NAFSCOBVolume3 PDF

OPERATIONAL MANUAL
FOR
COOPERATIVE BANKS
(REVISED - 2013)
VOLUME – III
LOANS AND ADVANCES
PART-I
OPERATIONAL MANUAL
FOR
COOPERATIVE BANKS
(REVISED - 2013)
VOLUME – III
LOANS AND ADVANCES
PART-I
FOREWORD
The 'Operational Manual for Cooperative Banks' brought out by National Federation of State
Cooperative Banks Ltd. (NAFSCOB) in four volumes in 2004 was extensively used and appreciated by the
member State Cooperative Banks, District Central Cooperative Banks and their affiliates, cooperative
training establishments, research scholars, freelancers etc. The manual had facilitated adaption of
standardised procedures and practices in the member banks and their affiliates helping them in providing
professional customer services.The said manual also had facilitated number of member banks to bring out
their own in house manuals/handbooks on various operational issues for efficient functioning, resulting in
professional approach to cooperative banking and improved regulatory compliances.
With the increasing demand for higher quality of services, ever increasing competition in the
banking sector, innovations in the banking sector, policy guidelines, directives from the policy makers as
well as higher financing agencies, regulatory compliance requirements etc. an urgent need for
revision/upgradation of the manuals brought out in 2004 was felt. The member banks urged NAFSCOB to
take necessary initiatives in this direction. Accordingly the Executive Committee/Board of Directors of
NAFSCOB constituted a 'Working Group' and 'Sub Groups' to examine and suggest necessary revision. The
Working Group/Sub Groups, after extensive deliberations, suggested various alterations/incorporations to
the existing volumes of the manual. The expert intervention of Tamil Nadu State Apex Cooperative Bank in
this regard is highly appreciated. NAFSCOB also requested NABARD headquarters to re-examine the
revised volumes of the manual and suggest improvements. NABARD suggested number of improvements
which have been incorporated in the revised manual to make it more up-to-date. With the ever changing and
improving operations in the financial sector, the user of this manual need to constantly cross refer the latest
guidelines/directives on many of the issues for clarity as well as updated direction.
The revised and updated 'Operational Manual for Cooperative Banks' is now ready for publication
and distribution among all the stakeholders. It is a matter of pride for NAFSCOB that we could undertake
such a mammoth task and accomplish the same. This would not have been possible without the collective
and concerted efforts of so many experts, expert agencies and the member banks.
I would like to place on record my personal appreciation to Shri B Subrahmanyam, Managing

Director, NAFSCOB for his relentless endeavour to bring out the Operational Manual. Further, I am pleased
to acknowledge the efforts made by each one of the members of the Working Group/Sub-Groups constituted
by NAFSCOB for re-examining the existing 'Operational Manual for Cooperative Banks'. I am especially
thankful to Chairman, NABARD for ensuring valuable inputs and contributions from NABARD in
finalising the Operational Manual.
Mumbai (DR. BIJENDER SINGH)

01-03-2013 CHAIRMAN
i - III
ii - III
P R E FA C E
The National Federation of State Cooperative Banks Ltd. (NAFSCOB) for the first time published an
'Accounting Manual' in 1979 to facilitate the member State Cooperative Banks (SCBs) and their affiliates to
adopt standardised procedures and practices in their banking and other operations. Subsequently, many of
the SCBs also brought out operation specific manuals/handbooks such as 'Loan Manual', 'Inspection
Manual', 'HRD Manual', etc. for strengthening their in-house operations. After more than two decades, it
was in the year 2000, NAFSCOB initiated steps to review the 'Accounting Manual'. As a result of extensive
review, research, deep insight and laborious effort, an extensive and elaborate set of operational guidelines
was finally brought in the form of 'Operational Manual for Cooperative Banks' in the year 2004.
The 'Operational Manual for Cooperative Banks' in four volumes was made available to all SCBs and
their branches, District Central Cooperative Banks (DCCBs) and their branches, as well as few Urban
Cooperative Banks, cooperative training institutes, research scholars, academicians, higher financing
organisations, regulators, etc. The feedback received with regard to the contents and usefulness of the said
manual from various stake holders and others has been very encouraging.
Over a period of time with innovations and improvements in the finance and banking sector, new policy
guidelines, operational directives, regulatory compliance requirements etc., there has been an increased
demand for revision/upgradation of the said 'Operational Manual for Cooperative Banks'. As a result, in
2009, the Executive Committee/Board of Directors of NAFSCOB decided to constitute a high-level
'Working Group' and four 'Sub Groups' consisting of Chief and Senior Executives of member SCBs with
adequate representation from key departments such as IDD, PCD, DOS, HRDD and DCRR from NABARD
to review and revise the Operational Manual for Cooperative Banks. The Working Group and the Sub-
Groups had extensive consultations and deliberations on various segments of the 'Operational Manual for
Cooperative Banks'. With the inputs provided by various stakeholders and the number of experts, the said
Four Volumes of the 'Operational Manual for Cooperative Banks' were suitably modified and upgraded. The
modified volumes were reassigned to Tamil Nadu SCB for final fine-tuning and finalisation. These four
volumes were then forwarded to NABARD for their suggestions, comments and views. The feedback
received from NABARD were duly incorporated and the 'Operational Manual for Cooperative Banks'
(Revised) in following four volumes has been finalised.
Volume I : Manual on Branches and Banking Operations

Volume II : Manual on Functions of Head Office
Volume III : Manual on Loans and Advances (Part I & Part II)
Volume IV : Manual on Inspection and Internal Audit
It is hoped that the revised 'Operational Manual for Cooperative Banks' will further enhance the
operational efficiency of the short-term cooperative credit structure, in general and the cooperative credit &
banking sector, in particular. Further, it is also hoped that the said revised manual will serve as an effective
and broad-based set of operational guidelines for cooperative practitioners as well as preachers. It has to be
iii - III
borne in mind that the said manual per se is not an end by itself but a means for higher quality of
performance, efficiency, better housekeeping, improved customer services and viable operations. It is
necessary to refer to the latest policy directives, operational guidelines, regulatory requirements on each of
the issues dealt in the manual as there is constant innovation and changes in these aspects.
We would like to place on record our heartfelt gratitude to all members of the 'Working Group' as well as
the members of 'Sub-Groups' for their relentless efforts, keen interest and valuable contributions in
developing a broad framework for finalisation of the revised 'Operational Manual for Cooperative Banks'.
We would also like to place on record the keen interest, positive interventions and valuable contributions of
NABARD, particularly IDD, PCD, DOS, HRDD and DCRR etc.
We would like to place on record our deep appreciations and gratitude to Thiru M.P. Sivan Arul, Special
Officer, The Tamil Nadu State Cooperative Apex Bank; Thiru K.M. Thamizharasan, the then Special Officer
of The Tamil Nadu State Cooperative Apex Bank; Thiru R. Elango, General Manager, The Pondicherry
State Cooperative Bank; Thiru K. Manohar, Assistant General Manager, The Tamil Nadu State Cooperative
Apex Bank, K. Sudhakar, the then Director, NAFSCOB and presently our Consultant, for shouldering the
responsibility of editing, correcting and fine tuning the revised Operational Manual.
We are sure that the revised 'Operational Manual for Cooperative Banks' will meet the requirements,
expectations and aspirations of the cooperative credit and banking sector and will serve as an effective
operational and management tool in further enhancing the quality and quantity various services of the sector.
Mumbai (B.SUBRAHMANYAM)
01-03-2013 Managing Director
iv - III
OPERATIONAL MANUAL
FOR
COOPERATIVE BANKS
(REVISED - 2013)
VOLUME-III
LOANS AND ADVANCES
PART-I
CONTENTS
Chapter Titles Page Nos.

