PROCEDURE FOR LOAN

APPLICATION
 STEPS IN PROCESSING LOAN APPLICATION

1. Interview with the farmer

2. Submission of loan application by the farmer
3. Scrutiny of records
4. Visit to the farmers field before sanctioning the loan
5. Criteria for loan eligibility
6. Sanction of loan
7. Submission of requisite documents
8. Disbursement of loans
9. Post credit follow up measures
10.Recovery of loan
 1. Interview with farmer
• A banker has a good scope to assess the credit
characteristics like honesty, integrity, frankness,
progressive thinking, indebtedness, repayment
capacity etc, of a farmer-borrower while interviewing
• During the interview, the banker explains the terms
and conditions under which the loan is going to be
sanctioned.
• Interview also helps the banker to understand the
genuine credit needs of farmer.
• Therefore an interview is not a formality, but it
facilitates the banker to study a farmer in detail and
assess his actual credit requirements.
 2. Submission of loan application by the
farmer
• The banker gives a loan application to the
farmer borrower after getting satisfied with his
credentials.
• The farmer has to fill the details like the
location of the farm, purpose of the loan, cost
of the scheme, credit requirements, farm
budgets, financial statements etc.
• A passport size photograph of farmer is also to
be affixed on the loan application form.
 Records to be submitted

• Loan application with passport size photo duly signed by the applicant
• Title deeds
– Certified extracts from village register of holdings
– Certified extracts from village register to show possession of land
• Farm map (topo sketch)
• No objection certificate from co-operatives and other branches of commercial banks
• Non encumbrance certificate from the borrower regarding non mortgage of land
elsewhere
• Proforma Invoice (when loan is meant for purchase of pumpset, power tiller tractor,
implements or other ag. Machinery)
• Estimate of the work, when the loan is meant for sinking or deepening of a well,
construction of a shed etc
• Affidavit from the farmer that he has not mortgaged the land elsewhere and that he will
not do so in future
• Ration card/Voter’s Identity card /or any other proof of Identity.
• Stamp papers as per the requirements of the Bank.
• Search report from bank’s advocate (in case of loans above Rs 50,000/- but in some
instances branches call for the same for lower loan amounts also)
 3. Scrutiny of records
• The relevant certificates indicating the
ownership of land and extent of land are to be
verified by the bank officials with village
revenue official.
4. Visit to the farmer’s field before sanction
of loan:
• After verifying the records at village level, the
field officer of the bank pays a visit to the farm
to verify the particulars given by the farmer.
• The pre-sanction visit is expected to help the
banker in identifying the farmer and guarantor,
to locate the boundaries of land as per the
map, assess the managerial capacity of the
farmer in farming and allied enterprises and
the farmer’s attitude towards latest technology.
 Contd….
• Details on economics of crop and livestock
enterprises, economic feasibilities of proposed
projects and farmer’s loan position with the
non- institutional sources are ascertained in the
pre -sanction visit.
• Hence, the pre-sanction visit of the bank officials
is very important to verify credit-worthiness and
trust-worthiness of the farmer - borrower.
• While appraising different types of loans,
different aspects should be verified.
 Contd…
• For advancing loan for well digging, the location of
proposed well, availability of ground water, rainfall,
area to be covered (command area of the well) and
distance from the nearby well etc, are verified in the
pre-sanction visit.
• In the same way, for other loans, the relevant aspects
are verified.
• All these aspects are included in the report submitted
to the branch manager for taking the final decision in
sanctioning of the loan amount.
 Pre-sanction visit to the farm
• On receipt of the application, the technical staff- agricultural
officer of the bank should pay visit to the farm to verify the
statements made by the farmer
• Other observations that may be made include
– Enquiry of the proposed guarantors
– Checking the boundaries
– Management capability of farmer with the existing
cultivation
– Adoption of modern technology in agriculture
– Details of economics of cultivation of crop, income from
other sources, feasibility of the proposal, money borrowed
from private sources etc may be enquired
– Physical verification of fixed and current assets of the
farmer
 Aspects to be considered by the Ag. Officer for
appraising different types of loans
• Crop production loan:
– Suitability of the soil for the proposed cropping pattern
– Availability of inputs including technical guidance
– Experience of the farmer
– Possibility of linking of credit with marketing
– Sowing and harvesting time for the proposed crops
– Annual family and other expenses for the farmer
– Economics of cultivation of the proposed crops and returns
– Extent of irrigation facilities available
– Sufficiency of water
– Demand and supply of labour
– Liabilities of the farmer to the local co-operative society and other agencies
– The character and financial integrity of the farmer
• Farm Development Loan
• Apart from those aspects from the crop production loan, the
following also need to be considered
– Well sinking and well deepening loan
• Location of the proposed well and its measurements
• Rainfall received in the area
• Water table in the wells situated around the farm
• Recharge capacity of the wells
• Estimate of sinking the well
• Availability of blasting materials
• Capacity of the farmer to execute the work
• Area to be irrigated after completion of the well
• Proposed cropping pattern
• Availability of power and pumpset to lift water on
completion
• Laying of pipelines
– Need for laying pipelines
– Gradation of land
– Availability of material to manufacture pipes or
availability of cement pipes
– HP of the motor to lift and push up water to the
desired height and length
– number of air vent to be constructed
– Area to be benefitted by the plan
– Time of completion etc
• Fencing
– Need for laying fence to the farm
– Loss if any due to the lack of fencing
– Cost of stone materials or cement pillars
– Cost of barbed wire, height and length of the
fence
– Number of rows to be made in the fence
– Long run impact
– Time for completion
 5. Criteria for loan eligibility:

