RBI/2008/50 - UBD.BPD (PCB) MC. No.5 /13.05.000/2008-09, DT. 01/07/2008
Master Circular on Management of Advances- UCBs (Part - II)
Annex III
Master Circular
Management of Advances
Guidelines for Relief Measures by Banks
in Areas Affected by Natural Calamities
[Vide para 5.1.1]
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 convenors of the concerned District Consultative Committee (DCC) of the affected districts should convene a meeting immediately after the occurrence of natural calamities. In the event of the calamity covering a larger part of the State, the convenors of the State Level Bankers' Committee (SLBC) will also convene a meeting immediately to evolve a co-ordinated programme of action for implementation of the programme in collaboration with the State/district authorities while determining the quantum of assistance required by a person affected by the natural calamity, the banks may take into consideration the assistance/subsidy received by him from the State Government and/or other 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.).
7. Identification of the Beneficiaries
The bank branches should obtain from the concerned Govt. authorities list of affected villages within their area of operation. From among the identified persons, assessment of loss sustained by the existing constituents of the banks would be easier. In the case of fresh borrowers, however, discreet enquiries should be made in this regard and assistance of the Govt. authorities should be sought wherever available for ascertaining genuineness of their requirements.
For providing conversion facilities in respect of crop loans, procedure for identification of areas where such facilities have to be provided has been indicated under crop loans in paragraph 12 below.
8. 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.
(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.
9. 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.
10. 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 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 organising credit camps, where Block Development and Revenue officials, Co-operative Inspectors, Panchayat Pradhans etc. could help finalise the applications on the spot, could be explored in consultation with the district authorities where such credit camps are being organised. The State Government will also arrange with the Collectors to issue an executive order for the following officers or their authorised representatives to assume respective duties and responsibilities as envisaged under implementation of credit camps programme:
• Block Development Officer
• Co-operative Inspector
• Revenue Authority/Village Revenue Assistant
• Bank official operating in the area
• PACS/LAMPS/FSS
• Gram Panchayat Pradhan
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 for a sufficiently long period on all amounts due to the government as on the date of occurrence of the natural calamity.
11. 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.
12. 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.
13. Restructuring of existing loans
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.
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 arising out 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 security for such restructured loans. The asset classification status of the restructured term loan and other dues will be as under:
a) 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.
b) The above norms will be applicable to all direct agricultural advances as listed at Annex I 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.
c) 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.
d) 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.
e) 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.
14. Scale of Finance
Scale of finance in respect of different crops will be uniform in a district. The scales will be fixed taking into account the prevailing conditions and norms presently adopted by different lending agencies. In fixing the scales, minimum consumption needs of borrowers will be taken into account. The concerned District Magistrate and Managers of branches of banks operating in the district would be advised to adopt the scales so laid down.
15. Development Loans - Investment Costs
(i) The existing term loan instalments will have to be rescheduled/postponed keeping in view the repaying capacity of the borrowers and the nature of natural 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 instalment 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 was obtained 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 instalments defaulted wilfully in earlier years will not be eligible for rescheduling. The banks may have to postpone payment of interest by borrowers. While fixing extension of period the commitment towards interest may also be taken into account.
(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 where loans relate to land shaping, silt removal, soil conservation etc. Thus in the case of loans for agricultural machineries, viz. pump-sets and tractors, it should be ensured that the total loan period does not generally exceed 9 years from the date of advance.
16. Apart from rescheduling existing term loans, banks will provide to affected farmers diverse type of term loans for developmental purposes, such as:
(i) Minor Irrigation
Term loans for repairs to wells, pump-sets, etc. which are to be quantified after assessing the extent of damage and estimated cost of 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.
(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 coordination with the concerned State Government Department in this regard must be ensured. Apart from complying with other norms and conditions for grant of advances, assistance may be sought from the Department of Fisheries, which may be expected to take measures which would enable banks to proceed with financing for this purpose. The boats should be comprehensively insured against all risks including natural calamities as far as possible.
17. 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 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, Betelvine growing etc., banks will advance loans for investment and working capital under their existing schemes and follow usual procedures laid down by them. The working capital finance may be provided until such period the income from the plantation is adequate to take care of such expenditure.
