed at the discretion of the banks.
While extending loans to housing boards, banks may not only keep in view the past performance
of the housing boards in the matter of recovery from the beneficiaries but should also stipulatethat the boards will ensure prompt and regular recovery of loan installments from the
beneficiaries.
ADVANCES TO BUILDERS / CONTRACTORS:
The builders / contractors generally require huge funds, take advance payments from the
prospective buyers or from those on whose behalf construction is undertaken and, therefore, they
may not normally require bank finance for the purpose. Any financial assistance extended to
them by primary (urban) co-operative banks may result in dual financing. The banks should,
therefore, normally refrain from sanctioning loans and advances to this category of borrowers.
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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 and
instructions / directives issued by the Reserve Bank from time to time.
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, 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.
Valuation of Land: It has been observed that while financing builders / contractors, certain
banks are found to be valuing the land for the purpose of security, on the basis of the discounted
value of the property after it is developed, 8less the cost of development. This is not in
conformity with established norms. In this connection, it is clarified that UCBs should not extend
fund based / non-fund based facilities to builders / contractors for acquisition of land even as a
part of a housing project. Further, wherever land is accepted as collateral, valuation of such land
should be at the current market price only.
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 borrower 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.
HOUSING LOANS UNDER PRIORITY SECTOR:
The following type of loans for housing purposes is eligible for categorization under priority
sector :
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i) Loans up to Rs.20 lakh (Rs. 25 lakh for loans sanctioned on or after April 1, 2011) to
individuals for purchase / construction of dwelling unit per family, (excluding loans granted by
banks to their own employees). Family for this purpose means and includes the spouse of the
member and the children, parents, brothers and sisters of the member who are dependent on
such member, but shall not include legally separated spouse.
ii) Loans given for repairs to the damaged dwelling units of families up to Rs.1 lakh in rural and
semi-urban areas and up to Rs.2 lakh in urban and metropolitan areas.
iii) Assistance given to any governmental agency for construction of dwelling units or for slum
clearance and rehabilitation of slum dwellers, subject to a ceiling of Rs.5 lakh of loan amount per
dwelling unit.
iv) Assistance given to a non-governmental agency approved by the NHB for the purpose of
refinance for construction / reconstruction of dwelling units or for slum clearance and
rehabilitation of slum dwellers, subject to a ceiling of loan component of Rs.5 lakh per dwelling
unit
Investments made by UCBs in bonds issued by NHB / HUDCO on or after April, 1, 2007 shall
not be eligible for classification under priority sector lending.
PRECAUTIONS:
A number of cases have come to the notice of Reserve Bank, where unscrupulous persons have
defrauded the banks by obtaining multiple bank finance against the same property by preparing a
number of sets of the original documents and submitting the same to various banks for obtaining
housing finance. Similarly the salary certificates of employees of certain public sector
undertakings were fabricated, so as to match the requirement of banks for availing higher
amounts of loan. The estimates given were also on the higher side, so as to avoid contribution of
margin money by the borrowers. Such frauds could take place on account of the laxity on the
part of the bank officials to follow the laid down procedures for verifying the genuineness of the
documents submitted by the borrowers independently through their own advocates /solicitors.
The banks should, therefore, take due precaution while accepting various documents.
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Banks would need to satisfy themselves that the loans extended by them are not for unauthorized
construction or for misuse of properties / encroachment on public land. For this purpose, they
should ensure strict compliance with the procedure laid down in Annex 2 .
In a case which came up before the Hon'ble High Court of Judicature at Bombay, the Hon'ble
Court observed that the bank granting finance to housing / development projects should insist on
disclosure of the charge / or any other liability on the plot, in the brochure, pamphlets etc., which
may be published by developer / owner inviting public at large to purchase flats and properties.
The Court also added that this obviously would be part of the terms and conditions on which the
loan may be sanctioned by the bank. Keeping in view the above observations, while granting
finance for eligible housing schemes, UCBs are advised to stipulate as part of terms and
conditions that:
(a) The builder / developer shall disclose in the pamphlets / brochures etc, the name(s) of the
bank(s) to which the property is mortgaged.
(b) The builder / developer would append the information relating to mortgage while
advertising for a particular scheme in newspapers / magazines etc.
(c) The builder / developer would indicate in the pamphlets / brochures that he would provide
No Objection Certificate (NOC) / permission of the mortgage bank for sale of flats / property if required. UCBs are also advised to ensure compliance of the above terms and conditions and
funds should not be released unless the builder / developer fulfill the above requirements.