FOREWORD i
PREFACE iii-iv
CONTENTS v-xxvii
CHAPTER - 1 INTRODUCTION 1-3
1. General
2. About Volume-III
CHAPTER - 2 PRINCIPLES OF LENDING 4-13
1. General
2. Safety of Funds
3. Identification of Borrower
4. Purpose
5. Liquidity/Repayment
6. Security
7. Remuneration/Profitability
8. Risk Management
9. National Interest
10. Norms on Credit Exposure
11. Fair Lending Practices Code
12. Bank’s Loan Policy
13. Types of Credit
14. Pricing of Loan Products
15. Charging of Interest
16. Service Charges on Advances
17. RBI Regulations and Restrictions
v - III
CHAPTER – 3 TYPES OF BORROWERS 14-37
1. General
2. Minors
3. Joint Accounts
4. Sole Proprietorship
5. Partnership Accounts
6. Joint-Stock Company
7. Cooperative Institutions
CHAPTER – 4 PROCESSING OF CREDIT PROPOSALS 38-53
1. General
2. Forms of Credit
3. Documents/Documentations
4. Pre-sanction process
5. Credit Report
6. Net Worth
7. Assessment of Quantum of Credit Required
8. Time Norms for Disposal of Credit Proposals
9. Sources of Information
10. Over Trading and Under Trading
11. Staff Related Advances
12. Rejection of Proposals
CHAPTER – 5 CREDIT SANCTION 54-58
1. General
2. General Terms and Conditions Of Sanction
3. Allowing Excess Over Sanctioned Limit
4. Guidelines on allowing Excesses
5. Confirmation of Excesses Allowed
6. Overdue Excess/Out of Order
7. Penal Interest
CHAPTER – 6 CREDIT DOCUMENTATION 59-80
1. General
2. Stamping and Execution of Documents
3. Importance of Documentation
4. Defective Documentation : Consequences
5. Points for Observation while obtaining Documents
6. Periodicity of Renewal of Documents
vi - III
7. Regularisation of Time Barred Debt
8. Annexure/s
CHAPTER – 7 CREATION OF CHARGE 81-92
1. Lien
2. Set-off
3. Pledge
4. Hypothecation
5. Mortgage
6. Assignment
7. Procedure for creation of Second Charge
CHAPTER – 8 CREDIT DISBURSEMENT 93-103
1. General
2. Documentation Process
3. Registration of Charges in Case of Limited Companies
4. Conduct of Pre-Release Audit
5. Valuation and Verification of Securities
6. Precautionary Measures for Different types of Facilities
7. Release of Bills Purchased Limit
8. Export Credit
9. Ensuring End Use of Funds
10. Insurance
11. Financial Discipline
12. Other Aspects
13. Utilisation of Limits
14. Takeover of Accounts from other Banks/Financial Institution
15. Precautions
16. Transfer of Loan Accounts between Banks
17. Security
18. Liquidation of Liabilities
19. Repayment of Terms
CHAPTER – 9 CREDIT MONITORING 104-119
1. General
2. Security Monitoring
3. Collection and Analysis of Data
4. Scrutiny of Stock Statements
5. Inspection of Stocks
6. Stock Audit
vii - III
7. Periodical Inspection of Units and Verification of Securities
8. Monitoring of Operations in the Account
9. Early Warning Signals
10. Review/Renewal of Advances
11. Keeping the Documents alive for Legal Action
12. Monitoring Recovery of Periodical Interest and Instalments
13. End Use of Funds
14. Certificate from Chartered Accountants (For Project Finance)
CHAPTER – 10 RECOVERY OF ADVANCES 120-130
1. General
2. Precautionary Measures to avert Recovery Proceedings
3. Objectives of Recovery
4. Persuasive Measures
5. Negotiated/Compromise Settlement for Recovery of NPAs
6. Write –Off of NPA Accounts
7. Board for Industrial and Financial Reconstruction (BIFR)
CHAPTER – 11 SARFAESI ACT 131-137
1. General
2. Applicability of The Act
3. Operational Guidelines
4. Amendment to Securitisation Act
5. Enforcement of Security Interest and Recovery of Debt Laws
(Amendment) Act, 2012
6. Amendment to ‘Recovery of Debts due to Banks
and Financial Institutions Act, 1993’
CHAPTER – 12 PRUDENTIAL NORMS 138-170
1. General
2. Definitions
3. Income Recognition - Policy
4. Reporting of NPAs
5. Guidelines for Classification of Assets
6. Provisioning Norms
7. Examples
8. Annexure/s, Case Exercises
CHAPTER – 13 THIRD PARTY GUARANTEE FOR ADVANCES 171-179
1. General
2. Consideration for Guarantee
viii - III
3.
Capacity to give a Guarantee
4.
Bank’s Standard Format
5.
Banker’s Duty of Disclosure
6.
Liability of the Guarantor
7.
Rights of the Guarantor
8.
Determination of Guarantee by Guarantor
9.
Death of the Guarantor
10.
Insolvency of the Guarantor
11.
Death of the Principal Debtor
12.
Insolvency of the Principal Debtor
13.
Payment by the Guarantor
14.
Payment by Principal Debtor
15.
Change in the Constitution of the Borrower
16.
Renunciation of Common Law Rights of the Guarantor
17.
Release of the Guarantor
18.
Consent of the Borrowers/Guarantors for disclosure
of information to CIBIL
CHAPTER – 14 CREDIT RATING AND RISK MANAGEMENT 180-188
1. General
2. Aspects of Credit Risk
3. Competition/ Market Risk
4. Technology Risk
5. Financial Risk
6. Exchange Risk
7. Economic/ Political Risk
8. Change of Government Regulations
9. Management Risk
10. Mitigation of Credit Risk
11. Tools of Credit Risk Management
12. Credit Rating System & Sanction of Final Rate of Interest
13. Consortium Accounts
14. Rate of Interest for adhoc Sanctions/ Penal Interest
15. Loan Review Mechanism (LRM)
CHAPTER – 15 CREDIT INFORMATION – INDIAN CONTEXT 189-203
1. General
2. Credit Information Bureau (India) Limited (CIBIL)
3. Consumer Credit Information Report
ix - III
4. Portfolio Review Report
5. CIBIL Information Scheme
6. Commercial Credit Information Report
7. Benefits of CIBIL
8. FAQs
9. Annexure/s
CHAPTER – 16 LAW OF LIMITATION 204-207
1. General
2. Limitation Periods as per the Act: Some Transactions
3. Period of Limitation against Guarantors
4. Periods excluded while computing Limitation
5. Extension of Limitation Period
6. Procedure for obtaining Revival Letter (RL) /Certificate Of Balance (COB)
7. Regularising Time Barred Debts
8. Number of RLs that can be obtained/taken
9. Miscellaneous
CHAPTER – 17 STAMPING OF DOCUMENTS 208-213
1. General
2. Instruments Chargeable with Stamp Duty
3. Stamp Duty
4. Types of Stamps - How Stamped
5. Time of Stamping
6. Stamp Duty on Documents Executed in more than one State
7. Unstamped/ Under Stamped
8. Adjudication
9. Refund or Allowance for the amount of Stamp
10. Stamping of Documents
11. Rule 7 of Stamp Rules, 1926
CHAPTER – 18 FAIR PRACTICES CODE ON LENDERS LIABILITY 214-217
1. General
2. Declaration
3. Fair Practices
CHAPTER – 19 BASE RATE 218-220
1. General
2. Computation of Base Rate
3. Significance of ‘Base Rate’
4. Annexure/s
x - III
CHAPTER – 20 ANALYSIS AND INTERPRETATION OF 221-239
FINANCIAL STATEMENTS
1. General
2. Analysis of Balance Sheet
3. Analysis of Profit and Loss Account
4. Ratio Analysis
5. Funds Flow & Cash Flow Analysis
6. Contribution Analysis
7. Break - Even Analysis
8. Margin of Safety
9. Profitability Analysis - Selected Ratios
CHAPTER – 21 ABOUT NABARD 240-251
1. General
2. NABARD’s Role & Function
3. Core Functions
4. Objectives of Inspection
5. Instruments of Supervision
6. Types of Refinance Facilities
7. Supporting Cooperatives
8. Short Term Credit
9. Refinance against Investment Credit
10. Government Sponsored Schemes
11. Farm Sector/ Non-Farm Sector Schemes
12. Enterprises Loan Scheme (ELS)
PART – II
CHAPTER - 22 AGRICULTURAL CREDIT 252-294
1. General
2. Policy Functions
3. Operational Functions
4. Role of DCCBs
5. Operations on the Limits - Eligibility
6. Period of the Limit and Sources of Finance
7. Basic Objectives of Refinance
8. Basic Norms of Eligibility for Credit Limits
xi - III
9.
Financial disciplines governing the Operations
on sanctioned Credit Limits
10. Special Conditions Governing the continuance of operations
on sanctioned Credit Limits
11. Separate Credit Limits for Financing Cultivation of Oil Seeds in NODP areas
12. Special Rice Production Programme
13. Time Schedule for Submission of Application
14. Scrutiny and Sanction of Credit Limit Applications and Issue of
Sanction Letters by NABARD
15. Sanction of Credit Limits by NABARD
16. Documents to be Executed
17. Operations Discipline
18. Application to NABARD for Sanction of ST (SAO) Limits
19. Availing of Drawals from NABARD – Procedure
20. Scrutiny of Credit Limit application and Assessment of Limits by Apex Bank
21. Sanction of Limits by Apex Bank
22. Norms and Procedures for Allowing/Sanction of Drawals to DCCBS
from Apex Bank
23. Repayment of Loans and Charging of Interest
24. Passing on of Recoveries
25. Maintenance of Demand, Collection and Balance (DCB) Register by DCCBs
26. Maintenance of Crop Verification Register
27. Submission of Revolving Credit Return
28. Investment of Reserve Fund and Other Reserves with the Apex Bank
29. Stopping further Advances
30. Accounting Procedure
31. Annexure/s
CHAPTER – 23 KISAN CREDIT CARD (KCC) 295-310
1. General
2. Applicability of the Scheme
3. Objectives
4. Eligibility
5. Issue of Cards
6. Fixation of Credit Limit
7. Validity /Renewal
8. Scrutiny/Margin
9. Maintenance and Operations in the Accounts
xii - III
10. Rate of Interest
11. Application of Prudential Norms
12. Reporting of transactions in LBRs
13. Operational Norms for refinance support from NABARD under KCC for a SAO
14. Maintenance of separate accounts for SAO under KCC
15. Computation of DCB position
16. Maintenance of NODC
17. Financial of SF/MF
18. KCC – Payment of interest on Credit Balances
19. KCC – Sugarcane Borrowers
20. Procedures to be followed at DCCB level
21. Annexure/s
CHAPTER – 24 CROP INDUSRANCE SCHEME 311-332
1. General
2. Scheme -1 : National Agricultural Insurance Scheme (NAIS)
3. Scheme -2 : Weather Based Crop Insurance Scheme (WBCIS)
4. Scheme -3 : Rainfall Insurance Scheme for Coffee (RISC)
5. Scheme – 4 : Varsha Bhima (VB)
6. Scheme – 5 : Coconut Farm Insurance Scheme (CFIS)
7. Annexure/s
CHAPTER – 25 MEDIUM TERM CONVERSION (AGRI.) LOANS 333-346
1. General
2. Sources of Funds to ACS Fund
3. Utilisation of ACS Fund
4. When Conversation can be given
5. ‘Annawari’ Assessment
6. Eligibility for Conversion
7. Share of Conversion
8. Duration of Conversion Loan
9. Security for Conversion of ST (SAO) Loans
11. MTC/MTCR Loans
12. Suspension / Remission of Land Revenue
13. Financial Commitment to the State Govt. – Sharing of Conversions
14. Eligibility Norms
15. Process of Conversion
xiii - III
16. Re-phasement and Re-schedulement of MT Loans/Instalments
17. Conversion facilities for Crop Loans covered under Crop Insurance Scheme
18. Application for Credit Limits
19. Documents and Certificates
20. Operations on Medium Term (Conversion) Limits
21. Annexure/s
CHAPTER – 26 HANDLOOM FINANCE 347-427
1. General
2. Financing of Primary Weavers Cooperative Societies (PWCS)
3. Eligibility for NABARD Refinance
4. Sanction of Short Term Credit Limit by NABARD
5. Eligibility criteria for sanction of credit limits to PWCS
6. Assessment of Working Capital
7. Cover and Margin for borrowings of WCS
8. Application for Credit Limits
9. Sanction of Credit Limits
10. Operation in the Limits
11. Adjustment of Payments to PWCS from Apex Society
12. Inspection of PWCS by DCCBs
13. Right of the Apex Bank to Recall the Advance
14. Government Guarantee
15. Books and Registers required to be maintained
CHAPTER – 27 NON - AGRICULTURAL CREDIT 428-440
1. General
2. Non-Agricultural Cash Credit Limit proposal
3. Sanction of Cash Credit Limits for Non-Agricultural Purposes
4. Accounting Procedures
5. General Terms and Conditions
6. Operational procedures
7. Annexure/s
CHAPTER – 28 CREDIT MONITORING ARRANGEMENT (CMA) 441-450
1. General
2. CMA operations
3. Mechanism of CMA
4. Revision of Exposure Norms and Monitoring & Reporting Procedures
5. CMA Returns/Reports
xiv - III
6. High Value Advances
7. Appraisal of High Value Advances
8. Sanction of Loans & Advances – Operational Guidelines
9. Financing Units with negative Net worth/ other irregularities
10. Block Capital/Term Loans
11. Rephasement Products
12. Credit dispensation to certain activities
13. Exposure Norms
14. Sanction of Credit Limits to Coop. Sugar Mills
15. Terms & Conditions for sanction of WC to Coop. Sugar Mills
CHAPTER – 29 CONSORTIUM ADVANCES 451-494
1. General
2. Role of Leader Bank in Consortium
3. Role of participating Banks
4. Borrower’s Role in a Consortium
5. Consortium Meetings
6. Admission of New Members
7. Exit of a Member from the Consortium
8. Other Activities of the members in Consortium
9. Documentation
10. Annexure/s
CHAPTER –30 FINANCING OTHER APEX COOP. INSTITUTIONS 495-497
1. General
2. Documents to be obtained
3. Board Resolution
4. Procedure to sanction CC limit
5. Operations in CC A/c
6. Terms & Conditions
CHAPTER – 31 APPRAISAL OF TERM LOAN 498-506
1. General
2. Term Loan to Industrial/ Manufacturing Unit
3. Managerial Competence
4. Technical Feasibility
5. Commercial Viability
6. Financial Viability
7. Cost of Project
xv - III
8. Means of Finance
9. Time and Cost Overrun
10. Projected Profitability Statement
11. Projected Funds Flow/ Cash Flow Statements
12. Annexure/s
CHAPTER – 32 ASSESSMENT OF WORKING CAPITAL 507-522
1. General
2. Components of Working Capital for Trade/ Business
3. Proforma for Calculation of Working Capital Requirement
4. Traditional method of assessment of Working Capital Requirement
5. Tandon Committee Norms
6. Chore Committee Norms
7. Nayak Committee Recommendations
8. Clarifications on Nayak Committee Recommendations for Assessment
of Working Capital Limits
9. Cash Budget Method
10. Calculation of Term Loan Requirements
11. Documentation
12. Annexure/s
CHAPTER – 33 RURAL PROJECTS FINANCE 523-528
1. General
2. Thrust Areas of Activities
3. Total Liability Register (scheme - wise)
4. Book Entries
5. Edibility Criteria
6. Automatic Refinance Facility
7. Other Terms & Conditions
CHAPTER – 34 NATIONAL RURAL LIVELIHOOD MISSION (NRLM) 529-541
1. General
2. NRLM and SGSY - Key difference
3. Women SHGs and their Federations
4. Financial Assistance to the SHGs
5. Role of Banks
6. Credit Target Planning
7. Post credit follow-up
8. Repayment
9. Deputation of the bank officials to SRLMs
xvi - III
10. Supervision and monitoring
11. Data Sharing
12. NRLM support to the bankers
13. Closure of SGSY Scheme
14. Annexure/s
CHAPTER – 35 DAIRY ENTREPRENEURSHIP DEVELOPMENT SCHEME 542-561
1. General
2. Activities covered and Indicative Unit Costs
3. Eligibility
4. Scheme Funding/Pattern of Investment
5. Security Norms
6. Financial Assistances available from Banks/ NABARD
7. Scheme formulation for Bank Loan
8. Scrutiny of Schemes by Coop. Banks
9. Sanction of Bank Loan and Disbursement
10. Lending Terms
11. Annexure/s
CHAPTER – 36 PIGGERY DEVELOPMENT 562-577
1. General
2. Implementation and Area of Operation
3. Eligibility
4. Subsidy
5. Funding Pattern
6. Promotional Assistance
7. Sanction by Banks
8. State Level Sanctioning and Monitoring Committee (SLSMC)
9. Release of Subsidy
10. Repayment
12. Security
13. Time Limit for completion of the Project
14. Monitoring
15. Other Conditions
16. Annexure/s
CHAPTER – 37 POULTRY DEVELOPMENT 578-590
1. General
2. Poultry Estates
xvii-III
3. Objectives of the Scheme
4. Area of Operation
5. Allotment of Land and selection of Facilitator
6. Selection and Training of beneficiaries
7. Creation of infrastructure for feed manufacturing
8. Components which can be supported
9. Preparation of Projects
10. Mother Units for rural backyard Poultry
11. Sanction of Project and release of IFL
12. Repayment period and recovery of loan
13. Refinance assistance
14. Security Norms
16. Monitoring
17. Role of various Agencies
18. Publicity
19. Other Conditions
20. Annexure/s
CHAPTER – 38 AGRI - CLINICS AND AGRI - BUSINESS CENTRES 591-608
1. General
2. Objectives of the Scheme
3. Eligibility
4. Project Cost
5. Linkage with Credit
6. Term Loan
7. Margin Money
8. Security
9. Time Limit for completion of Project
10. Other conditions
11. Refinance assistance from NABARD
12. Subsidy
13. Monitoring
14. Awareness and Training Program
15. Empowering Steering Committee
16. Annexure/s
xviii-III
CHAPTER – 39 SWAROJGAR CREDIT CARD SCHEME 609-616
1. General
2. Swarojgar Credit Card (SCC) Scheme
3. Model Scheme
4. Review of Progress
5. Role of NABARD
6. Annexure/s
CHAPTER – 40 SELF-HELP GROUPS (SHGS) 617-636
& JOINT LIABILITY GROUPS (JLGS)
A. Self-Help Groups (SHGs)
1. General
2. Parameters
3. Task for SHGs
4. Operations
5. Characteristics of SHGs
6. Functions of SHGs
8. Operation of SB Account
9. Credit support to the Group
10. Essential documents
11. Credit needs of the Group
12. Advantages to the Society
13. Philosophy of the linkage
14. Strength of SHGs
15. Role of NABARD
16. Role of Banks
17. Model of SHG – Bank Linkage
18. SHGs graduation process
B. Joint Liability Groups (JLGs)
1. General
2. Objectives
3. General Features of JLGs
4. Criteria for Selections of JLG members
5. Size of the JLG
6. Formation of JLG
7. Savings by JLG
8. JLG models
xix-III
9. Critical factors in JLG approach
10. Credit Assessment
11. Purposes of Credit
12. Type of Loan
13. Loan limit
15. Margin and Security Norms
16. Documents - Model A
17. Credit to JLGs
18. Insurance Cover
19. Crop Insurance
20. Monitoring and Review
21. Annexure/s
CHAPTER – 41 FARMERS' CLUB PROGRAMME 637-641
1. General
2. Diversified Role of Farmers Club
3. NABARD Policy
4. Farmers Club - Routine and Non-routine Activities
5. Rating of Farmers Club -Broad Guidelines
CHAPTER – 42 APPRAISAL OF LOAN PROPOSALS 642-650
OF SMALL AND MICRO UNITS
1. General
2. Objectives
3. Credit Risks
4. Appraisal Aspects
5. Sanction of Loan
6. Break Even and Contribution Analysis
7. Annexure/s
CHAPTER – 43 SCB SPECIFIC LOAN SCHEMES 651-663
1. General
2. Revolving Cash Credit
3. Kalinga Kissan Gold Card Scheme of OrissaSCB
4. Annexure/s
CHAPTER – 44 DIRECT LENDING -OVERDRAFT AGAINST TERM DEPOSITS 664-671
1. General
2. Advances against Borrower’s own Deposits
3. Procedure
xx-III
4. Margin
5. Quantum of Loan
6. Rate of Interest and Periodicity of Payment
7. Period of Loan
8. Issue of Loan Card
9. Foreclosure of Term Deposit under Loan Cover
11. Lien
12. Additional Loan
13. Minors
14. Illiterate Depositors
15. Nominee
16. Legal Heirs of the Deceased Depositors
17. Loan to Firm/ Proprietary Concern
18. Joint Depositors
19. Deposits of other Banks
20. Vouchers and Book Entries
21. Loan Repayment
22. Trial Balance
23. Other Key Points
CHAPTER – 45 CONSUMER LOAN 672-676
1. General
2. Persons Eligible
3. Area of Employment or Residence
4. Application
5. Associate Membership (Nominal Member)
6. Purchase of Article
7. Second Hand Goods
8. Applicant to be Customer
9. Adequate Balance in the Account
10. Guarantors
11. Documents
12. Quantum of Loan
13. Carry Home Pay
14. Period of Loan
xxi-III
16. Repayment
17. Insurance
18. Accounting
19. Loan Ledger
20. Trial Balance
CHAPTER – 46 SALARY LOANS 677-680
1. General
2. Persons Eligible
3. Purpose
4. Eligibility
5. Guarantors
6. Associate Member (Nominal Member)
7. Maximum Loan
8. Period of Loan
9. Undertaking by Employer/Pay Disbursing Officer
10. Loan Disbursement
11. Loan Repayment – Borrower’s Responsibility
12. Rate of Interest and Penal Interest
13. Recovery of Overdues
14. Documents
15. Trial Balance
CHAPTER – 47 ADVANCES AGAINST MORTGAGES 681-702
1. General
2. Mortgagor
3. Margin
4. Valuation
5. Scrutiny of Security
6. Legal Opinion
7. Simple Mortgage (Registered Mortgage)
8. Equitable Mortgage
9. Follow – Up and Supervision
10. Other Aspects
11. Procedure for Sanction
12. Legal Fees and Processing Fees
13. Documentation
14. Book Entries
xxii-III
15. Documents for Loan Application
16. Other Key Points
17. Annexure/s
CHAPTER – 48 ADVANCES ON HYPOTHECATION OF MOTOR VEHICLES 703-712
1. General
2. Pre-Sanction
3. Sanction and Disbursal
4. Follow Up
5. Annexure/s
CHAPTER – 49 PENSIONER’S LOAN 713-715
1. General
2. To whom can be Sanctioned
3. Loan Amount
4. Security
5. Period of Loan
6. Associate Membership
7. Rate of Interest
8. Penal Interest
9. Documents
10. Sanctioning Authority
11. Books of Accounts
12. Vouchers/Entries
13. Overdues – Recovery Action
14. Trial Balance
CHAPTER – 50 JEWEL LOAN 716-727
1. General
2. Application
4. Purpose
5. Persons Eligible
6. Valuation of Articles
8. Appraiser Fee
9. Loan Amount
10. Period of Loan
11. Interest Rate
xxiii-III
12. Safe Keeping of Pledged Jewels
13. Custody
14. Loan Issue & Other Procedures
15. At the time of Redemption
16. Overdue Loan – Recovery Procedures
17. Insurance
18. Gold (Jewel) Loan to Staff Members
19. Verification
20. Books of Accounts & Forms
21. Claims
CHAPTER – 51 ADVANCES AGAINST LIFE INSURANCE POLICIES 728-731
1. General
2. Precautions
3. Maximum Amount of Advance
4. Assignment of the Policy
5. Documents
6. Loan Sanctioning Authority
7. Period of Loan
8. Rate of phones Interest
9. Penal Interest
10. When the loan becomes Overdue
11. Reassignment of Policy
12. Repayment
CHAPTER – 52 ADVANCES AGAINST NATIONAL SAVINGS CERTIFICATES 732-733
(NSCs) & KISAN VIKAS PATRAS (KVPs)
1. General
2. Precautions & Procedure for sanction of Loan/OD
3. Amount of Advance
4. Period of Advance
5. Rate of Interest / Charging of Interest
6. Closing of Account
CHAPTER – 53 CASH CREDIT LIMIT TO TRADERS 734-736
1. General
2. Eligibility
3. Procedure
4. Security
xxiv-III
5. Limit Eligibility
6. Margin
7. Loan Limit
8. Period of Limit
9. Rate of Interest
10. Penal Interest
11. Documents
13. Insurance
14. Utilisation of Cash Credit
15. Stock Statement
16. Procedure for Overdue Recovery
CHAPTER – 54 TEMPORARY OVERDRAFT 737-739
1. General
2. Application
5. Maximum TOD to be allowed
6. Period of TOD
7. Rate of Interest
8. Penal Interest
9. Operation of TOD Account
10. Outstanding in the Account
11. Renewal of TOD limits
12. Sanctioning Officer Responsible
13. Overdue TOD Recovery Action
14. OD Register
15. Return
CHAPTER – 55 LOCAL CHEQUES, DEMAND DRAFTS
AND OUTSTATION CHEQUES –PURCHASE, INSTANT CREDIT 740-741
1. General
2. Monetary Ceiling
3. Safe - Guards to be observed
4. Books
5. Procedure
6. Vouchers
xxv-III
CHAPTER – 56 BANK GUARANTEES ON BEHALF OF CONSTITUENTS 742-764
1. General
2. Indemnity and Guarantee - Definitions
3. Types of Guarantees
4. Specific and Continuing Guarantee
5. Pre- Sanction Stage
6. Precautions at the Pre- Sanction Stage
7. Nature of Facility
8. Terms of Guarantee
9. Analysis of Specimen of Guarantee
10. Securities
11. Sanctioning Stage
12. Duration of Liability Period
13. Limit for Issuing Un-secured Guarantees
14. Security for the Guarantees
15. Commission on Guarantees
16. Restrictions on issue of certain type of Guarantees
17. Format of the Guarantee
18. Signing of Guarantees
20. Accounting Procedure
21. Guarantee Margin
22. Commission
23. Guarantee to be sent Directly to Beneficiary
24. Follow - up
25. Balancing
26. Renewal of Guarantees
27. Honouring of commitments under invoked Bank Guarantees
28. Diarising the due date
29. Extinguishing of Bank Guarantee
30. Registered Notice
31. Caution
32. Reversal of entries where Guarantee Bond is received back
33. Reversal of entries where Guarantee Bond is not received back
34. Maintaining Files
35. Release of Securities
xxvi-III
36. Return to be submitted by the Branches to Head Office
37. Additional Guidelines
38. Obtaining of Confirmation in respect of Bank Guarantees
39. Bank Guarantees favouring Customs/Exercise Department
40. Deferred Payment Guarantees
41. Advance Payment/Performance Guarantees
42. Additional Guarantees
43. Guarantees issued for the release of Confiscated Goods
44. Annexure/s
CHAPTER – 57 INLAND LETTER OF CREDIT 765-781
1. General
2. Contingent Liability
3. Parties to a Letter of Credit (LC)
4. Classification of Letter of Credit
5. Types of Letter of Credit
6. LCs on DP/DA basis
7. Pre- Sanction stage
8. Nature of Credit
9. Arrangements for meeting the LC Obligations
10. Sanction and Release
11. Amendments to the Letter of Credit
12. Custody of Documents
13. Procedures to be adopted by the Advising/Negotiating Branch
14. Negotiation of Documents
15. Procedure on receipt of Documents at Issuing Branch
16. Other aspects under ILC
17. Annexure/s
CHAPTER – 58 ADVANCE AGAINST GOODS 782-795
1. General
2. Pledge
3. Hypothecation
4. Categories of advances on Produces
5. Pre-Sanction Stage
6. Security
7. Sanction and Release
8. Follow - Up and Post - Credit Supervision
xxvii-III
9. Timely Action
10. Additional particulars for Cash Credit Accounts
11. Submission of Stock Statements and Fixing Drawing Power
12. Inspection of Stocks
CHAPTER – 59 DOCUMENTS TO BE OBTAINED FOR VARIOUS LOANS 796-805
1. General
2. Clean Loans
3. Clean Overdrafts
4. Guarantees
5. FDR/SDR
6. Recurring Deposits
7. Life Insurance Policies
8. Mortgage of Title Deeds to Properties and / or Hypothecation
of Machinery etc.
9. Hypothecation of Vehicles
10. Overdrafts against FDR/SDR
11. Road Transport Operators
12. Personal Loan Schemes
13. Staff Loans
CHAPTER – 60 LOANS AND ADVANCES : DOs AND DONT’s 806-822
1. General
2. Dos and Don’ts in ‘Loans and Advances’
CHAPTER – 61 GENERAL ANNEXURE/S 823-918
1. List of General Annexures (62 Annexures)
XXXXXXXXXXXX
xxvii-III
VOLUME - III
LOANS AND ADVANCES
PART - I
CHAPTER – 1
INTRODUCTION
1. General:
a. The Short Term Cooperative Credit Structure (STCCS) comprising of State Cooperative Banks
(SCBs) at the apex level, District Central Cooperative Banks (DCCBs) at the intermediary level
in the districts, and Primary Agricultural Credit Societies (PACS) at the grass root level in the
villages play an important role in deployment of credit to agriculture and allied activities. The
STCCS also provides efficient banking and other ancillary services to contribute effectively to
the overall socio-economic development of the country. As at the end of March 2012, the
STCCS consisted of 31 SCBs with a branch network of 1047 branches, 371 DCCBs with 13495
branches and 92432 PACS.
b. The SCBs and DCCBs perform the role of both credit purveyors and banking organisations.
They are covered under the provisions of Reserve Bank of India Act,1934, the Banking
Regulation Act, 1949(AACS), respective State Cooperative Societies Act and Rules etc.
Presently, the ST CCS has a market share of more than 22% of agriculture credit and has
collectively issued more than 70% of the Kisan Credit Cards issued in the country. The policies
of Reserve Bank of India with regard to banking operations and practices as well as other
statutory regulations and requirements such as maintenance of CRR and SLR etc. including
investment of funds as per the prescribed norms are also applicable to the SCBs and the DCCBs.
The Prudential Norms such as Provisioning, Income Recognition, Assets Classification and
Capital Adequacy have been made applicable to SCBs and DCCBs. However, Basel Norms are
yet to be introduced to the SCBs and DCCBs.
c. The cooperative credit and banking institutions are expected to be democratic in their
functioning and member driven in their character. Notwithstanding number of constraints in
maintaining these important features on a continuous basis, the cooperative credit and banking
institutions have been functioning as an important channel for deployment of rural credit and
other services, particularly in the rural areas where the commercial banks are yet to make a
significant presence.
d. The National Cooperative Policy formulated by the Ministry of Agriculture, Government of