(iii) However, additional need based crop loans, if necessary, would be given for revitalisation/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 fertilisers will have to be discussed with the State Government and District Administration in each district. Similarly, for the purpose of ensuring adequate irrigation facilities, the State Government will undertake repairs to Government owned shallow and deep tube-wells and River Lift Irrigation System damaged by floods and other natural calamities. As for fisheries, the fisheries department of the State Government will make arrangement to obtain fingerlings/and supply them to those who wish to revive tank fishing with bank finance.
(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.
18. 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 concerned State Government.
(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.
19. 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 instalments will have to be suitably rescheduled keeping in view the income generating capacity of the unit. Short-fall in margins will have to be condoned or even waived and borrower should be allowed time to build up margin gradually from his future cash generation. Wherever State Government or any agency has formulated special scheme for providing grants/subsidy/seed money, suitable margin may be stipulated to the extent of such grants/subsidy/seed money.
(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.
20. 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.
21. 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.
(e) As per the recommendations of the RBI report on customer service, banks will finance the borrowers who require loans upto Rs. 500/- without insisting either on collateral security or guarantee for any type of economic activity.
22. Margin
Margin requirements be waived or the grants/subsidy given by the concerned State Government may be considered as margin.
23. Interest
The rates of interest will be in accordance with the directives of the RBI. Within the areas of their discretion, however, banks are expected to take a sympathetic view of the difficulties of the borrowers and extend a concessional treatment to calamity-affected people.
(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.
24. 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.
(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 RBI. For continuing the temporary premises beyond 30 days, specific approval may be obtained from the concerned regional office (RO) of RBI. 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 RBI.
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, orvb. 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 neighbours who have the documents as indicated in para (b) above or
d. in the absence of the above, any other evidence to the satisfaction of the bank.
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, RBI has advised the banks for ‘on-city backup centres’ 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
25. 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 borrowal accounts, including accounts of industries and trade, besides agriculture
26. Applicability of the Guidelines in the case of Riots and Disturbances
Whenever, RBI advises the banks to extend rehabilitation assistance to the riot/disturbance affected persons, the aforesaid guidelines may broadly be followed by banks for the purpose. It should, however, be ensured that only genuine persons, duly identified by the State Government agencies as having been affected by the riots, etc., are extended rehabilitation/assistance.
(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 Convenor SLBC of the State to convene a meeting of the bankers to consider extension of relief to the affected persons.
The report submitted by the Collector and the decision thereon of DCC/SLBC may be recorded and should form a part of the minutes of the meeting. A copy of the proceedings of the meeting may be forwarded to the concerned Regional Office of the RBI.
(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.
Annex IV
Master Circular
Management of Advances
Details of the borrowal accounts which have been classified as doubtful, loss or suit filed with outstanding (both under funded and non-funded) aggregating Rs. 1.00 crore and above
[Vide para 5.2.2]
Name of the Bank :
1. Name of the Company/firm
2. Registered address of the company/firm
3. Names of the directors/partners of defaulting company/firm
4. Name of the branch
5. Type of facilities and limits sanctioned under each facility
6. Amount outstanding
7. Nature and value of securities held in each category
8. Asset classification of the defaulting account
(specify doubtful, loss or suit filed)
9. Date of classifying the account as doubtful / loss / suit filed
Annex V
Master Circular
Management of Advances
Format for Reporting of Data on Wilful Default
[Vide para 6.1.2 (i)]
Information should be furnished to the Reserve Bank of India in floppy diskette in format specified as below :
| a) Input media | : 3.5" floppy disk file |
| b) File Characteristics | : ASCII or dbf file |
| The field - wise description of various items is as follows : |
| 1) Serial Number | : 9 (4) Unique number to be given to each of the records |
| 2) Bank-branch name | : x (14) As in the case of Basic Statistical return |
| 3) Party 's name | : x (45) The legal name |
| 4) Registered address | : x (96) Registered Office address |
| 5) Amount outstanding | : 9(6) Total amount outstanding in Rs. Lakhs |
| 6) Name of directors | : x(336) To be divided into 14 sub-fields of 24 bytes each |
| 7) Status | : Suit filed or non-suit filed |
ANNEX - VI
Guidelines on debt restructuring mechanism for Small and Medium Enterprises (SMEs)
(Vide para 7)As part of announcement made by the Hon'ble Finance Minister for improving flow of credit to small and medium enterprises, the following guidelines are issued for restructuring of debt of all eligible small and medium enterprises (SMEs).