NATIONAL BUILDING CODE:
Bureau of Indian Standards (BIS) has formulated a comprehensive building Code namely
National Building Code (NBC) of India 2005, providing guidelines for regulating the building
construction activities across the country. The Code contains all the important aspects relevant to
safe and orderly building development such as administrative regulations, development controlrules and general building requirements; fire safety requirements; stipulations regarding
materials, structural design and construction (including safety); and building and plumbing
services. Adherence to NBC will be advisable in view of the importance of safety of buildings
especially against natural disasters. Banks' boards may consider this aspect for incorporation in
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their loan policies. Further information regarding the NBC can be accessed from the website of
Bureau of Indian Standards.
ANTI-MONEY LAUNDERING (AML)/ COMBATING OF FINANCING OF
TERRORISM (CFT) –
Standards – Primary (Urban) Co-operative Banks:-
Financial Action Task Force (FATF) has updated its Statement on June 24, 2011 on the subject
(copy enclosed) calling its members and other jurisdictions to apply counter-measures to protect
the international financial system from the ongoing and substantial money laundering and
terrorist financing risks emanating from Iran and DPRK.
This advisory note does not preclude Urban Co-operative Banks entering into legitimate trade
and business transactions with Iran.
FATF has also identified Jurisdictions with strategic AML/CFT deficiencies that have not made
sufficient progress in addressing the deficiencies or have not committed to an action plan
developed with the FATF to address the deficiencies. The FATF calls on its members to consider
the risks arising from the deficiencies associated with each jurisdiction as described in theStatement: Bolivia, Cuba, Ethiopia, Kenya, Myanmar, Sri Lanka, Syria and Turkey.
Urban Co-operative Banks are accordingly advised to take into account risks arising from the
deficiencies in AML/CFT regime of these countries, while entering into business relationships
and transactions with persons (including legal persons and other financial institutions) from or in
these countries/jurisdictions.
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WORKING CAPITAL REQUIREMENTS FOR SSI
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 Rs.5.00 crore from the banking system may be made on the basis of their
projected annual turnover.
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. Projected turnover may be interpreted as 'Gross Sales'
including excise duty.
The banks may, at their discretion, carry out 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 up to the extent of minimum 20 per cent of their projected annual
turnover. The projected annual turnover would be estimated on the basis of annual statements of accounts or other documents such as returns filed with sales-tax / revenue authorities. Actual
drawals may be allowed on the basis of drawing power to be determined by UCBs after
excluding unpaid stocks.
Drawals against the limits should be allowed against the usual safeguards including drawing
power and it is to be ensured 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-a-vis physical stocks by their
officials.
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, UCBs may
determine the working capital requirements according to their perception of the credit needs of
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borrowers. UCBs may adopt turnover method or cash budgeting method or any other method as
considered necessary. However, UCBs may ensure that the book-debt finance does not exceed
75% of the limits sanctioned to borrowers for financing inland credit sales. The remaining 25%
of the credit sales may be financed through bills to ensure greater use of bills for financing sales.
LOAN SYSTEM FOR DELIVERY OF BANK CREDIT:
In the case of borrowers enjoying working capital credit limits of Rs.10 crore and above from
the banking system, the loan component should normally be 80% and the remaining Cash Credit
component. UCBs have been given freedom to change the composition of working capital by
increasing the cash credit component beyond 20 per cent or increase the loan component beyond
80 per cent, as the case may be, if they so desire. UCBs 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.
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.
I. Ad hoc Credit Limit: The release of ad hoc / additional credit for meeting temporary
requirements may be considered by the financing bank only after the borrower has fully
utilized / exhausted the existing limit.
II. Sharing of Working Capital Finance: In respect of consortium lending, the level
of individual bank's share in Cash Credit and Loan Component shall be governed by the
norm for single / group borrower‟s credit exposure.
III. Rate of Interest: UCBs are allowed to fix separate lending rates for 'loan component'
and 'cash credit component'.
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IV. 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.
V. Export Credit: In respect of borrowers enjoying export credit limit, the bifurcation of
the working capital limit into loan and cash credit components, would be effected after
excluding the export credit limits (pre-shipment and post-shipment).
VI. 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 mis-utilised. UCBs may
lay down policy guidelines for periodical review of the working capital limit and the
same may be scrupulously adhered to.
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CREDIT SPECIFIC LENDING ACTIVITIES
1. BRIDGE LOAN/ INTERIM FINANCE:-
The grant of bridge loan / interim finance by UCBs to any company (including finance
companies) is totally prohibited.
The ban on sanction of bridge loans / interim finance is also applicable in respect of Euro issues.
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 mobilized from external / other sources and not out of the
surplus generated by the use of the asset(s).
If any bank has sanctioned and disbursed any bridge loan / interim finance, it should report the
same to the Regional Office concerned of the Urban Banks Department with full particulars and
certifying that the loans are utilized strictly for the purpose for which the public issue and / or
market borrowing was intended. Thereafter, the banks concerned 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 loans / interim finance.
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.