India provides necessary framework, encouragement, support and assistance to ensure
cooperative organisations function as autonomous, self-reliant, accountable people's
institutions and ensure significant contributions to the mainstream economy. Further, the policy
also impresses on the need for innovations in the Cooperative Societies Act with regard to
banking as well as cooperatives in other sectors. The successive National Policy on
Cooperatives identified number of constraints related to legislative and policy matters,
availability of resources, infrastructural deficiencies, institutional inadequacies, insufficient
awareness among members, lack of member participation, erosion of democratic character and
management constraints, avoidable bureaucratic & political interference etc. in their
operations. In spite of the visible quantitative as well as qualitative improvement in the
functioning, STCCS is faced with number of policy as well as operational hurdles which do not
facilitate the growth of a robust cooperative credit delivery system in the country.
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e. Banking being the most delicate and important operation, depends on public trust and active
participation. The banks in addition to offering prompt and satisfactory customer services also
have additional responsibility of ensuring safety of funds of the investing public. SCBs and
DCCBs keeping in line with the banking norms and procedures of the country are expected to
develop suitable and appropriate systems and procedures to streamline their operations
including banking operations both at Head Office and the Branches and are required to
constantly upgrade the same to comply the regulatory and supervisory requirements. Realising
the need for such appropriate systems and procedures, some of the banks have already prepared
their own Book of Instructions or Manuals to serve as guidelines to their employees with a view
to put in place a robust and prudent banking practices and provide value added services.
f. National Federation of State Cooperative Banks (NAFSCOB) for the first time prepared a set of
operational guide lines entitled 'Accounting Manual' in 1979 in three volumes, covering various
procedural and practical aspects of banking. Further, in the light of changed banking
requirements and to keep pace with the financial sector reforms, NAFSCOB initiated steps to
upgrade as well as revise the said 'Accounting Manual'. After an elaborate exercise, NAFSCOB
brought out the 'Accounting Manual' in the form 'Operational Manual for Cooperative Banks' in
2004, in four volumes, i.e. Volume – I: Manual on Branches and Banking Operations,
Volume–II: Manual on Functions of Head Office, Volume–III: Manual on Loans and Advances,
Volume – IV: Manual on Inspection and Internal Audit.
g. Since the last revision of the 'Operational Manual for Cooperative Banks' in 2004, there have
been number of innovations and improvements in the finance and banking sector, new policy
guidelines, operational directives, regulatory compliance requirements etc. for the banking
institutions and there has been increased demand for revision/modification of the 'Operational
Manual for Cooperative Banks'.As a result, in 2009, the Executive Committee/Board of
Directors of NAFSCOB decided to constitute a high-level 'Working Group' and four 'Sub
Groups' consisting of Chief and Senior Executives of member SCBs and NABARD to review
and revise the said Operational Manual. After extensive consultations and deliberations on
various segments of the 'Operational Manual for Cooperative Banks' and with the inputs
provided by various stakeholders and number of experts, the said manual has been suitably
modified, updated and finalised as:
Volume – I : Manual on Branches and Banking Operations