2. Definition of SMEs-
“ At present, a small scale industrial unit is an undertaking in which investment in plant and machinery, does not exceed Rs.1 crore, except in respect of certain specified items under hosiery, hand tools, drugs and pharmaceuticals, stationery items and sports goods, where this investment limit has been enhanced to Rs 5 crore. Units with investment in plant and machinery in excess of SSI limit and up to Rs. 10 crore may be treated as Medium Enterprises (ME). “
The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act 2006 which was notified on October 2, 2006. The definition of the small and medium enterprises as provided in the Act (Annex VII) will have immediate effect.
3. Eligibility criteria
(i) These guidelines would be applicable to the following entities, which are viable or potentially viable :
a) All non-corporate SMEs irrespective of the level of dues to banks.
b) All corporate SMEs, which are enjoying banking facilities from a single bank, irrespective of the level of dues to the bank.
c) All corporate SMEs, which have funded and non-funded outstanding up to Rs.10 crore under multiple/ consortium banking arrangement.
(ii) Accounts involving willful default, fraud and malfeasance will not be eligible for restructuring under these guidelines.v(iii) Accounts classified by banks as “Loss Assets” will not be eligible for restructuring.
(iv) In respect of BIFR cases banks should ensure completion of all formalities in seeking approval from BIFR before implementing the package.
4. Viability criteria
Banks may decide on the acceptable viability benchmark, consistent with the unit becoming viable in 7 years and the repayment period for restructured debt not exceeding 10 years.
5. Prudential norms for restructured accounts
i) Treatment of ‘standard’ accounts subjected to restructuring
a) A rescheduling of the instalments of principal alone, would not cause a standard asset to be classified in the sub-standard category, provided the borrower’s outstanding is fully covered by tangible security.
b) A rescheduling of interest element would not cause an asset to be downgraded to sub-standard category subject to the condition that the amount of sacrifice, if any, in the element of interest, measured in present value terms, is either written off or provision is made to the extent of the sacrifice involved.
ii) Treatment of ‘sub-standard’ / ‘doubtful’ accounts subjected to restructuring
a) A rescheduling of the instalments of principal alone, would render a ‘sub-standard’ / ‘doubtful’ asset eligible to continue in the ‘sub-standard’ / ‘doubtful’ category for the specified period ( as defined in paragraph 7 below), provided the borrower’s outstanding is fully covered by tangible security.
b) A rescheduling of interest element would render a sub-standard / ‘doubtful’ asset eligible to be continued to be classified in sub-standard /‘doubtful’ category for the specified period subject to the condition that the amount of sacrifice, if any, in the element of interest, measured in present value terms, is either written off or provision is made to the extent of the sacrifice involved.
c) Even in cases where the sacrifice is by way of write off of the past interest dues, the asset should continue to be treated as sub-standard / ‘doubtful’.
iii) Treatment of Provision
a) Provision made towards interest sacrifice should be created by debit to Profit & Loss account and held in a distinct account. For this purpose, the future interest due as per the current BPLR in respect of an account should be discounted to the present value at a rate appropriate to the risk category of the borrower (i.e., current PLR + the appropriate term premium and credit risk premium for the borrower-category) and compared with the present value of the dues expected to be received under the restructuring package, discounted on the same basis.
b) Sacrifice may be re-computed on each balance sheet date till satisfactory completion of all repayment obligations and full repayment of the outstanding in the account, so as to capture the changes in the fair value on account of changes in BPLR, term premium and the credit category of the borrower. Consequently, banks may provide for the shortfall in provision or reverse the amount of excess provision held in the distinct account.
c) The amount of provision made for NPA, may be reversed when the account is re-classified as a ‘standard asset’.