2. ADVANCES TO REAL ESTATE AND COMMERCIAL ESTATE:-
UCBs 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
Reserve Bank of India and the policy should be approved by the banks' Board. Exposure to
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builders and contractors for commercial real estate will include fund based and non-fund based
exposures secured by mortgages on commercial real estates (office buildings, retail space, multi-
purpose commercial premises, multi-family residential buildings, multi-tenanted commercial
premises, industrial or warehouse space, hotels etc). Further, while framing the policy, the banks
may also consider for inclusion the National Building Code framed by Bureau of Indian
Standards (BIS).
3. FINANCING OF LEASING / HIRE PURCHASE COMPANIES:-
Enrolment of Financial Companies as Members:-
(i) UCBs 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 bye-law No.9 recommended for adoption, by all banks.
(ii) Therefore, the UCBs are not permitted to finance non-banking financial companies (NBFCs),
other than those engaged in hire purchase / leasing. Such NBFCs stand reclassified as Asset
Finance Companies vide DNBS Circular dated September 15, 2008.
Norms for financing Asset Finance Companies:-
(i) As in the case of finance and investment companies, admission of NBFCs 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
Registrar of Co-operative Societies concerned before admitting them as members.
(ii) Even financing the asset finance companies by UCBs on a large scale is not favored by the
Reserve Bank of India, since the banks are basically required to cater to the credit needs of the
people of small means.
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(iii) Presently banks with working capital funds aggregating to Rs.25 crore and above only are
permitted to take up the financing of asset finance companies and that too, only in consortium
with other scheduled commercial banks. The banks should observe the following norms, while
financing such companies :
(a) The level of finance to asset finance companies depends on the net owned funds of the
companies, subject to the overall ceiling on their borrowings upto ten times of their owned funds.
(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 funds.
(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 four times.
4. ADVANCES AGAINST PLEDGE OF GOLD / SILVER ORNAMENTS:-
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In order to mitigate the inherent risks attached to sanction of loans and advances against gold /
silver ornaments.
Bullet Repayment : UCBs, with the approval of their Board, may permit bullet repayment of
loans against gold ornaments up to Rs.1.00 lakh as an additional option subject to the following
guidelines :
(i) The amount of loan sanctioned should not exceed Rs.1.00 lakh at any point of time.
(ii) The period of the loan shall not exceed 12 months from the date of sanction.
(iii) Interest will be charged to the account at monthly rests but will become due for payment
along with principal only at the end of 12 months from the date of sanction.
(iv) The bank should prescribe a minimum margin to be maintained in case of such loans and
accordingly, fix the loan limit taking into account the market value of the security (gold / gold
ornaments), expected price fluctuations, interest that will accrue during the tenure of the loan etc.
(v) Such loans shall be governed by the extant income recognition, asset classification and
provisioning norms which shall be applicable once the principal and interest become overdue.
(vi) The account would also be classified as NPA (sub standard category) even before the due
date of repayment, if the prescribed margin is not maintained.
Crop loans sanctioned against the collateral security of gold ornaments shall continue to be
governed by the extant income recognition, asset classification and provisioning norms for such
loans.
Hallmarking of gold jewellery ensures the quality of gold used in the jewellery as to cartage,
fineness and purity. Banks would find granting of advances against the security of such
hallmarked jewellery safer and easier. Preferential treatment of hallmarked jewellery is likely to
encourage practice of hallmarking which will be in the long-term interest of consumers, lenders
and the industry. Therefore, banks while considering granting advances against jewellery may
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keep in view the advantages of hallmarked jewellery and decide on the margin and rates of
interest thereon.
5. GRANT LOAN FOR ACQUISITION OF INVESTING IN SMALL SAVINGS
INSTRUMENT INCLUDING KISAN VIKAS PATRAS (KVP):-
Grant of loans for acquiring / investing in KVPs does not promote fresh savings and, rather,
channelize the existing savings in the form of bank deposits to small savings instruments and
thereby defeat the very purpose of such schemes. Banks may therefore ensure that no loans are
sanctioned for acquisition of / investing in small savings instruments including KVPs.
Discounting / Rediscounting of Bills by Banks:-
Banks may adhere to the following guidelines while purchasing / discounting / negotiating /
rediscounting of genuine commercial / trade bills :
1. Since banks have already been given freedom to decide their own guidelines for assessing /
sanctioning working capital limits of borrowers, they may sanction working capital limit as also
bills limit to borrowers after proper appraisal of their credit needs and in accordance with the
loan policy as approved by their Board of Directors.
2. Banks should clearly lay down a bills discounting policy approved by their Board of Directors,
which should be consistent with their policy of sanctioning of working capital limits. In this case,
the procedure for Board approval should include banks' core operating process from the time the
bills are tendered till these are realized. Banks may review their core operating processes and
simplify the procedure in respect of bills financing. In order to address the problem of delay in
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realization of bills, banks may take advantage of improved computer / communication network
like Structured Financial Messaging System (SFMS), wherever available, and adopt the system
of 'value dating' of their clients' accounts.