Volume – II : Manual on Functions of Head Office
Volume – III : Manual on Loans and Advances (Part – I & Part – II)
Volume – IV : Manual on Inspection and Internal Audit
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2. Volume – III: Manual on Loans and Advances:
a. Volume – III of the 'Operational Manual for Cooperative Banks' covers various aspect involved
in the' Loans and Advances' portfolio of SCBs and DCCBs. The Volume is divided into Part –I
and Part-II containing 61 chapters. Part –I containing 21 chapters covering mostly pre-loaning
operations and various steps as well as procedures to be adopted with regard to same. Part II of
the manual, on the other hand deals with various types of credit portfolios, schemes,
programmes etc. and various procedures that are required to be followed in financing these loan
portfolios. In order to facilitate and guide the personnel in the cooperative banking sector the
'Operational Manual' on 'Loans and Advances' is arranged in an elaborate manner covering
number of aspects and areas which are relevant in the day-to-day operations. Number of latest
instructions and guidelines etc. are incorporated to make the manual more up-to-date. The
formats / guidelines used in the current volume have been drawn from the best practices adopted
in few of the selected SCBs. Some of the guidelines / instructions / formats which have
references in more than one chapter have been grouped under the Chapter' General Annexures'
i.e. Chapter-61.
b. The practitioners, researchers as well as the casual users etc. are advised to keep in mind that
there is constant revision/modification/amendment in the policy directives/guidelines on
various operational aspects. While referring/using the revised operational manual it is important
to refer to the latest circulars/directives/operational instructions, change in the schemes and
programmes etc. communicated by various authorities as well as regulators for up-to-date
guidance, clarity and professional operations.
3 - III
CHAPTER – 2
PRINCIPLES OF LENDING
1. General:
a. Banking is both an art and science, which cannot be guided by merely a set of rules. It is to be
guided by general principles only. Even then there is no rigidity in the application of the set of
principles in banking.
b. The banker has to shift good things out of the elements which he comes across and, in it lies his
skill and diligence. No set of uniform rules can be invariably applied even in two similar
circumstances. In other words, he cannot be static. He should be changing according to the
changing types, times and conditions.
c. The banker should take into consideration the following aspects while dealing with a lending
proposition.
2. Safety of funds:
a. Safety is the first and foremost thing that the banker has to consider, especially because he has to
disburse depositors' money. As it is his primary duty to safeguard the monies of others, he has to
exercise caution, prudence and tact. Only out of experience the banker generally gets the
necessary caution and tact which go a long way in ensuring the safety of the money lent.
Sometimes a Bank gets such experience at a huge price.
b. The banker ensures that the moneys advanced by him go to the right type of borrowers and is
utilized in such a way that it will not only be safe at the time of lending but remains so throughout
and is repaid with interest after serving an useful purpose in trade, industry and agriculture etc.
for which the money is lent.
3. Identification of borrower:
a. The lending banker should satisfy himself by using all available sources of information as
regards the prospective borrower's character, integrity and business acumen. The usual sources
are:
i. observation,
ii. market enquiry and if possible,
iii. study his past connections with any other institution.
b. Generally, the banker should not be carried away by the appearance of the borrower. The banker
should tap other sources to know on the character and integrity at all times and not merely at the
time of taking the loan.
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c. Branches should apply the parameters prescribed by the Bank under the Customer Acceptance
Policy and Customer Identification Procedures before opening an account. The KYC norms as
envisaged in the Bank's Anti-Money Laundering Standard should strictly be adhered to since the
borrower customers are treated as low risk category.
d. In the case of partnership firms, the banker should collect extensive material and record
comments regarding the integrity, worth, etc. of all the partners. The collection and updation of
information about the borrowers/guarantors should be an on-going process.
e. In the case of partnership firms, the banker should collect extensive material and record
comments regarding the integrity, worth, etc. of all the partners. The collection and updation of
information about the borrowers/guarantors should be an on-going process.
4. Purpose:
a. Purpose for which the loan is required is very important. The banker should be clear about the
purpose for which the loan is required and the sources wherefrom the borrower is expected to
repay the loan. If the advance is for hoarding stocks or for speculation, it should be discouraged.
These are anti-national and anti-social activities. Again, if the money required is for liquidation
of prior borrowings or to make good the loss incurred or for unproductive expenditure, then the
banker should cautiously appraise the proposal.
b. The borrower may require stop-gap finance till the money from other sources flows in. Such
proposals may be favourably considered for good parties depending upon merits of each case
and subject to RBI guidelines from time to time.
c. After nationalisation financing of agriculture, small scale industries and rural economy had
gathered momentum. Banks were asked to extend credit facilities to new classes of people
namely professionals, self-employed persons, retail traders, agriculturists and transport
operators for productive purposes and generation of employment.
d. Bank's lending has to be purpose oriented and the purpose shall be socially and economically
desirable.
5. Liquidity/Repayment:
a. Due emphasis on repayment should be there. The sources and method of repayment should be
decided upon while disbursing credit and the borrower should adhere to it. The security offered
should be preferably easily realizable and/or self-liquidating. The reason why banker attaches
more importance to repayment is to recycle the funds and make available these funds for other
needy borrowers apart from the fact that deposits raised are required to be paid on demand or
at short notice. For example, an advance of Rs.50 lakhs on the security of legal mortgage of posh
building in the heart of a Metropolitan City with a market value of Rs.100 lakhs is safe indeed. If
5 - III
however, the recovery is to be made through a Court process, it may take a few years, in which
case the loan is not liquid. In essence, the borrower should pay-off the loan on due date and the
banker should reserve the right to call back the advance at any time.
b. In short term loans, there is more liquidity than in medium or long term advances. Although
much of the credit extended by the banks is in the forms of CC/OD/loans repayable on demand
and mostly for the purpose of Working Capital, they also evince interest in providing Term
Loans for asset creation etc. The refinance facility offered by RBI/SIDBI/NABARD etc. have
been helpful to banks in providing liquidity in their term loans. However, refinance is availed
from respective refinancing agencies for all eligible advances subject to the interest spread and
bank's liquidity position.
c. In recent times, commercial banks have been increasing their term lendings either singly or in
participation with financial institutions. Banks should ensure that such increased participation in
term loans does not result in any asset liability mismatch i.e. the maturity of term loans should
commensurate with the maturity period of deposits and/or any borrowings made.
6. Security:
a. The banker should take into consideration the security aspect also. It can be compared to the
lifeboat in a ship, where the passenger takes recourse to it in times of emergency and extreme
difficulty. Likewise, under circumstances which affect the safety and liquidity of the advance,
the banker grabs the security, realises it and reimburses himself. It is incorrect to approach an
advance from the point of view of security alone. Credit is granted on its own merits with regard
to safety, liquidity, purpose etc., after looking into character, capacity, capital etc., of the
borrower.
b. Security may be classified as personal and tangible as well as primary and collateral.
i. Personal security means personal liability of the borrower and or guarantor. The banker has
got a right of action against the borrower and it is not a tangible security.
ii. Tangible security is something that can be realised by sale or transfer (example: shares,
stocks, lands and goods).
iii. Primary security is that which is regarded as the main cover for an advance; generally, the
assets created out of the credit disbursed and against which the advance is made. e.g.. Stocks
for cash credits, machinery for term loans.
iv. Additional/Collateral security is the security other than the primary security created out of
the advance and lodged by the borrower or by a third party.
c. Characteristics of Securities:
i. Marketability: The main consideration which weighs with the banker is the ready
marketability of the security. Articles of necessity, primary commodities, seasonal goods,
6 - III
raw materials etc., are generally in good demand. Articles of luxury or valuables (example:
pearls, diamonds) have a limited market. A rich person might have constructed a bungalow
at a heavy cost in a remote place but it will fetch a low value in a distress sale.
ii. Ascertainment of title: The borrower's title to the security must be clear and undisputed. It
has to be verified, if there are any prior charges or encumbrances. The solicitors have to
verify the title of the borrower to the property.
iii. Stability: The banker must make sure that the value of the security does not fluctuate
violently over short periods. Due to hoarding, commodities like pepper, onion, chillies,
cement are at times subject to heavy variations in prices. In such cases, the margin taken will
be such as to cover the extra risk.
iv. Storability: Certain securities such as Life Policies, Government Promissory Notes (GPNs),
can be easily stored even in the smallest place. Large logs of timber, iron girders etc., present
peculiar problems of storage. Film and certain chemicals are to be stored in air-conditioned
godown.
v. Transferability:
l Physical Transfer: The security must be transferable from one place to another without much
difficulty. For example, certain cloth varieties, which do not find a favourable market in a
place, can be moved quickly to another ready market by rail or road transport.
l Legal Transfer: The title to the security should be easily transferable. In case of LIC policy,
shares etc. the transfer formalities are simple/quick. In case of immovable properties the
transfer is comparatively cumbersome.
vi. Yield: Certain securities are a source of income (example: shares and Government
Promissory Notes (GPN) yield dividend and interest).
vii. Durability: Vegetables, mutton, fruits, etc., are perishables. Gur, cement etc., require special
care. Otherwise, they deteriorate in quality. Grains and oil seeds last for one or two seasons.
In other words, the goods stored should not be perishable during the period of advance.
7. Remuneration/Profitability:
a. Equally important is the principle of profitability in bank's advance. Banks have to pay interest
on deposits, incur expenses on establishment, rent, stationery, make provision for depreciation
of fixed assets and Non-Performing Assets. After meeting all these items of expenditure which
enter the running cost of banks, a reasonable profit must be made.
b. Different rates are charged depending upon the borrower's Credit Rating, nature of security,
mode of charge, etc. The Term Loan and other Working Capital limits of the borrower including
those under Priority Sector shall be aggregated and the applicable interest rate be determined.
7 - III
Direct personal loans against our own deposits and Government securities need not be taken into
account for determining the size of the credit. The transaction on the whole must be profitable to
the Bank.
c. In the present context of liberalization, integration with global economy, which leads to more
competition among various financial intermediaries, banks should pay more attention on their
profitability and viability.
8. Risk Management:
a. Another important principle of good lending is the diversification of advances. An element of