6. Additional finance
Additional finance, if any, may be treated as ‘standard asset’ in all accounts viz; standard, sub-standard, and doubtful accounts, up to a period of one year after the date when first payment of interest or of principal, whichever is earlier, falls due under the approved restructuring package. If the restructured asset does not qualify for upgradation at the end of the above period, additional finance shall be placed in the same asset classification category as the restructured debt.
7. Upgradation of restructured accounts
The sub-standard / doubtful accounts at para 5 (ii) (a) & (b) above, which have been subjected to restructuring, whether in respect of principal instalment or interest, by whatever modality, would be eligible to be upgraded to the standard category after the specified period, i.e., a period of one year after the date when first payment of interest or of principal, whichever is earlier, falls due under the rescheduled terms, subject to satisfactory performance during the period.
8. Asset classification status
During the specified one-year period, the asset classification status of rescheduled accounts will not deteriorate if satisfactory performance of the account is demonstrated during the period. In case, however, the satisfactory performance during the one year period is not evidenced, the asset classification of the restructured account would be governed as per the applicable prudential norms with reference to the pre-restructuring payment schedule. The asset classification would be bank-specific based on record of recovery of each bank, as per the existing prudential norms applicable to banks.
9. Repeated restructuring
The special dispensation for asset classification as available in terms of paragraphs 5, 6 and 7 above, shall be available only when the account is restructured for the first time.
10. Procedure
(i) Based on these guidelines, banks registered under the State Acts may formulate, with the approval of the concerned Registrar of the Co-operative Societies, a debt restructuring scheme for SMEs. However, in the case of Multi State Co-operative banks, the above guidelines may be formulated with the approval of the Board of Directors.
(ii) The restructuring would follow a receipt of a request to that effect from the borrowing units.
(iii) In case of eligible SMEs which are under consortium/multiple banking arrangements, the bank with the maximum outstanding may work out the restructuring package, along with the bank having the second largest share.
11. Time frame
Banks should work out the restructuring package and implement the same within a maximum period of 60 days from date of receipt of requests.
12. Review
Banks may review the progress in rehabilitation and restructuring of SME accounts on a quarterly basis and keep the Board and the concerned RCS informed.
13. Disclosure:
It may be ensured that the scheme formulated in this regard as enumerated in para 10 above is brought to the notice of all beneficiaries. The bank may place the scheme on its website and give adequate publicity through other means. A copy may also be forwarded to SIDBI and the concerned Regional Offices of Reserve Bank of India Banks should also disclose in their published annual Balance Sheets, under "Notes on Accounts", the following information in respect of restructuring undertaken during the year for SME accounts:
(a) Total amount of assets of SMEs subjected to restructuring.
[(a) = (b)+(c)+(d)].
(b) The amount of standard assets of SMEs subjected to restructuring.
(c) The amount of sub-standard assets of SMEs subjected to restructuring.v(d) The amount of doubtful assets of SMEs subjected to restructuring.
Annex VII.
Definition of Micro, Small and Medium Enterprises
(Vide para 7)
(a) Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below:
i) A micro enterprise is an enterprise where investment in plant and machinery [original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification No. S.O. 1722(E) dated October 5, 2006 does not exceed Rs. 25 lakh;
ii) A small enterprise is an enterprise where the investment in plant and machinery (original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification No. S.O. 1722(E) dated October 5, 2006) is more than Rs. 25 lakh but does not exceed Rs. 5 crore; and
iii) A medium enterprise is an enterprise where the investment in plant and machinery (original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification No. S.O. 1722(E) dated October 5, 2006) is more than Rs.5 crore but does not exceed Rs.10 crore.
(b) Enterprises engaged in providing or rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) are specified below. These will include small road & water transport operators (owning a fleet of vehicles not exceeding ten vehicles), retail trade (with credit limits not exceeding Rs.10 lakh), small business (whose original cost price of the equipment used for the purpose of business does not exceed Rs.20 lakh) and professional & self employed persons (whose borrowing limits do not exceed Rs.10 lakh of which not more than Rs.2 lakh should be for working capital requirements except in case of professionally qualified medical practitioners setting up of practice in semi-urban and rural areas, the borrowing limits should not exceed Rs.15 lakh with a sub-ceiling of Rs.3 lakh for working capital requirements).