3. Banks should open letters of credit (LCs) and purchase / discount / negotiate bills under LCs
only in respect of genuine commercial and trade transactions of their borrower constituents who
have been sanctioned regular credit facilities by the banks. Banks should not, therefore, extend
fund based (including bills financing) or non-fund based facilities like opening of LCs, providing
guarantees and acceptances to non-constituent borrower or / and non-constituent member of a
consortium / multiple banking arrangement.
4. For the purpose of credit exposure, bills purchased / discounted / negotiated under LC (where
the payment to the beneficiary is not made 'under reserve') will be treated as an exposure on the
LC issuing bank and not on the borrower. All clean negotiations as indicated above will be
assigned the risk weight as is normally applicable to inter-bank exposures, for capital adequacy
purposes. In the case of negotiations 'under reserve' the exposure should be treated as on the
borrower and risk weight assigned accordingly.
5. While purchasing / discounting / negotiating bills under LCs or otherwise, banks should
establish genuineness of underlying transactions / documents.
6. Banks should ensure that blank LC forms are kept in safe custody as in case of security items
like blank cheques, demand drafts etc. and verified / balanced on daily basis. LC forms should be
issued to customers under joint signatures of the bank's authorized officials.
7. The practice of drawing bills of exchange clause 'without recourse' and issuing letters of credit
bearing the legend 'without recourse' should be discouraged because such notations deprive the
negotiating bank of the right of recourse it has against the drawer under the NegotiableInstruments Act. Banks should not, therefore, open LCs and purchase / discount / negotiate bills
bearing the 'without recourse' clause.
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8. Accommodation bills should not be purchased / discounted / negotiated by banks. The
underlying trade transactions should be clearly identified and a proper record thereof maintained
at the branches conducting the bills business.
9. Banks should be circumspect while discounting bills drawn by front finance companies set up
by large industrial groups on other group companies.
10. Bills rediscounts should be restricted to usance bills held by other banks. Banks should not
rediscount bills earlier discounted by NBFCs except in respect of bills arising from sale of light
commercial vehicles and two / three wheelers.
11. Banks may exercise their commercial judgment in discounting of bills of services sector.
However, while discounting such bills, banks should ensure that actual services are rendered and
accommodation bills are not discounted. Services sector bills should not be eligible for
rediscounting. Further, providing finance against discounting of services sector bills may be
treated as unsecured advance and therefore, should be within the limits prescribed by Urban
Banks Department for sanction of unsecured advances.
12. In order to promote payment discipline which would to a certain extent encourage acceptance
of bills, all corporate and other constituent borrowers having turnover above threshold level as
fixed by the bank's Board of Directors should be mandated to disclose 'aging schedule' of their
overdue payables in their periodical returns submitted to banks.
13. Banks should not enter into Repo transactions using bills discounted / rediscounted as
collateral.
Any violation of these instructions will be viewed seriously and invite penal action from Reserve
Bank of India.
Share Linking Norms: The extant instructions on share linking to borrowing would
apply for lending to SHGs / JLGs.
Nature of Loan - Secured or Unsecured: The extant limits (individual and total) on
grant of unsecured loans and advances will not apply to loans granted to SHGs. However,
loans granted by UCBs to JLGs, to the extent not backed by tangible security, will be
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treated as unsecured and will be subject to the extant limits on unsecured loans and
advances.
Nature of Exposure - Individual or Group: Loans granted to SHGs / JLGs would be
governed by the extant guidelines on individual exposure limits.
Amount of Loan: The maximum amount of loan to SHGs should not exceed four times
of the savings of the group. The limit may be exceeded in case of well managed SHGs
subject to a ceiling of ten times of savings of the group. The groups may be rated on the
basis of certain objective parameters such as proven track record, savings pattern,
recovery rate, housekeeping etc. JLGs are not obliged to keep deposits with the bank and
hence the amount of loan granted to JLGs would be based on the credit needs of the JLG
and the bank's assessment of the credit requirement.
Margin and Security for the Loan: Margin / security requirement will be as per Board
approved policy of the UCB concerned.
Documentation: UCBs may prescribe simple documentation for loans to be granted to
SHGs / JLGs keeping in view the purpose of the loan and the status of the borrower.
Priority Sector: Loans to SHGs / JLGs for agricultural and allied activities would be
considered as priority sector advance. Further, other loans to SHGs / JLGs up to
Rs.50,000 would be considered as Micro Credit and hence treated as priority sector
advances. Lending to SHGs, which qualify as loans to priority sector, would also be
treated as part of lending to weaker sections.
Opening of Savings Bank Account: The SHGs / JLGs would be eligible to open
Savings Bank account with UCBs.