risk is always present in every advance and the banking business is one of taking calculated
risks.
b. A successful banker is keen on mitigating the risks, by lending to a large number of borrowers in
a number of industries and areas and against different types of securities. If the Bank has many
branches, it gets a wide assortment of securities. A business slump in particular sphere does not
affect all these borrowers simultaneously.
9. National Interest:
a. Even if the advance satisfies all the aforesaid principles, it may not be suitable if it runs counter
to the national interests. RBI may issue directives restricting advances against commodities
such as food grains, cotton, oil etc. In the changing concept of banking, factors such as purpose
of the advance and national interest are also of greater importance like adequacy of security.
b. Due to liberalization measures initiated by the government, banks have to operate in a

competitive environment. More emphasis should therefore be given to aspects of increasing
market share of business, profitability, diversification of advance and investment portfolio etc.
10. Norms on credit exposure:
a. The Norms of NABARD have to be followed for ensuring that the norms on Credit exposure for
individuals, units and Industry/Sector are strictly followed. The NABARD's circular on Credit
and Monitoring Arrangements will have to be referred to for complying with the exposure
limits.
11. Fair Lending Practices Code (FLPC):
a. FLPC came into effect from 1st November 2003. FLPC is put in place for retail credit facilities up
to Rupees two lakhs. The purpose of FLPC is to render courteous and speedy services to all the
borrowal customers.
b. All necessary information like range of loan products available, securities, interest, service
charges, other terms and conditions, the likely timeframe for sanction etc., should be furnished
to a prospective borrowal customer.
c. The general Terms and Conditions for Advances and Schedule of service charges as advised by
Head Office from time to time should be furnished to the prospective borrower along with the
Application form.
8 - III
d. The chart showing interest rate and service charges for advances to public should be displayed
by the branches on their Notice Board.
e. On receipt of loan application complete in all respects, branches should give an