• Important aspects to be considered

– Character and financial integrity of the applicant
– He should be a person living with his means and not
perpetually in debt
– He must abide by financial discipline
– Willing to use the loan for the purpose for it was
granted
– These qualities of the applicant may be judged from
personal enquiry in his village to his neighbours,
merchants, co-operatives, financial institutions
• The applicant should be willing to adopt modern agronomic practices and
have experience in different types of farming
• He should be inclined to co-operate with the bank in implementing the
scheme as also in repayment of the loan
• Scheme for which financing is done should be evaluated with respect to
– Technical feasibility
– Economic viability
– Should generate surplus for repayments
– Agri and non agri activities should be considered for assessing
repayment capacity, his total assets may be considered along with
landed assets
• Except in case of weaker sections, applicant own funds should be invested
in the venture along with banks fund
• He should be landowner or tenant for receiving farm loans for land based
activities
• The security provided by the applicant should be free from encumbrance
and litigation
 In short….
• He should have good credit character and financial
integrity.
• His financial transactions with friends, neighbors and
financial institutions must be proper (i.e. he should not
be a willful defaulter in the past)
• He must have progressive outlook and receptive to adopt
modern technology.
• He should have firm commitment to implement the
proposed plan.
• The security provided by the farmer towards the loan
must be free from any sort of encumbrance and
litigation.
 6. Sanction of the loan

• The field officer/ag.officer of the bank submits the pre

sanction farm inspection report covering all the aspects
mentioned above to the authority (manager) who sanctions
the loan
• The branch manager considers the proposal on the basis of its
– Technical feasibility
– Economic viability
– Repayment capacity
– Risk bearing ability
– Security offered by mortgaging the property
– Hypothecation of farm machinery and crops
– Capacity to bring in margin money
– Managerial ability to execute the proposed plan
 Contd..
• If the loan has to be sanctioned by the HO/RO,
the branch manager forwards the application
along with the technical report incorporating his
recommendations
• The authority of the office takes the decision to
sanction/reject the loan application and
communicates the decision to the branch
• Branch in turn informs the applicant and instructs
him to avail the loan after executing documents
• The branch manager takes a decision whether
to sanction the loan (or) not, after carefully
examining all the aspects presented in the
pre-sanction farm inspection report submitted
by the field officer.
• Before sanctioning, the branch manager
considers the technical feasibility, economic
viability and bankability of proposed projects
including repayment capacity, risk-bearing
ability and sureties offered by the borrower.
• If the loan amount is beyond the sanctioning power of
branch manager, he will forward it to regional manager
(or) head office of bank, incorporating his
recommendations.
• The office examines the proposed projects and take
final decision and communicate their decision to the
branch manager for further action.
 7. Submission of requisite documents:
Various security documents have to be executed/signed by the applicant in
accordance with the terms and conditions stipulated in the sanction letter
• Demand Promissory Note.
• Hypothecation Agreement to be executed for all loans where
hypothecation charge on the securities financed by the Bank is created.
• Deed of guarantee, wherever applicable.
• Deed of mortgage
• Instalment letter
• Authorising letter authorising the bank to receive payments from the
marketing agency on behalf of the applicant

Title deeds are to be examined by the bank’s legal officer.