KYC Norms: The UCBs need to adhere to the KYC guidelines in respect of each member of the
SHG / JLG before opening savings bank account / grant of loans.
Revival of the Interest Tax Act 1974 - Collection From Borrowers:-
The Hon'ble Supreme Court in its Judgment dated April 16, 2004 has ordered that excess interest
collected by the banks from the borrowers through rounding off the applicable interest rate
should be recovered from the banks and credited to a Trust to be created for the benefit of
disadvantaged people. The Hon'ble Court had also directed that each concerned bank shall
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contribute to the extent of Rs.50 lakh to the said Fund. Accordingly, UCBs are advised that
excess amount realized, if any, from their borrowers towards interest tax by way of rounding off,
may be deposited with the above referred Trust Fund. The Ministry of Social Justice and
Empowerment has opened SB A/c No.65012067356 with the State Bank of Patiala, Shastri
Bhavan Branch, New Delhi in the name of the Trust. UCBs, which have realized excess amount
from the borrowers, towards interest tax by way of rounding off to the next higher 0.25% are
liable to deposit the said amount to the Trust Fund. As regards contribution of Rs.50 lakh to the
Trust Fund, it is for the UCBs concerned which have collected excess amount, to decide
depending upon the facts and circumstances of the case.
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GUIDELINES FOR RELIEF MEASURES BY BANKS IN AREAS
AFFECTED BY NATURAL CALAMITIES:-
1. 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.
2. 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 areas.
3. 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.
4. 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.
5. To facilitate co-ordination and expeditious action by the financing institutions, the conveners
of the concerned District Consultative Committee (DCC) of the affected districts should convene
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a meeting immediately after the occurrence of natural calamities. In the event of the calamity
covering a larger part of the State, the conveners of the State Level Bankers' Committee (SLBC)
will also convene a meeting immediately to evolve a co-ordinate 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 agencies.
6. 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 Government 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
Government. 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.
Coverage:-
i) 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.
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ii) 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.
Priorities:-
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:-
i) 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, etc
.
ii) 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
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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.
iii) 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.
iv) Possibilities of organizing credit camps, where Block Development and Revenue officials,
Co-operative Inspectors, Panchayat Pradhans etc. could help finalize 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 authorized 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
PACS / LAMPS / FSS
Gram Panchayat Pradhans
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.
v) 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
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for a sufficiently long period on all amounts due to the government as on the date of occurrence
of the natural calamity.
Consumption Loans:-
As per extant instructions, loans up to Rs.250/- could be sanctioned to existing borrowers for
general consumption purposes and the limit could be enhanced to Rs.1,000/- in the States where
the State Governments have constituted risk funds for such lending. The present limit may be
enhanced to Rs.5,000/- without any collateral and such loans may be provided even if no risk
fund has been constituted.
Fresh Loans:-
Timely fresh financial assistance to resume productive activities may be provided not only to the
existing borrowers, but also to other eligible borrowers. Notwithstanding the status of the
existing account, fresh loans granted to the borrowers will be treated as current dues.
Restructuring of existing Loans:-
a. As the repaying capacity of the people affected by natural calamities gets severely impaired
due to the damage to the economic pursuits and loss of economic assets, relief in repayment of
loans becomes necessary in areas affected by natural calamity and hence, restructuring of the
existing loans will be required. The principal amount outstanding in the crop loans and
agriculture term loans as well as accrued interest thereon may be converted into term loans.
b. The repayment period of restructured term loans may vary depending on the severity of
calamity and its recurrence, the extent of loss of economic assets and distress caused. Generally,
the restructured period for repayment may be 3 to 5 years. However, where the damage arisingout of the calamity is very severe, banks may, at their discretion, extend the period of repayment
ranging up to 7 years and in extreme cases of hardship, the repayment period may be prolonged
up to a maximum period of 10 years. In all cases of restructuring, moratorium period of at least
one year should be considered. Further, the banks should not insist for additional collateral
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security for such restructured loans. The asset classification status of the restructured term loan
and other dues will be as under:
c. The restructured crop loans may be treated as current dues and need not be classified as NPA.
The asset classification of the restructured term loans would thereafter be governed by the
revised terms and conditions and would be treated as NPA if interest and / or installment of
principal remain overdue for two crop seasons for short duration crops and for one crop season
for long duration crops. Depending upon the duration of crops raised by an agriculturist, the
above norms would also be made applicable to the restructured agricultural term loans.
d. The above norms will be applicable to all direct agricultural advances as listed at A of Master
Circular No. UBD.PCB.MC.No.10/09.14.000/2007-08 dated July 4, 2007 on prudential norms
on Income Recognition, Asset Classification and Provisioning pertaining to advances.
e. Additional finance, if any, may be treated as “standard asset” and its future asset classification
will be governed by the terms and conditions of its sanction.
f. The asset classification as on the date of natural calamity will continue, if the restructuring is
completed within a period of three months from the date of natural calamity.