acknowledgement.
f. If any additional details are required while processing the application, the same should be
immediately intimated to the customer. In case of loan applications under Priority Sector
Advances upto Rs.2 lakh, the acknowledgement should also indicate the timeframe for disposal
of such applications.
g. On sanction of the loan, branches should obtain the customer's signature for acceptance of the
terms and conditions of the sanction in the copy of the sanction ticket.
h. Statement of accounts should be regularly provided to the customers, unless the borrower
expressly states that it is not required.
i. In case of rejection of loan applications, branches should furnish reasons for the same to the loan
applicant through a letter.
j. FLPC provides for Grievance Redressal Mechanism by which any grievance of the customer
shall be attended to within the timeframe mentioned in Para 3.10 of FLPC for redressal. Branch
Manager will attend to the grievances during bank hours on any working day and inform the
customer within one week. If the customer is not satisfied with the reply, he can approach the
next higher level officers for redressal.
12. Bank's Loan Policy:
a. The Loan Policy is formulated by Head Office with long term perspective to achieve a well-
structured Loan portfolio. The Policy enumerates strategies for branches/ will include to
improve advances, monitoring of Standard Assets and focus on recovery of NPA. The Policy
Document include the concept of Risk Management in loan administration.
b. The Policy is based on the following factors:
i. RBI's Monetary and Credit Policy

ii. RBI's new thrust on Risk Management
iii. The Bank's strategy for profit through qualitative credit expansion
iv. An analytical study of the industries- their present position and future prospects
v. The views and suggestions are solicited and received from HO Executives and the field
level functionaries
vi. The Enterprise Resources Plan (ERP) evolved by the Head Office
vii. Comparative market forces emerging in the economy due to liberalization of the market
viii. Targets prescribed by RBI/NABARD in regard to social and other lending
ix. Comments made in the LFAR Reports
x. The long term objective of the Bank to build up a loan portfolio which is both qualitative
and remunerative.
9 - III
13. Types of Credit:
a. Bank, normally considers the following types of Loans and Advances:
i. Temporary overdrafts / Clean Cash Credits

ii. Demand Loans
iii. Cash Credits
iv. Bills discounted and Purchased which included LC Bills receivable (LCBR)
v. Term Loans
14. Pricing of Loan Products:
a. The Bank staff should be conversant with the concept of Pricing of loan products. The various
terms involved in the pricing mechanism are explained below:
i. Base Rate: Bench-mark PLR has given way to Base rate. The banks have to follow the RBI
rules relating to Base rate calculation while determining the rates of interest for different
types of advances and loan products. As per RBI regulations, barring the exceptions
mentioned by RBI no loan product shall be priced below the base rate.
ii. Commercial Rate:Commercial Rate is the rate applicable for public or staff without any
relaxation. For staff, commercial rate means, the rate quoted for loans other than
concessional loans such as SHL, Conveyance Loan, etc., and shall be applicable to public.
iii. Penal Interest:It is the penalty charged over the contracted rate, for the portion of the loan
which is overdue / irregular part as per guidelines issued from time to time. It may be on
account of financial irregularity or non-financial irregularity or both.
iv. Fixed Interest Rate: If the interest rate quoted at the time of sanction/disbursement will not
undergo any change despite change in base rate/ spread for the stated period, it is known as
fixed rate.
l Fixed rate can be offered only for the schemes/ products/ category for which it is specifically
permitted by HO. EMI will not undergo any change throughout the repayment period,
unless there is a major policy change like periodicity of charging interest.
l In fixed rate accounts, for overdues, penal interest is to be charged at Contracted Rate +
Penal Rate. For considering fixed interest rate for term loans to good Corporates requiring
project finance, the proposal should be taken up with the Sanctioning Authority.
l Fixed Interest Rates may also undergo change whenever Bank exercise the interest reset
option.
v. Variable Interest Rate: Unlike fixed rate, this rate of interest varies/ changes along with the
change in the Base Rate or Spread.
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vi. Finer Rate of Interest:Customers having high volume/hi-tech facilities may be
considered for finer rate of interest from card/commercial rate as per rating of borrowal
accounts, business consideration, value addition, cost of servicing the advance and other
internal parameters. The system of Finer Rate of Interest is not popular in Cooperative
Banks. But with changing times and evolving challenges, Cooperative Banks can also
consider finer interest rates on a case by case basis with due Board Level approvals.
vii. Bank Rate:It is the rate at which RBI is prepared to lend to Banks or rediscount Bills of
Exchange or buy other Commercial Paper eligible for purchase under Section 49 of RBI
Act.
viii. Call Money Rate: Prevailing interest rate for overnight/short duration borrowing by
banks in the interbank market.
15. Charging of Interest :
a. As per RBI guidelines Banks switched over to charging of interest on loans / advances at
“Monthly Rests” with effect from April 01, 2002.
b. Accounts brought under this system are all loans/advances such as loans on deposit, personal
loan products, structured loan products (for both of the schemes under variable rate of interest
and fixed rate of interest), Cash Credits, OD, etc. Advance Bills, Defaulted Guarantees, Short
term loans/Demand loans such as WCDL, Premises loan accounts/certain category of Staff
Loans, etc.
c. Bills Purchased:For all bill finance (DP/ DA/ Supply etc.,) recovery of interest should be on the
date of purchasing/discounting the bill, for the specific/notional number of days. For the front-
end recovery, it should not be compounded for every 30 days / calendar months. For Bills
purchased/negotiated/discounted (Inland/Foreign), besides recovering usual charges, the
interest at applicable rate for the period from the date of Purchase to the notional/committed due
date (in supply bills) of the bill shall also be collected as Up Front.
i. In case the bill is realised/ reversed after the notional due date, the interest for the
extended/delay period, at the penal rate, shall be compounded at monthly rests and
recovered.
d. Exceptions from monthly compounding:
i. Agricultural loans:As the agricultural advances are linked to crop seasons, branches shall
follow the periodicity of charging/compounding of interest as per RBI/NABARD/HO
guidelines.
ii. Accounts permitted for longer rests than quarterly:Accounts under simple interest will not
have any impact. Wherever the 'Simple Interest' moves over to quarterly compounding as
per the in-built terms of an advance, the same shall be put on monthly compounding
instead of quarterly from that point of switch over (e.g., after holiday period in Educational
Loan) and also when such loans become overdue.
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iii. While charging interest on monthly compounding, branches should ensure that the effective
rate does not go up on account of charging compounding interest at monthly rests. In other
words, branches should charge discounted rate of interest for monthly rest vis-à-vis effective
rate of interest for quarterly rests.
iv. Recovery of Interest: The monthly interest debited has to be recovered immediately as and
when charged. Customers shall be informed well in advance about the monthly charging of
interest and to service the same. However, on a case to case basis, Branch Managers can
grant time as per HO guidelines, for adjustment of the interest, from the date of debit.
16. Service charges on Advances:
a. The rates of commission and other service charges on various advances including Non fund
based facilities will have to be charged as per rules framed for the purpose by the Bank from time
to time.
17. RBI Regulations and Restrictions on Loans and Advances:
a. Reserve Bank of India has, from time to time, issued a number of circulars containing
guidelines/instructions, directives to banks on Loans and Advances. These guidelines are on the
aspects of eligible borrowers, eligible securities, bankable purposes, margin stipulations,
creation of charges over securities etc. The segments of Loans and Advances which are
regulated/ restricted would be communicated through, internal circulars as and when required
by the respective Banks.
b. Statutory Restrictions:
i. Advances against banks' own shares: A Bank cannot grant any loan or advance on the
security of its own shares in terms of Section 20(1) of the Banking Regulation Act, 1949
either during the initial public offer or thereafter.
ii. Also, lending should not be made against the shares of its own subsidiaries.
iii. Advances to Banks' Directors: Banks are prohibited from entering into any commitment for
granting any loan or advance to or on behalf of any of their directors or any firm/company in
which any of their directors is interested as Director or as Partner, Manager, employee or
guarantor. However, the restrictions shall not apply to,
l Loans and Advances made against Govt. Securities, LIC policies, Fixed Deposits. A
Credit limit granted under credit card facility provided by a bank to its Directors to the
extent the credit limit so granted is determined by the bank by applying the same criteria
as applied by it in the normal conduct of the credit card business.
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iv. Loans and Advances to Chairman and Managing Director/Executive Director for the
purpose of purchasing furniture, car, personal Computer or constructing/acquiring house for
personal use, Festival advance can be given with the prior approval of RBI and on such terms
& conditions as may be stipulated by RBI.
v. The Banks may refer to the RBI's Master Circulars (issued by RPCD) for latest
clarifications/ guidance on matters of restrictions on loans and advances:
l to Bank's Directors
l restriction on holding shares in companies
l advances against sensitive commodities under selective credit control
l restriction on payment of commission to staff, etc.
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CHAPTER – 3
TYPES OF BORROWERS
1. General:
a. The Barron's Banking Dictionary defines a borrower as a 'Person or organization obtaining