(i) A micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10 lakh;
(ii) A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh but does not exceed Rs. 2 crore; and
(iii) A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore
Appendix
Master Circular
Management of Advances
A. List of Circulars consolidated in the Master Circular
| No | Circular No. | Date | Subject |
| 1 | UBD.PCB.Cir.No.57/16.74.00/2008-09 | 24-06-2008 | Wilful Defaulters and action thereagainst |
| 2 | UBD.CO.BPD.PCB.No.33/13.05.000/07-08 | 29.02.2008 | Advances to builders/contractors. |
| 3 | UBD.PCB.Cir.No.22/13.05.000/ 07-08 | 26.11.2007 | Gold Loan Repayment |
| 4 | UBD.PCB.Cir.No.13/13.05.000/07-08 | 13.09.2007 | Monitoring of Advances-Safeguards to be observed |
| 5 | UBD.PCB.Cir.No.44/13.04.000/06-07 | 18.05.2007 | Complaints about Excessive Interest Charged by Banks |
| 6 | UBD. PCB.Cir.No 35 /09.09.001/06-07 | 18.04.2007 | Credit flow to Micro, Small and Medium Enterprises Sector |
| 7 | UBD.PCB.BPD.33/13.05.000/06-07 | 16.03.2007 | Grant of loans for acquisition of Kisan Vikas Patras (KVPs) |
| 8 | UBD. PCB. Cir.No.26/13.05.000/06-07. | 09.01.2007 | Valuation of Properties-Empanelment of Valuers |
| 9 | UBD.PCB.Cir.No.10 /13.05.000/2006-07 | 04.09.2006 | Guidelines on Relief Measures to be Extended by Banks in Areas Affected by Natural Calamities |
| 10 | UBD.PCB.Cir.No.8/13.05.000/06-07 | 21.08.2006 | Guidelines on Relief Measures to be Extended by Banks in Areas Affected by Natural Calamities |
| 11 | UBD.PCB.Cir.No.58/09.09.01/05-06 | 19.06.2006 | Adherence to National Building Code(NBC)-specifications necessary for lending institutions |
| 12 | UBD.PCB.Cir.No. 46/13.05.000/05-06 | 19.04.2006 | Bills discounted under LC-Risk weight and exposure norms. |
| 13 | UBD.BPD.Cir.No.36/09.09.001/05-06 | 09.03.2006 | Debt restructuring mechanism for Small and Medium Enterprises (SMEs) - Announcement made by the Union Finance Minister |
| 14 | UBD.PCB.Cir.No.34/13.05.000/05-06 | 02.03.2006 | Advances against Gold Ornaments and Jewellery |
| 15. | UBD.PCB.Cir.No. 8/09.116.00/05-06 | 09.08.2005 | Prudential norms on capital adequacy-risk weight on housing finance/commercial real estate exposures |
| 16. | UBD.PCB.Cir.No.14/09.11.01/2004-05 | 24.08.2004 | Opening of Current Accounts by banks-need for discipline. |
| 17. | UBD.PCB.Cir.No.7/09.11.01/2004-05 | 29.07.2004 | Opening of Current Accounts by banks-need for discipline. |
| 18. | UBD.BPD.PCB.CIR.37/13.05.00/2003-04 | 16-03-2004 | Discounting/Rediscounting of Bills By Banks |
| 19 | UBD.No.DS.PCB.Cir.34/13.05.00/2001-02 | 28.03.2002 | Loan System for Delivery of Bank Credit |
| 20 | UBD.BSD.1.No.8/12.05.00/200-1-02 | 31-08-2001 | Issue of banker’s cheques/pay orders/demand drafts |
| 21 | UBD.NO.POT.No.33/09.17.03/2000-2001 | 20-02-2001 | Relief measures for the persons/business affected by the earthquake in Gujarat |
| 22. | UBD.DS.32/13.04.00/2000-01 | 12-02-2001 | Reliefs/Concessions for Exporters Affected by the Earthquake |
| 23. | UBD.No.POT.CIR.30/09.20.00/2000-01 | 01-02-2001 | Branch Advisory Committees |