Simple mortgage is followed in the case of ancestral property and
equitable mortgage in respect of selfacquired property
 8. Disbursement of loan

• Immediately after the submission of requisite

documents, the loan amount is credited to the
borrower’s account.
• The sanctioned loan amount is disbursed in a
phased manner, after ensuring that the loan is
properly used by the farmer- borrower.
• Based on the flow of income of the proposed
project a realistic repayment plan is prepared
and given to the farmer.
 Margin requirement
• As per RBI guidelines no margin is stipulated by banks for loans up to
Rs.50,000/- for both crop loan and term loan.
• No margin is stipulated in case of term loans & cash credits up to Rs. 5
lac for Agri-Clinics and Agri-Business Centres.
• In case of term loans & cash credits exceeding Rs. 5 lacs for Agri-Clinics
and Agri-Business Centres the margin requirements is 15% to 25% of
the project cost/unit cost depending on purpose and quantum of loan
and subject to NABARD's requirement, where refinance is
contemplated
• For other loans exceeding Rs.50,000/- , the banks have prescribed
margin stipulations ranging from 15 to 25 per cent of the total funds
requirement depending on the purpose, risk perception and quantum
of loan
• No separate margin is stipulated in case of lending on the basis of scale
of finance.
 Security
• In terms of the directives of RBI, banks are not
to take any collateral security for all loans
(crop loans as well as term loans) up to Rs
50,000/-. Loans shall be granted only on
hypothecation of the assets created.
• For loans above Rs 50,000/-, banks have the
discretion to take collateral security of
mortgage of land.
 At the time of review/renewal, following additional
documents are taken:
a) Fresh set of land records to prove that there is no
change in right of ownership/cultivation and the
search report thereon.
b) Revival letter for hypothecation.
c) Revival letter for guarantee.
d) Revival letter for mortgage.
 Other processes/ requirements:
• a) Inspection charges:
• As per extant RBI guidelines, no
service/inspection charges are to be levied for
loan amounts up to Rs. 25,000/- in priority
sector.
• But for loan amounts exceeding Rs.25,000/-,
banks levy inspection charges ranging from Rs
120/- to Rs 225/- per visit.
 9. Post-credit follow-up measures:
• AO should make periodic visits to the farmer
after disbursement of loan
– Creates rapport
– Ensuring proper utilisation and repayment
– Technical guidance to the farmer
– These visits are more informal than formal.
– AO should assess the supplementary credit needs
of the farmers after observing the fields and help
him in availing such schemes
 Recovery of loans
• The bank reminds the farmer- borrower about the
due date of loan repayment
• Repayment – according to terms already fixed by the
bank
• Farmer should be reminded about repayment at the
time of harvest
• Some appropriate measures like organising recovery
camps, special drives, village meetings etc, are to be
organised by banks to recover the loan in time.
• In case of default, the reasons whether genuine or
not should be explored
• If for genuine reason, re phasing repayment plans to
help the farmer may be done. He is helped further
by extending fresh
• financial assistance for increased farm production
• In the case of willful defaulter, the bank officials
initiate stringent measures to recover loan through
court of law. In some possible cases banks make
some tie-up arrangements i.e. the recovery of the
loan is linked with marketing.
• In respect of justifiable cases re-phasing of
repayment plan is allowed.
 Repayment plans
• The repayment of term loans (i.e. medium
term loans and long term loans) differs from
that of short term loans because they are
characterized by their partially liquidating
nature.
• These loans are recovered by a given number
of installments depending up on the nature of
the asset and the amount advanced for the
asset under consideration.
• There are six types of repayment plans for term loans and
they are
1. Straight-end repayment plan or single repayment plan or
lump sum repayment plan
2. Partial repayment plan or Balloon repayment plan
3. Amortized repayment plan
a) Amortized decreasing repayment plan
b) Amortized even repayment plan or Equated annual
installment method
4. Variable repayment plan (or) Quasi-variable repayment
plan
5. Optional repayment plan
6. Reserve repayment plan (or) Future repayment plan
1. Straight-end Repayment Plan or Single
Repayment Plan (or) Lumpsum Repayment
Plan
• The entire loan amount is to be cleared off
after the expiry of stipulated time period.
• The principal component is repaid by the
borrower at a time in lumpsum when the loan
matures, while interest is paid each year.
 2. Partial repayment plan or Balloon
repayment plan
• Here the repayment of the loan will be done
partially over the years.
• Under this repayment plan, the installment amount
will be decreasing as the years pass by except in the
maturity year (final year), during which the
investment generates sufficient revenue.
• This is also called as balloon repayment plan, as the
large final payment made at the end of the loan
period (i.e. in the final year) after a series of smaller
partial payments.
 3. Amortized repayment plan:
• Amortization means repayment of the entire
loan amount in a series of installments. This
method is an extension of partial repayment
plan.
• Amortized repayment plans are of two types
a) Amortized decreasing repayment plan
b) Amortized even repayment plan
 a) Amortized decreasing repayment plan