The restructured accounts would, otherwise, be governed by provisions of circular
UBD.BPD.No.30/09.09.001/05-06 dated March 9, 2006. Further, the guidelines applicable to
sub-standard accounts, will apply, mutatis mutandis to doubtful accounts.
g. In retail or consumer loans segment, the banks may restructure the loans in a manner suitable
to the borrowers on a case-to-case basis.
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
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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.
Development Loans - Investment Costs:-
i) The existing term loan installments will have to be rescheduled / postponed keeping in view
the repaying capacity of the borrowers and the nature of natural calamity viz.,
a) Droughts, floods or cyclones etc. where only crop for that year is damaged and productive
assets are not damaged.
b) 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
installment during the year of natural calamity and extend the loan period by one year except
(subject to the following exceptions) -
a) Those cultivators who had not effected the development or investment for which the loan wasobtained or had disposed of the equipment or machinery purchased out of the loan.
b) Those who are income tax payers.
c) 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.
d) Tractor owners, except in genuine case where there is loss of income and consequential
impairment of their repaying capacity.
iii) Under this arrangement the installments defaulted willfully in earlier years will not be
eligible for rescheduling. The banks may have to postpone payment of interest by borrowers.
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While fixing extension of period the commitment towards interest may also be taken into
account.
iv) 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 whereloans 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 are for repairs to wells, pump-sets, etc. which are to be quantified after assessing the
extent of damage and estimated cost of repairs.
ii) Bullocks:-
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.
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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.
iv) Insurance:-
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.
vi) Fisheries:-
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 State Government Department concerned 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:-
i) 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
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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.
ii) For other activates like Sericulture, Horticulture, Floriculture, Betel vine 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.
iii). However, additional need based crop loans, if necessary, would be given for revitalization /
rejuvenation of standing crop / orchards based on individual assessment.
iv) The question relating to procurement and proper arrangement for supply of adequate quantity
of seeds and various types of fertilizers 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 obtainfingerlings / and supply them to those who wish to revive tank fishing with bank finance.
v) 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.
Artisans and Self-Employed:-
i) 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 State Government concerned.
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ii) 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 his
problem.
Small Scale and Tiny Units:-
i) 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 urgently.
ii) 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.
iii) Depending on the damage suffered and time needed for rehabilitation and restarting
production and sales, term loan installments 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.
iv) 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.
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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.
I. Security:-
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 :
a) 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.
b) 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 loan.
c) Banks should not insist on third party guarantees for providing conversion facilities.
d) 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.
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e) As per the recommendations of the Reserve Bank of India's 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.
II. Margin:-
Margin requirements be waived or the grants / subsidy given by the concerned State Government
may be considered as margin.
III. Interest:-
The rates of interest will be in accordance with the directives of the Reserve Bank of India.
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.
i) 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.
ii) In respect of current dues in default, no penal interest will be charged. The banks should also
suitably defer the compounding of interest charges.
IV. Other Issues:-
i) Business Continuity Planning:-
In the backdrop of increased leveraging of technology in banking system, Business Continuity
Planning (BCP) has become a key pre-requisite for minimizing business disruption and system
failures. As a Business Continuity Planning (BCP) strategy, banks may identify alternate
branches for branches located in areas prone to natural calamities. Banks may therefore
formulate full-fledged comprehensive BCP along with Disaster-Recovery (DR) arrangements.
The banks may also focus on keeping the DR site current, to test them comprehensively and
synchronize the data between the primary and secondary sites.
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ii) Access to Customers to their Bank Accounts:-
a) In areas where the bank branches are affected by natural calamity and are unable to function
normally, banks may operate from temporary premises, under advice to Reserve Bank of India.
For continuing the temporary premises beyond 30 days, specific approval may be obtained from
the Regional Office (RO) concerned of Reserve Bank of India. Banks may also ensure rendering
of banking services to the affected areas by setting up satellite offices, extension counters or
mobile banking facilities under intimation to RO of Reserve Bank of India.
b) To satisfy customer's immediate cash requirements, banks could consider waiving the
penalties related to accessing accounts such as fixed deposits
c) Restoration of the functioning of ATMs at the earliest or making alternate arrangements for
providing such facilities may be given due importance. Banks may consider putting in place
arrangements for allowing their customers to access other ATM networks, Mobile ATMs, etc.
iii) Currency Management:-
Banks / branches affected by natural calamity, if required, may contact other banks maintaining
its current accounts or the currency chest branch to which it is linked in order to ensure that
supply of currency is maintained to its customers.