| 24 | UBD No.BR.11/16.74.00/98-99 | 30-06-1999 | Collection and Dissemination of Information on Cases of Wilful Default of Rs. 25.00 lakh and above |
| 25 | UBD.No.DS.SUB.Cir.4/13.05.00/98-99 | 05-10-1998 | Guidelines for Sanction of Working Capital Finance to Information Technology (IT) and Software Industry |
| 26 | UBD.No.DS.PCB.8/13.04.00/98-99 | 30-09-1998 | Reliefs/Concessions for Exporters Affected by Cyclone in Gujarat |
| 27 | UBD No.BR.3/16.74.00/98-99 | 29-07-1998 | Disclosure of information regarding defaulting borrowers of banks at-id financial institutions |
| 28. | UBD.No.DS.SUB.19/13.05.00/97-98 | 12-02-1998 | Reporting of Credit Sanctions |
| 29 | UBD.No.DS.PCB.Cir.28/13.05.00/97-98 | 16-12-1997 | Guidelines for lending by banks- Assessment of working capital |
| 30. | UBD.No.DS.PCB.Cir.25/13.05.00/97-98 | 04-12-1997 | 'Bill' finance for settlement of dues of SSI suppliers |
| 31 | UBD.No.DS.PCB.Cir15/13.05.00/97-98 | 21-10-1997 | Loan system for delivery of bank credit |
| 32 | UBD.No.DS.PCB.Cir.47/13.05.00/96-97 | 23-04-1997 | Guidelines for lending by banks- Assessment of working capital- Concept of maximum permissible bank Finance - Review of policy |
| 33 | UBD.No.DS.PCBcir.31/13.05.00/96-97 | 23-04-1997 | Loan system for delivery of bank credit |
| 34 | UBD.No.DS.PCB.CIR.31/13.05.00/96-97 | 29-11-1996 | Loan system for Delivery of Bank Credit |
| 35 | UBD.No.Plan.PCB.5/09.08.00/96-97 | 16-07-1996 | Management of advances portfolio and control over advances |
| 36 | UBD.No.DS.PCB.Cir.64/13.05.00/95/96 | 31-05-1996 | Loan System for Delivery of Bank credit |
| 37. | UBD.No.DS.PCB.Cir.63/13.05.00/95-96 | 24-05-1996 | Lending to non-banking financial companies |
| 38 | UBD.No.BR.6/16.74.00/95-96 | 06-05-1996 | Disclosure of information regarding defaulting borrowers of banks and financial institutions |
| 39 | UBD.No.Plan.PCB.60/09.78.00/95-96 | 08-04-1996 | Equipment leasing and hire purchase financing activities |
| 40 | UBD.DS.PCB.CIR.54/13.05.00-95/96 | 23-03-1996 | Realistic assessment of credit requirement Measures to prevent diversion of funds |
| 41 | UBD.No.DC.23/13.05.00/95-96 | 19-10-1995 | Credit Monitoring System- Introducing of Health Code for borrowal accounts in banks |
| 42 | UBD.No.DS.PCB.CIR.22/13.05.00/95-96 | 13-10-1995 | Loan System for Delivery of Bank Credit |
| 43 | UBD.No.DS.PCB.CIR.14/13.05.00/95-96 | 28-09-1995 | Introduction of a loan system for delivery of bank credits. |
| 44 | UBD No.DS.CIR.PCB.62/13.05.00/94-95 | 12-06-1995 | Assessment of Working Capital limits of less than Rs. 1 crore-Clarifications |
| 45. | UBD No.DS.PCB.CIR.59/13.06.00/94-95 | 31-05-1995 | Norms for bank lending for working capital purposes- Revised guidelines |
| 46. | UBD.No.DS.PCB.CIR.60/13.05.00/94-95 | 30-05-1995 | Lending to Non-Banking Financial Companies |
| 47 | UBD.No.DS.(PCB)CIR.58/13.05.00/94-95 | 17-05-1995 | Bridge Loans/Interim Finance |
| 48. | UBD.No.DS.PCB.CIR.41/13.05.00/ 94-95 | 04-02-1995 | Compliance with lending discipline-(a) Charging of uniform rates of interest for lending under consortium arrangement and (b) penal interest for non-compliance with the discipline |
