Co Operative Banking Final Project

Financial Performance of co-operative banks
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 environment was 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 cooperative. 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 cooperative 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
NON-GOVERNMENT INSTITUTIONS
NATIONALIZED BANKS
CO-OPERATIVE BANK
GOLA GHAR
TRADITIONAL MONEY LENDERS MIDDLEMEN /DALALS
INITIAL INDIVIDUAL
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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 shylocktype moneylenders. 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
-Membership certificates. - Co-operative shares. - Incentive loans for start-ups. - Simple procedures for obtaining loans. - Discounts. Special offers, e.g. mobile
Intangible
- Personal advice. - Extra information. - Seminars. - Publications. - Seminars. telephone, - Special events.
subscriptions.
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- Priority in business relations. - Influence based on one man one vote.
- Financial support for local projects or - Influence and say. sponsoring. - 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. Cooperative 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 are supervised 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 consumers 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:URBAN COOPERATIVE BANKS
SHORT TERM LENDING ORIENTED BANKS
PRIMARY AGRICULTURAL CO-OPERATIVE SOCITIES
TYPES OF COOPERATIVE BANKS
CENTRAL COOPERATIVE BANKS
STATE COOPERATIVE BANKS LONG TERM LENDING ORIENTED BANKS
RURAL DEVLOPMENTS 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.
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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 the government. 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 nonborrowers 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 State Bank 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 following counts:
CO-OPERATIVE BANK
Co-operative Banks are Co- operative organisations
COMMERCIAL BANK
Commercial banks are joint stocks banks.
Co-operative banks are governed by the Co- Commercial banks are governed by the operative Societies Act, 1904. Banking Regulation Act
Co operative banks are subject to the rules laid Commercial banks are subject to the control of the down by the Registrar of co operative societies. Reserve Bank of India directly
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Co-operative banks have lesser scope in Commercial banks have wider scope in offering a variety of banking services than offering a variety of banking services than cocommercial banks. operative banks.
Co-operative banks are relatively on a much Commercial banks in India are on a larger scale. smaller scale. Many co-operative banks follow They have adopted the system of branch banking, only unit bank system, though they are co- so they have countrywide operations. operative banks with a numbers of branches but their coverage is not countrywide.
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 Commercial banks mostly provide short-term need of agriculturists.
finance to industry, trade and commerce, including priority like experts, etc.
Co-operative banks offer a slightly higher rate Commercial banks offer a less rate of interest of interest to their depositors than commercial to their depositors than commercial banks. banks.
In Co-operative banks, borrowers are member Borrowers of commercial banks are only shareholders, so they have some influence on account-holders and have no voting power as the lending policy of the banks, on account of such, so they cannot have any influence on the their voting power lending policy of these banks.
Co-operative banks have no much scope of Commercial banks on the other hand , are flexibility on account of the rigidities of the free from such rigidities. bye-laws of the co-operative societies.
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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 Boards 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 Boards 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 Cooperative 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 banks assessment of the credit requirement. Margin/Security Margin security requirement will be as per the UCBs 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 holders account maintained abroad. There should not be any other inflow/credit to this account other than the account holders 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 Cooperative 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. ii. iii. iv. State Bank of India and its Associates, Nationalized Banks, Private Sector Banks, 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 banks 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, or b. 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 stipulate that the boards will beneficiaries. ensure prompt and regular recovery of loan installments from the
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 control rules 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 the Statement: 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 borrowers 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, multipurpose 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 Cooperative 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 Negotiable Instruments 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 / cooperative / 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 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
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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 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 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 where loans relate to land shaping, silt removal, soil conservation etc. Thus in the case of loans for agricultural machineries, viz. pump-sets and tractors, it should be ensured that the total loan period does not generally exceed 9 years from the date of advance.
Apart from rescheduling existing term loans, banks will provide to affected
farmers diverse type of term loans for developmental purposes, such as : i) Minor Irrigation:Term loans 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 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.
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 sharecroppers.
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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 banks 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 Banks Mission:i. ii. iii. Improve quality of customer service levels Reduce cost of customer service 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.
VSofts 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 Telebanking 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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Co Operative Banking Final Project

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Financial Performance of co-operative banks

Financial Performance of co-operative banks

Financial Performance of co-operative banks

Financial Performance of co-operative banks

Financial Performance of co-operative banks

PRINCIPLES OF CO-OPERATIVE BANK The 7 co-operative principles are :

ACTIVITIES OF CO- OPERATIVE BANK

Financial Performance of co-operative banks

STRUCTURE OF CO-OPERATIVE BANKING IN INDIA

TRADITIONAL MONEY LENDERS MIDDLEMEN /DALALS

Financial Performance of co-operative banks

Financial Performance of co-operative banks

Financial Performance of co-operative banks

Financial Performance of co-operative banks

Financial Performance of co-operative banks

SHORT TERM LENDING ORIENTED BANKS

PRIMARY AGRICULTURAL CO-OPERATIVE SOCITIES

TYPES OF COOPERATIVE BANKS

CENTRAL COOPERATIVE BANKS

STATE COOPERATIVE BANKS LONG TERM LENDING ORIENTED BANKS

RURAL DEVLOPMENTS BANKS

Financial Performance of co-operative banks

Urban co operative banks are dividing into two categories:-

Financial Performance of co-operative banks

Financial Performance of co-operative banks

Financial Performance of co-operative banks

Financial Performance of co-operative banks

Co-operative banks are private sector banks.

Financial Performance of co-operative banks

POLICIES OF CO - OPERATIVE BANK

Financial Performance of co-operative banks

MONETARY AND CREDIT INFORMATION REVIEW

Financial Performance of co-operative banks

Financial Performance of co-operative banks

Financial Performance of co-operative banks

Financial Performance of co-operative banks

MASTER CIRCULAR - FINANCE FOR HOUSING SCHEMES

ELIGIBLE CATEGORY OF BORROWERS:

Financial Performance of co-operative banks

ELIGIBLE HOUSING SCHEMES:

Financial Performance of co-operative banks

2. Charging of Penal Interest:

Financial Performance of co-operative banks

Financial Performance of co-operative banks

ADDITIONAL / SUPPLEMENTARY FINANCE:

Financial Performance of co-operative banks

ADVANCES TO BUILDERS / CONTRACTORS:

Financial Performance of co-operative banks

Financial Performance of co-operative banks

Financial Performance of co-operative banks

Financial Performance of co-operative banks

ANTI-MONEY LAUNDERING (AML)/ COMBATING OF FINANCING OF TERRORISM (CFT)

Financial Performance of co-operative banks

WORKING CAPITAL REQUIREMENTS FOR SSI

Financial Performance of co-operative banks

Sharing of Working Capital Finance: In respect of consortium lending, the level

Financial Performance of co-operative banks

Financial Performance of co-operative banks

CREDIT SPECIFIC LENDING ACTIVITIES

Financial Performance of co-operative banks

Financial Performance of co-operative banks

Financial Performance of co-operative banks

Financial Performance of co-operative banks