iv) KYC Norms:-
To facilitate opening of new accounts by persons affected by natural calamities especially for
availing various relief's given by Government / other agencies, banks may open accounts with -
a) introduction from another account holder who has undergone full KYC procedure, or
b) documents of identity such as Voter's Identity Card or a driving license, identity card issued
by an office, company, school, college, etc. along with a document indicating the address such as
Electricity Bill, Ration Card etc. or
c) introduction by two neighbors who have the documents as indicated in paragraph (b) above or
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d) in the absence of the above, any other evidence to the satisfaction of the bank.
e) The above instructions will be applicable to cases where the balance in the account does not
exceed Rs.50,000/- or the amount of relief granted (if higher) and the total credit in the account
does not exceed Rs.1,00,000/- or the amount of relief granted, (if higher) in a year.
v) Clearing and Settlement Systems:-
To ensure continuity in clearing service, Reserve Bank of India has advised the banks for 'on-city
back-up centers‟ in 20 large cities and effective low-cost settlement solution for the remaining
cities. The banks in a clearing area could meet with a view to providing flexible clearing services
where normal clearing services are disrupted. However, notwithstanding these arrangements,
banks may also consider discounting cheques for higher amounts to meet customers' requirement
of funds. Banks could also consider waiver fees for EFT, ECS or mail services so as to facilitate
inward transfer of funds to accounts of persons affected by a natural calamity
APPLICABILITY OF THE GUIDELINES IN THE CASE OF TRADE AND
INDUSTRY:
Instructions on moratorium, maximum repayment period, additional collateral for restructured
loans and asset classification in respect of fresh finance will be applicable to all affected
restructured borrower accounts, including accounts of industries and trade, besides agriculture.
APPLICABILITY OF THE GUIDELINES IN THE CASE OF RIOTS AND
DISTURBANCES:-
Whenever Reserve Bank of India 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.
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i) 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 Convener 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 Reserve Bank of India.
ii) It should be ensured that only genuine persons duly identified by the State Administration, as
having been affected by the riots / disturbances are provided the assistance.
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Registration/Licensing of New Primary (Urban) Co-operative Banks:-
The policy towards allowing new primary co-operative banks (PCBs) continued to be
liberal depending upon the necessity and the prospects of achieving viability within a specified
time frame. Relaxed Entry Point Norms continued to be extended to Mahila banks, PCBs for
Scheduled Castes/Scheduled Tribes and for PCBs in North-Eastern States, and other least
developed regions. During the period (July 1998-June 1999), 218 fresh proposals including 25
conversion proposals for setting up of new primary co-operative banks were received by
the Bank. Of these, 107 proposals were cleared for registration, 3 proposals were closed for no
response from the proposed banks and 77 proposals were rejected.
8.40 During the year licenses were issued to 126 new urban co-operative banks for the
commencement of banking business. Licenses issued to the existing primary co-operative banks
during the period June 1998-March 1999 were 21.
1. Investment of funds:-
Primary (urban) co-operative banks have been permitted to invest their surplus funds in
unsecured redeemable bonds floated by nationalized banks and also in infrastructure bonds
floated by the financial institutions, such as, IDBI, ICICI, LIC, GIC, etc. besides PSU bonds,equities of all India financial institutions and units of UTI within the prescribed limit of 10 per
cent of their deposits subject to the stipulated conditions/safety measures.
2. Market Intelligence Cells:-
Market Intelligence Cells have been set up at regional offices of the Bank to detect
early signs of sickness and deterioration in financial health of the urban co-operative banks with
a view to taking appropriate and timely action.
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3. Priority Sector Lending:-
In view of the escalation in the cost of goods and products being sold by retail
traders, the ceiling on bank advances for priority sector was raised from Rs.2 lakh to Rs.5 lakh.
The bank credit to NBFCs for the purpose of lending to small road and water transport operators
for financing of trucks would be treated as priority sector lending provided the ultimate
borrowers satisfy the eligibility requirements for being classified under the priority sector.
4. Branch Expansion:-
Consequent upon the Maratha Committee recommendations, the Bank has been
following a liberal policy regarding extension of area of operation and opening of branches by
primary urban co-operative banks. As a result, 3,475 centres have been allotted for branch
expansion since 1993, of which 2,002 branches have been opened till June 1999. During the
period 1998-99 (July-June), 413 centres were allotted for opening of branches and 405 licenses
were issued.
5. No. of Offices of Primary Urban Co-operative Banks:-
The total number of primary urban cooperative banks including salary earners type
of banks increased to 1,936 as on March 31, 1999 from 1,811 as at end-March 1998. The number
of offices increased to 5,934 as on December 31, 1998 from 5,417 as on March 31, 1998.
6. Non-Performing Assets:-
The non-performing assets (NPAs) of the 1,474 reporting PCBs stood at Rs.3,305.98
crore constituting 11.7 per cent of their aggregate advances as on March 31, 1998 .