funds from another, called a lender, normally repayable with Interest at a future date. Another
definition of borrower is 'a person that has applied, met specific requirements, and received a
monetary loan from a lender. The individual initiating the request signs a promissory note
agreeing to pay the lien holder back during a specified time frame for the entire loan amount plus
any additional fees. The borrower is legally responsible for repayment of the loan and is subject
to any penalties for not repaying the loan back based on the lending terms agreed upon. Different
types of borrowers are elaborated in this chapter.
2. Minors:
a. A minor does not have the contractual capacity. A minor cannot bind himself in any way to repay
money lent to him. Any money lent can never be recovered against a minor, even after he attains
majority. Any security given by a minor for a loan is also void ab initio. If a third party gives a
guarantee to secure an overdraft to a minor (the guarantee having been given for a debt which is
void), the guarantor is not liable. Hence, no credit facility should be sanctioned to a minor.
b. However, advances may be granted for a minor's education as per any educational loan scheme
of the Bank against the signature of the guardian. Loans can also be granted against fixed
deposits standing in the name of a minor subject to precautions/ conditions viz., the loan
documents to be executed by his/ her guardian and loan availed for benefit of minor.
3. Joint Accounts:
a. If an advance is given to more than one person (joint borrowers), all the borrowers should join in
the application for accommodation. In case any security standing in joint names has to be
charged against the advance, all the parties should execute cover documents.
i. Joint Promise: A joint promise differs from a joint and several promise. In case of joint
promise, the obligation is single and entire and the creditor can bring one cause of action and
not several actions against the Joint Promissors, but if he does not choose to do so, he loses
his rights against those whom he has omitted. No action for the same debt can be brought
against the other or others, who have been omitted by him. The joint liability can be enforced
against all or any one of them but at one time.
ii. Account holders are jointly liable and in the event of the death of one of them the estate of the
deceased is not released and the banker can look for payment to the survivors as well as to the
legal representatives of the deceased.
iii. Joint and Several Liability: In the case of joint and several liability there is a right of action
against all parties severally and successively, until the whole debt is recovered. Moreover, a
right of set-off exists between a private account with credit balance and the joint overdraft.
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4. Sole Proprietorship:
a. There is no distinction in law as between a sole proprietorship concern and its proprietor.
Creditors of the business could look to the personal assets of the proprietor, should the business
fail and should the business assets be insufficient to satisfy the debts.
5. Partnership Accounts:
a. When a partnership account is opened, the following aspects should be borne in mind:
i. A partnership should not consist of more than 10 persons, if it is engaged in banking
business or more than 20 persons in any other class of business.
ii. It is not necessary that there should be a partnership deed between the partners. It is
adequate, if a partnership letter is taken and to rely on the declaration contained therein
regarding the constitution of the firm, etc. If the firm has a partnership deed, a certified true
copy of the partnership deed is to be obtained and got registered with the Bank. Before
registration of a partnership deed in the books of the Bank, it should be carefully
scrutinized to see that all the partners of the firm have signed it. If all the partners have not
signed it, it cannot be treated as a complete document and should not be accepted.
iii. While examining a partnership deed, it should be closely studied to see if any restrictions
have been imposed on one or more partners to open, operate or overdraw the account or
whether there are any limitations on the borrowings by the firm. If there are any such
restrictive clauses, the same should be carefully noted in the power of attorney register and
also in the ledger. It should be ensured that operations in the account are in strict
conformity with the relevant provisions in the deed.
iv. The account should be opened in the name of the firm and not in the name of any partner for
firm's business. Partners, while operating the account, will always sign for and on behalf of
the firm or in the firm's name but not as individuals.
v. If the partners desire to give authority to a third party by way of a mandate or power of
attorney to operate the account, all the partners must sign the mandate/power of attorney.
All mandates and powers of attorney are automatically revoked by change in the
constitution of the firm as by death or insolvency of a partner or retirement or induction of a
new partner. Any change in the constitution of the partnership calls for a review of the
position.
vi. Cheques payable to a firm should not be collected in the private account of a partner or an
employee of the firm, unless an express authorization for such a course has been obtained
from all the partners.
vii. Cheques drawn by a partner in favour of third parties and lodged by that partner or any
other partner or by an employee of the firm in his personal account should evoke enquiry.
viii. If a partner pays to the credit of his private account a cheque drawn by him on the firm's
account there is no prima facie case for enquiry- the transaction may represent repayment
of loan or share of profits etc. It is, however, desirable that the drawer- partner and the
payee- partner of the cheques are different persons. However, when a partner who has been
pressed for repayment of an overdraft allowed to him personally, responds by offering a
cheque drawn by him on his firm's account, it is clearly a case calling for caution and
enquiry.
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ix. Any one of the partners has power to countermand payment of cheques drawn by him or
another partner and the Bank is bound to comply with such instructions.
x. A partnership as such cannot guarantee the lending to a third party, unless the firm carries
on the business of issue of guarantees. In all other cases, if any guarantee is to be issued by
the firm, all the partners should join in the execution of the guarantee bond or a partner
should hold the written authority of all other partners when he signs the guarantee singly.
However, any partner in his individual capacity may give guarantee or secure third party's
obligations without binding the firm.
b. Limited Company as a Partner:
i. Where a limited company is a partner in a firm, a question may arise as to the liability of the
partner – limited company constituting the partnership. The liability of the limited
company vis-à-vis the partnership is not limited in proportion to its share in the
partnership. The limited company being a legal entity will be considered as one partner
with unlimited liability as in the case of other partners so far as the question of meeting the
liability of the partnership is concerned, i.e., the entire liability of a partnership can be
realised from the company alone subject to the extent of its assets, but no director or
shareholder of the company is personally liable for the liability of the company.
ii. Another question that may arise in regard to such partnership is whether a charge created
by the partnership, on its assets in favour of the bank requires registration under Sec.125 of
the Companies Act. If the advance is secured by the assets of the Limited Company, then
charge on such assets should be registered with the Registrars of Companies (ROC).
c. Minor admitted to the benefit of partnership:
i. A minor cannot be a partner but can be admitted to the benefit of the partnership. He cannot
be made personally liable. However, his property in the firm is liable for the firm's debt.
The date on which the minor attains majority should be diarised so that he may be
requested to join with the other partners in signing fresh documents immediately, on his
attaining the majority.
ii. Neither the natural nor the legal guardian can enter into agreements of partnership on
behalf of the minor beneficiary. Therefore, obtaining the signature of the guardian on
behalf of the minor in the opening form, partnership letter or charge document for
advances etc., will not serve any purpose.
iii. A minor may repudiate his liability as a partner within six months of his attaining majority
or within 6 months of his obtaining knowledge that he was admitted to the benefit of the
partnership whichever date is later. His silence after expiry of the above period will be
taken to mean, in law, that he has been elected to be partner. He will, thereafter, be liable
personally from the date on which he was admitted to the benefit of the partnership.
d. Implied powers of partners:
i. A partner is the agent of the firm for the purpose of the business of the firm. There are
certain implied powers and duties, which every partner has and with which he can bind the
firm merely because he is a partner of the firm. The partners can, by agreement, extend or
16 - III
restrict the implied authority of any partner but to an outsider dealing with the firm who is
not aware of the restrictions on the partners' implied authority, all partners are liable.
ii. Partners are jointly and severally liable for all acts done on behalf of the firm or on all
instruments executed in the firm's name and relating to the normal business carried on by
the firm.
iii. What a partner cannot do: In the absence of usage or custom of trade to the contrary, the
implied authority does not empower a partner:
l submit a dispute to arbitration,

l open an account in his own name for the firm's business,
l compromise or relinquish his firm's claim,
l withdraw a suit filed on behalf of the firm,
l admit any liability in a suit against the firm,
l acquire immovable property on behalf of the firm,
l transfer immovable property belonging to the firm and
l enter into partnership on behalf of the firm with another firm.
e. Personal liability of the partners:

i. All partners of a firm are jointly and severally liable for the debts of the firm subject to
certain restrictions, in case the individual partners have also individual liabilities. In order
to fix the liability of all the partners for the borrowings of the firm and to give the Bank
positive rights against the private assets of the partners along with other preferred
creditors, the signatures of all the partners in their individual capacity should be obtained
on all documents executed by the partnership creating personal liability.
f. Registration:
i. Under the Partnership Act, registration of a partnership firm is not compulsory. There is no
time limit for registration. Non-registration of a firm does not prejudice the rights of the
third parties to enforce their rights against the firm and its partners. But it disables the firm
and its partners from enforcing the rights under contract or those conferred under
Partnership Act. When credit facilities are considered, the ability of the firm to enforce its
rights by filing suits in a court of law for recovery of monies due to the partnership has a
telling effect in its repaying capacity. Therefore, credit facilities should be granted only to
registered partnership firms.
ii. A copy of the registration certificate should be obtained and kept in files, after verification.
g. Admission of a partner:
i. No person shall be admitted as a partner into a firm without the consent of all the existing
partners except where (i) the partnership deed itself provides for taking in new partners and
(ii) in cases where minors admitted to the benefit of partnership desire to become partners,
on their attaining majority.
ii. A partner newly admitted in a partnership (unless he has been previously a minor admitted
to the benefit of partnership and continuing as a partner after attaining majority) does not
17 - III
become liable for any act of the firm done, before he became a partner. However, it is open
both to the creditor and the new firm including the new partner to enter into an arrangement
as regards the liability in respect of the existing debts of the old firm.
h. Retirement of a Partner:
i. As per the provisions of the Partnership Act, a partner may retire (a) with the consent of all
the other partners, (b) in accordance with an express agreement by the partner, (c) where
the partnership is at will, by giving notice to all other partners of his intention to retire.
Unless public notice is given of his retirement, such partner shall continue to remain liable
to third parties. However, if the third party actually knows about the retirement, then the
absence of public notice will not make the retiring partner liable in respect of the liabilities
arising after retirement.
i. Expulsion of a Partner:
i. A partner cannot be expelled by any majority of the partners, except in exercise of powers
in good faith conferred by agreement among the partners. The other guidelines stated for
retirement will be applicable here also.
j. Insolvency of a partner:
i. On adjudication of a partner as insolvent, he ceases to be a partner effective from the date of

adjudication whether or not the firm is thereby dissolved. It is to be noted that if the firm is
not dissolved, the estate of the insolvent partner is not liable for any act of the firm done
after the date of adjudication.
k. Death of a partner:
i. Similarly, if the firm is not dissolved on death of a partner, his estate will not be liable for
any act of the firm done after his death.
l. Dissolution of the firm: As per the provisions of the Partnership Act, 1932, a partnership firm is
dissolved under the following circumstances.
i. On death of a partner or adjudication of a partner as insolvent, unless there is a provision to

the contrary entered in the Partnership Deed or other contract entered into between the
partners;
ii. If the partnership is constituted for a fixed term by the expiry of the term and
iii. If the partnership is constituted to carry out one or more adventures or undertaking on
completion thereof.
iv. There are further provisions for compulsory dissolution, dissolution by agreement and
dissolution by the court. However, dissolution of the firm becomes effective as regards
third party, on a public notice given by the firm or its partners.
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m. Partnership accounts with debit balances: The following steps should be taken, when a notice
of death/retirement/insolvency of a partner is received:
i. Death certificate/notice of retirement/notice of adjudication of a partner as insolvent