| 49 | UBD No.DS.CIR.PCB.43/13.05.00/94-95 | 10-02-1995 | Guidelines on lending under consortium arrangements |
| 50 | UBD No.DS.CIR.PCB.39/13.05.00/94-95 | 14-01-1995 | Levy of commitment charge on unutilised portion of credit limit |
| 51 | UBD.No.DS.CIR.25/13.05.00/94-95 | 21-10-1994 | Leading to non-Banking financial companies |
| 52. | UBD.No.DS.CIR.PCB.19/13.04.00/94-95 | 05-10-1994 | Inventory/Receivables norms for various industries |
| 53 | UBD.No.DS.CIR.PCB18/13.05.00/94-95 | 19-09-1994 | Report of the in-House Group setup to review the role of Reserve Bank of India in laying down norms for bank lending for working capital purposes - Revised guidelines. |
| 54 | UBD.No.DS.CIR.PCB-3/13.05.00/94-95 | 06-07-1994 | Guidelines on lending under consortium arrangements |
| 55 | UBD.No.(PCB).CIR.80/13.05.00/93-94 | 01-06-1994 | Credit Authorisation Scheme - Co-ordination between banks and Financial institutions in extending term loans |
| 56 | UBD.No.(PCB)50/13.05.00-93/94 | 14-01-1994 | Restrictions on credit to certain sectors-Real Estate Loans |
| 57. | UBD.No.POT.47/09.51.00/93-94 | 06-01-1994 | Incidence of guarantee premium payable to Deposit Insurance and Credit Guarantee Corporation |
| 58. | UBD.No.(PCB)DC.40/13.05.00/93-94 | 13-12-1993 | Credit Authorisation Scheme - Treatment of term loan instalments for assessment of working capital requirements |
| 59. | UBD.No.Plan.22/09.11.00/93-94 | 28-09-1993 | Monitoring of flow of funds |
| 60 | UBD(PCB)5/13.06.00/93-94 | 14-08-1993 | Credit Authorisation Scheme - Co-ordination between banks and Financial institutions in extending term loans. |
| 61 | UBD.No.(PCB)1/13.06.00/93-94 | 12-07-1993 | Review of inventory/receivable norms for financing vegetable and hydrogenated oil industry |
| 62 | UBD.No.DC(PCB)99/13.06.00/92-93 | 30-06-1993 | Review of inventory/receivables norms for financing biscuits and bakery products industry |
| 63 | UBD.No.(SUC)DC.124/13.06.00/92-93 | 30-06-1993 | Inventory and Receivables Norms Basmati Rice |
| 64 | UBD.No.(PCB)54/DC(R.1)-92/93 | 07-04-1993 | Restriction on Credit to Certain Sectors |
| 65 | UBD.No.(PCB).DC45/R.1/92-93 | 25-02-1993 | Credit Authorisation Scheme Treatment of term loan instalments for assessment of working capital requirements |
| 66. | UBD.No.41-UB.17(c)-92/93 | 10-02-1993 | Guidelines for relief measures by urban banks in areas affected by recent riots |
| 67. | UBD.No.I&L.40J.1.-92 /93 | 09-02-1993 | Diversion of working capital funds |
| 68. | UBD.No.(PCB)29/1)C.(R.1)-92/93 | 26-12-1992 | Bridge Loans/Interim Finance |
| 69 | UBD.(PCB)5/DC.R.1A/92-93 | 24-07-1992 | Inventory and Receivables norms for power Generation/Distribution Industry |
| 70. | UBD.(PCB)3/DC.R.1A.92/93 | 14-07-1992 | Inventory and Receivables norms for certain segments of Chemical Industry Essential Oil based chemicals |
| 71 | UBD(PCB)38/DC.(R.1)-91/92 | 13-11-1991 | Restriction on Credit to Certain Sectors |
| 72. | UBD.(SUC)36 /DC.R.1(A)-90/91 | 31-05-1991 | Restrictions of Drawals Under Large Cash Credit Limits |
| 73. | UBD(PCB)42/DC.HC.(Policy).90/91 | 11-02-1991 | Credit Monitoring System Health Code for Borrowal Accounts in Urban Co-operative Banks |