• Here the principal component remains constant over the

entire repayment period and the interest part decreases
continuously.
• As the principal amount remains fixed and the interest
amount decreases, the annual installment amount
decreases over the years.
• loans advanced for machinery and equipment will fall
under this category.
• As the assets do not require much repairs during the initial
years of loan repayment, a farmer can able to repay larger
installments.
b) Amortized even repayment plan
• Here the annual installment over the entire loan
period remains the same.
• The principal portion of the installment
increases continuously and the interest
component declines gradually.
• This method is adopted for loans granted for
farm development, digging of wells, deepening
of old wells, construction of godowns, dairy,
poultry units, orchards etc.
 4. Variable repayment plan or Quasi-
variable repayment plan
• As the name indicates that, various levels of installments
are paid by the borrower over the loan period.
• At times of good harvest a larger installment is paid and
at times of poor harvest smaller installment is paid by
the borrower.
• Hence, according to the convenience of the borrower
the amount of the installment varies here in this
method.
• This method is not found in lendings of institutional
financial agencies.
 5. Optional repayment plan:
• Here in this method an option is given for the
borrower to make payment towards the
principal amount in addition to the regular
interest.
 6. Reserve repayment plan or Future
repayment plan
• This type of repayment is seen with borrowers in areas
where there is variability in farm income.
• In such areas the farmers are haunted by the fear of not
paying regular loan installments.
• To avoid such situations, the farmers make advance
payments of loan from the savings of previous year.
• This type of repayment is advantageous to both the
banker and borrower.
• The bankers need not worry regarding loan recovery even
at times of crop failure and on the other hand borrower
also gains, as he keeps up his integrity and credibility.
 REASONS FOR LOANS TURNING NPA
Problems on the part of the financing agency
– Defective credit policy
• target oriented
• no proper appraisals-Co-operatives do not have specialized staff for the purpose
• Inflexibility-sticking on to scale of finance- repayment inflexibility
• Under/over financing
• Delay or untimely disbursement of loans
– Defects in managerial aspects
• Absence of infrastructural facilities
• Failure to link credit with marketing
• Absence of supervision or inadequate post credit follow up to ensure end use of
loans
• Inadequate staff
• Lack of technical guidance
• Lack of co-ordination with other agencies
– Defects in attitude
• Inaction against influential willful defaulters
• Lack of helpful attitude to the customers
• Lack of understanding about field situations
• Beneficiaries
– Lack of education- unable to understand the implications of credit
– Feeling that there is no need to repay the loan
– In order to achieve targets loans may be provided unnecessarily, which
gives a wrong direction to beneficiaries
– Loans may be utilized for unproductive purposes
– Studies reveal that large farmers are willful defaulters than the small
and marginal farmers
• Government
– Inadequate infrastructural facilities
– Writing off debts
– Interference of Govt during coercive recovery measures
– Inadequate steps to control farm produce prices
– Lack of co-ordination with credit agencies
– Pressurizing financing agencies to grant irregular loans
 Remedial Measures
• Curative measures
• Preventive measures
• Curative measures
1. Reasons for non payment of dues should be probed and
resolved (if it is other than willful default)
2. Severe action should be initiated among willful defaulters
3. Government should not interfere in recovery tasks of
financing institutions
4. The financing institutions should be free from politics and
politians
5. Conversion of ST loans into MT loans or MT loans to LT loans
in event of natural hazards should be done without delay to
help farmers
6. Co-operatives should motivate people in the area and office
bearers should attempt to expedite the collection process
7. Individual approach to loan recovery should be adopted.
8. Efforts should be made to recover loans throughout the year,
particularly at the time of harvesting of the crops and the
sale of farm produce.
Preventive measures
1. Motivation to farmers to repay the loans
2. Assessment of farm and farmer should be done properly to understand his
credit needs
3. Supervision should be done to ensure utilization of loans- pre sanction and
post sanction inspection should be done properly for this purpose
4. Co-ordination with agencies like government departments, electricity board,
PWD, co-operative marketing societies, regulated markets, warehousing
department etc
5. Inculcating banking habits
6. Finance requirements should be assessed and appraised properly and
sanctioned- fixation of repayment should be done realistically-inadequacies in
the scale of finance should be rectified
7. Infrastructural facilities – provision of inputs should be provided
8. Loan disbursement should be done on time. End use of the loan should be
monitored when the loan is sanctioned in installments
9. Single window approach-method can be effective when compared to
multiagency approach
10. Repayment of loans by indirect method- by linking of credit with marketing
can be more effective