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7. Weak Banks:-
Based on the findings of inspection reports and returns received, the banks which
do not comply with minimum capital requirements or where over dues and/or erosion in the
value of assets are beyond the prescribed norms are included in the category of weak banks. The
number of such banks as on June 30, 1999 stood at 249.
8. Liquidation of Banks:-
Due to precarious financial position, liquidation proceedings have been initiated in
respect of six co-operative banks, viz.,
1) A wami Mercantile Co-operative Bank Ltd., Mumbai;
2) Ravi Kiran Urban Co-operative Bank Ltd., Mumbai;
3) Suprabhat Sahakari Bank Ltd., Ahmedabad;
4) Vinkar SahakariCo-operative Bank Ltd., Mumbai;
5) Koduvayur Co-operative Urban Bank Ltd., Kerala; and
6) Gudur Cooperative Bank Ltd., Andhra Pradesh. Further, approval for winding up of Indira
Sahakari Bank Ltd., Mumbai was conveyed to the Register of Co-operative Societies, Pune.
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CASE STUDIES
Vikas Souharda Co-operative Bank Ltd, Karnataka, India
About Vikas Souharda Co-operative Bank Ltd:-
Vikas Souharda Co-operative Bank Ltd. has its main office located in Hospet, Karnataka
and has branches at Hospet Station Road, Hospet Market and Hubli. Established on 21 August
1997, the bank has an estimated deposit of 50 crores and has recorded profits to a tune of 1.4
crores for the year ending March 2007. The bank offers financial services to miners, carrier
owners, traders, and small and medium entrepreneurs.
Latest Technologies:-
It is the first bank in the Indian co-operative banking sector to introduce Digital Dispenser
Technology and also the first bank in the state of Karnataka to provide Telebanking facility to
its customers. To protect its customers‟ interests the bank has provided Fake Currency Detectors
and safe deposit lockers facility. Being a techno-savvy bank, it is the first bank in Karnataka state
to adopt Electronic Fund Transfer (EFT) Scheme. It has been the first institution to respond to
innovative concepts and has been a role model to many other co- operative banks in the state.
The bank was quick in adapting to the changing banking scenario by maintaining not only the
latest infrastructure but also by designing the interiors of the bank to get a look and feel that is at
par with the multinational banks. Goal of the Bank Being a trendsetting bank in the co-operative
sector that serves its customers 365 days a year and 12 hours a day, the goal of the bank was to
improve the quality of customer service, the turn-around time, and accuracy of back- office
operations thereby reducing costs and improving profits. The bank‟s goal is to provide customer
satisfaction with accuracy and reliability of service. The bank ensures safety and profitability of assets with due diligence by adopting appropriate information technology and maintenance of
sufficient backup of the system and the data. The bank also aims to increase its customer base by
introducing a variety of innovative financial services and products.
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The Bank’s Mission:-
i. Improve quality of customer service levels
ii. Reduce cost of customer service
iii. The bank also aims at:
Providing a range of financial services to the customer.
Maintaining transparency in customer relations.
Fulfilling all commitments.
Practicing judicious management of risks.
Offering services to customers' satisfaction.
Training employees to render professional and pleasing service to its customers.
Giving fair return to its staff and contributing to their general welfare.
VSoft’s SuVikas helped the bank achieve its goal:-
SuVikas, a user-friendly, cost effective, flexible and self-supporting application permits easy
performance, improves overall management efficiency, and enables the bank to concentrate on
the business of finance without much concern about the ever changing IT trends.
Through this, bank and customer got many benefits like:
Quick customer service:-
The bank was able to substantially decrease the time a customer spends at the counter as the
software provides a single view of all accounts of the customer. Which made the bank better as
per their customers.
Reduced redundant tasks:-
Reducing redundant tasks meant more resources available for recovery. So, customer were
getting auick facilities.
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New delivery channels:-
The bank was able to achieve business success because of the operational efficiency made
possible by technologies such as Internet Banking, TouchScreen Banking, and Mobile Alerts to
its customers. Due to which customer were very happy.
Funds transfer made easy:-
The bank was able to introduce EFT Scheme in urban c-operative banks to affect remittances on
behalf of their customers to various places in the country. Under this service, funds are
transferred from one place to another within a short time. This facility was made available to the
customers of co- operative banks recently. The scheme also enabled better customer service to
rural and semi urban customers.
Multiple delivery channels:-
The bank was able to provide Any Branch Banking service to its rural and semi urban customers
since 1997 by using high-end software and hardware equipment and network. The people at
SUCO Bank appreciate the value of time and energy of the customers. By introducing Tele-
banking facility, SUCO Bank has ensured that the customers can access their account details
through telephone lines without leaving the comfort of their home and not having to travel long
distances.
Extended Transaction Hours:- SUCO Bank is the only bank to initiate transaction
facilities beyond the regular banking transaction hours. This amply displays the
commitment of the bank to customer service.
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