| 74. | UBD.PCB.2/DC.(R-1)-90/91 | 20-07-1990 | Financing of Leasing/Hire Purchase Companies |
| 75. | UBD.(SUC)22/DC.R-1-90/91 | 07-07-1990 | Credit Monitoring Arrangement Lending Discipline - Quarterly Information System (QIS) |
| 76 | UBD.No.DC.113/R.1A-89/89 | 24-04-1989 | Assessment of Working Capital Requirements - Inventory/Receivable Norms for Paper Industry and for Consumable Spares |
| 77. | UBD.No.DC.27/R.1.A-88/89 | 23-08-1988 | Inventory/Receivables Norms for Engineering Industry |
| 78 | UBD.No(DC)2/R.1-A-88/89 | 08-07-1988 | Inventory/Receivable norms for Certain Segments of Chemical Industry |
| 79 | UBD.No.(DC)123/R.1-87/88 | 31-05-1988 | Credit Monitoring System - Introduction of Health Code for Borrowal Accounts in Banks |
| 80 | UBD.No.(DC)101/R.1-A-87/88 | 15-02-1988 | Inventory/Receivable Norms for Various Industries |
| 81 | UBD.NO.I&L.67/J.1-87/88 | 21-11-1987 | Advances to Builders/Contractors |
| 82 | UBD(DC)104/R.1-86/87 | 25-06-1987 | Guidelines for Assessment of Working Capital Requirements, Opening of Letters of Credit and Issue of Guarantees |
| 83. | UBD.DC.84/R.1-86/87 | 03-06-1987 | Credit Monitoring System - Introduction of Health Code for Borrowal Accounts in Banks |
| 84 | UBD.(DC)57/R.1-86/87 | 19-02-1987 | Defaults In Payment of Statutory Dues by Borrowers |
| 85 | UBD.No.DC.41/R.1-86/87 | 07-11-1986 | Withholding of Credit Facilities to Borrowers to Ensure Financial Discipline |
| 86 | UBD(DC)83/R.1-85/86 | 24-03-1986 | Certification of Accounts of Non- Corporate Borrowers by Chartered Accountants |
| 87. | UBD.NO.I&L.38 /J.1-85/86 | 11-10-1985 | Advances Granted by Urban Cooperative Banks - Diversion of Funds |
| 88. | UBD.P&O.1383/UB.17(C)-84/85 | 22-05-1985 | Guidelines for relief measures by urban banks in areas affected by natural calamities |
| 89. | UBD.POT.654/UB.17(C)-84/85 | 23-11-1984 | Banks assistance to persons affected by recent disturbances |
| 90 | ACD.OPR.1569/A.35-79/80 | 02-10-1979 | Measures to restrict further credit expansion |
| 91 | ACD.OPR.2697/A.75/74-5 | 24-12-1974 | Credit authorisation scheme for co-operative banks |
| 92 | ACD.OPR.1222/A.75/74-5 | 07-09-1974 | Credit authorisation scheme for co-operative banks |
| 93 | ACD.Plan.3109/PR.414(9)/68-9 | 18-06-1969 | Working group on industrial financing through co-operative banks - recommendations pertaining to the urban cooperative banks - action required |
B. List of Other Circulars from which instructions relating to Management of Advances have also been consolidated in the Master Circular
| No. | Circular No. | Date | Subject |
| 1. | UBD.No.I&L/69/12.05.00/93-94 | 13-05-1994 | Committee to enquire into various aspects relating to frauds and malpractices in banks (Ghosh Committee) |
| 2. | UBD.21/12:15:00/93-94 | 21-09-1993 | Committee to enquire into various aspects relating to frauds and malpractices in banks primary (urban) cooperative banks |
| 3. | UBD.No.2420-J.20-83/84 | 02-04-1984 | Frauds, Mis- Appropriation, Embezzlements And Defalcation Of Funds In Primary (Urban) Cooperative Banks |
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