should be verified and a note should be made in the ledger account and on the opening
form under the initials of an officer.
ii. Name of the deceased/retiring/insolvent partner should be deleted from the bank's record
under the signature of an officer. The Officer should indicate the mode as to what
satisfactory proof of death/retirement/insolvency of partner was produced to the bank.
Full details of the same must be recorded in the bank's books.
iii. Cheques signed by the deceased/retiring/insolvent partner and presented after the receipt
of notice of death/retirement/insolvency should not be paid without the confirmation of
the surviving/continuing/solvent partners and without verifying the partnership deed as to
the continuance of the firm.
iv. The partnership deed should be verified to ascertain whether the business can be continued
after the above event.
v. When the Partnership gets dissolved: If the partnership deed is silent on the point,
death/insolvency/retirement of a partner leads to dissolution of the firm and in such cases
operations in the account should be stopped. Surviving partners including the legal heirs
of the deceased/remaining partners including retired partner should be called upon to
liquidate the liability. If the liability is not adjusted within a reasonable time, instructions
should be sought from the sanctioning authority as to the recovery of the bank's dues.
Branch should not allow the documents to get time barred.
vi. If the business is continued:Operations in the account should be stopped to determine the
liability of the deceased/retired/insolvent partner for the debt due to the bank and a new
account should be opened.
l The account should be immediately reviewed taking into consideration the various
factors such as credit worthiness and financial resources of the reconstituted firm,
future business prospects, etc., and a decision has to be taken as to whether the credit
facility is to be continued or withdrawn or curtailed. In the event of recommending
for the continuance of the facilities to the reconstituted firm, fresh proposals should
be submitted giving all the particulars required. In case it is decided not to continue
the facilities, necessary steps should immediately be taken to get the advance
adjusted.
l Cheques can be passed within the credit balance available in the new account for the
purpose of continuance of business as authorised by the partnership deed. But no
overdrawing in the new account should be allowed, till a fresh sanction/permission is
obtained from the appropriate sanctioning authority in the name of the reconstituted
firm.
vii. Documentation: After the limit is sanctioned, favouring the reconstituted firm, fresh
security documents for advance should be obtained by the branch duly signed by all the
partners of the reconstituted firm and thereafter the balance in the old account should be
got adjusted by the cheques drawn on the new account and signed by all partners of the
newly reconstituted firm or under a letter of authority signed by all the partners of the new
firm.
19 - III
viii. A fresh joint and several DPN along with a covering letter and other agreements, namely,
stamped partnership letter, should be signed by the reconstituted firm and its partners.
ix. Clean loans: Joint and several DPN for the balance due as on the date of execution by the
reconstituted firm along with a covering letter should be obtained.
x. Term loans: Acknowledgement letter for the balance due as on the date of execution of
documents by reconstituted firm along with a suitable covering letter should be obtained.
n. Insanity of a partner:
i. Insanity of a partner does not lead to dissolution of the firm, unless provided in the
partnership deed. Sane partners can be allowed to continue to operate the account. An
application for dissolution may be made to the Court either by another partner or by any
person interested in the insane partner. In respect of running facilities like Overdraft, cash
credit, decision to continue/discontinue the facility has to be taken. It is relevant to note
that the Bank's terms of sanction includes a clause that the Bank reserves the right to
withdraw/cancel/suspend a facility at any time without notice and without assigning any
reasons there for.
o. Continuing guarantee given for firm's borrowings:
i. Any guarantee given to the bank in respect of the firm's borrowings automatically gets
crystallized on reconstruction of the firm. Such revocation will be effective, only with
regard to future transactions and not to the transactions the firm had as on the date of
change in the constitution. If the reconstituted firm is allowed to avail the credit facility on
the same terms and conditions, fresh guarantee agreement should be obtained from the
guarantor(s).
6. Joint Stock Company: A Joint Stock Company is a legal entity and is regarded as a person in law
with perpetual succession and a common seal with the capacity to contract or handle obligations or
undertake transactions in its own name. The liability is limited to the share capital and the liability of
the shareholder is to contribute unpaid value of shares. A Company may either be a Private Limited
or a Public Limited Company.
a. Private Limited Company: A Private Ltd. Company is a company which has a minimum paid
up capital prescribed under the Companies Act 1956 [Rupees One lakh as per Companies
(Amendment) Act 2000] and by its articles. A Private limited Company,
i. restricts the right to transfer its shares

ii. limits the number of its members to 50 (not including persons who are in the employment
of the Company and also persons having been formerly in the employment of the
Company who were members of the company while that employment has ceased) and
iii. prohibits any invitation to the public to subscribe for any shares or debentures of the
Company or issue of Prospectus. When two or more persons hold one or more shares in a
Company jointly, they shall for the purpose of this definition be treated as a single member.
20 - III
iv. was hitherto deemed to be a Public limited Company where not less than 25% of the paid up
share capital is owned by one or more bodies corporate. The above provision relating to
Deemed Public Company i.e. private company deemed to be a public company, have
become inoperative vide Companies (Amendment) Act 2000.
b. Public Limited Company: A Public Company means a Company which
i. is not Private Company;

ii. has a minimum paid up capital of Rupees Five lakhs or such higher paid up capital as may
be prescribed;
iii. is a company which is a subsidiary of a company which is not a private company.
iv. Every company registered under Section 25 of Companies Act 1956 and every company
limited by guarantee and not having a share capital will be a Public Company, the number
of persons not being limited to 50 and all the provisions of the Companies Act 1956
applicable to Public Companies will apply to them also.
c. Procedure for opening an account in the name of a company: While opening a Current
Account in the name of a Company, besides its application in the relevant account opening form,
the following documents should also be obtained.
i. Certificate of Incorporation: This Certificate of Incorporation is issued by the Registrar of

Companies, only after he is satisfied that all the necessary requirements under Companies
Act are fulfilled by the (newly formed) Company. The original copy of this Certificate
should be returned after inspection and a Certified true copy should be kept in the branch
file.
ii. Memorandum of Association: Memorandum means the Memorandum of Association of
the Company as originally framed or as altered from time to time, in pursuance of any
provisions of the Company Law or of the Companies Act. The Memorandum of
Association is the charter on which the Company exists and within which it operates. This
is the fundamental document within which the Company has to operate. The Company
cannot undertake any operation, which is not mentioned in the objects clause of the
Memorandum of Association.
iii. Articles of Association: Articles of Association is another important document which
contains the regulations for the management of the internal affairs of the Company. The
articles of a Company are subordinated to and controlled by the Memorandum of
Association, which is the dominant instrument and contains the general constitution of the
Company. In case of new companies, the bank should verify whether the first directors are
named in the articles of association.
iv. The Memorandum is a fundamental document and can be altered only under certain
circumstances provided by the Companies Act. The articles are only internal regulations,
over which the members of the Company have full control and which they may alter as
they think fit. The Memorandum is the area beyond which the Company cannot go inside
that area, the shareholders may make such regulations as necessary.
21 - III
v. A copy of each, the Memorandum and Articles of Association brought up to date and duly
certified as True and up to-date copy by a competent officer/Managing Director/Chairman
of the Company should be kept at the branch. Paragraphs affecting the bank's relations
with the Company should be conspicuously marked and the relevant portions noted on the
ledger head for guidance. (Note: Articles of Association will contain a provision as who is
the competent officer of the Company to certify a copy of the Memorandum and Articles of
Association as 'True and up to-date'. The Manager should get these documents certified by
such authorized official/s of the Company).
vi. The Company should be requested to keep the branch informed of any subsequent
amendments to Memorandum and Articles of Association. The branch can also verify the
copies filed with Registrar of Companies, if the registered office is located in the same
centre or get the same verified by any of the branches situated in the place where the
registered office is situated.
vii. Certificate of Commencement of Business:A public Limited Company is required to have
a certificate to commence business from the Registrar of Companies, before it is entitled to
commence business and or to exercise borrowing powers. The original of the certificate to
commence business may be returned after inspection, but a true copy thereof duly
authenticated by the officer concerned should be kept in the branch's file. For Private
Limited Companies, this Certificate is not required.
viii. Board Resolution: The Board Resolution is a decision by the Board of Directors of the
Company resolving that the account may be opened with the Bank named therein and as to
who will open and operate on the account., who will carry on other acts such as dealing
with securities, deposits with the Bank, who has power to draw, accept, endorse, etc. This
resolution should be on the lines indicated on the reverse of the account opening form of
the Bank. A copy of the resolution certified by the Chairman who presided over the
meeting and countersigned by the Secretary/ Manager of the Company should be kept in
the branch's files and operations on the account should be allowed only in terms of this
resolution.
ix. Where the Board of Directors of the Company has empowered any officer/ officers to open
and operate the Company's account, the power of attorney on an appropriate stamp paper
in his favour by the Company should be registered in the Bank's Power of Attorney
Register along with their specimen signatures duly verified by the Company.
x. A certified list of the Directors of the Company should be obtained at the time the account
is opened. The Company should be requested to notify changes, if any, from time to time
and also furnish the specimen signatures of the Directors who are authorized to operate the
account with the Bank. Branches should make proper and thorough enquiries of the
promoters/directors of new companies and verify their antecedents as per the KYC Policy
of the bank, before taking up their proposals.
xi. In respect of existing companies the copies of the Balance Sheets for the last three years (if
available) should be obtained.
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d. Powers and responsibilities of Directors:
i. A Company, being an artificial legal person, must have a human agency to carry out its
objects. Its Board of Directors provides the agency. While a Public Company should have
at least 3 Directors, a Private Company should have at least 2 Directors. The Directors of a
Company collectively are referred to as the Board of Directors or the Board. Only
individuals can be appointed as Directors.
ii. The Directors have the powers of the Company subject to such regulations as are
consistent with the Memorandum and Articles of Association and/ or such other
regulations including regulations made by the company in its General Body Meeting and
subject to other requirements if any, laid down by the Companies Act. (The shareholders
by a resolution passed in the General Body Meeting may amend/ alter the articles on the
management of the Company by the Directors). The powers vested in the Directors shall
be exercised collectively by the Board.
iii. As a rule the Directors cannot unless the Articles specifically authorize them to do so,
transfer to others any duty imposed on them which involves the exercise of judgement and
discretion.
e. Borrowing powers of a Company:
i. The Branch Manager/Loan officer should satisfy himself that the company has power to
borrow in its Memorandum of Association.
ii. A trading company has an implied power to borrow even though there is no express
authority to that effect in its Memorandum of Association. In respect of non-trading
companies, there must be express power to borrow which shall be exercised by the Board
of Directors.
iii. The power to borrow may not include a power to change or encumber any property of the
company. Hence, the memorandum and Articles of Association should be carefully
scrutinised to ascertain that the Directors have such powers. Loans to companies for buy
back of shares/ securities should not be provided.
iv. Borrowing Ultra Vires the Company: Where the directors borrow more than the company
is empowered by its Memorandum or when the company has no express or implied power
to borrow or for the purposes not mentioned in the 'Object clause' of the Memorandum,
such borrowing is ultra vires the company and void to that extent. Even if a resolution is
duly passed at the Meeting of the Board of Directors, borrowing for ultra vires purposes
beyond the powers of the Board and of the company will not bind the company. If the
borrowing is beyond the powers of the company, even if all the members of the company
join together and pass a resolution in the General Body Meeting, the transaction cannot be
brought within the powers of the company and it will not, therefore, bind the company. The
transaction is void abinito.The remedies which are available to the bank in the event of the
borrowings ultra vires the company are as follows:
l The company may voluntarily pay the debt because there is nothing to prevent the
company repaying the ultra vires debt on its own accord.
23 - III
l It may be feasible to follow the money into the possession of the company and recover it, if
it still exists in the form of a separate fund, investment or asset. This remedy is unlikely to
be of much avail to a bank, unless the accommodation has been taken by way of loan and
credited to the current account of the company where it remains undrawn. There is no
doubt of recovery in these circumstances. Even if the money has been withdrawn and
allocated in the company's own books as a capital item for which a corresponding asset
appears, then the amount can be recovered.
l Where the money of an ultra vires lender has been used to pay off lawful debts of the
company, he would be subrogated to the position of the creditor paid off and to that extent
shall have the right to recover his loan from the company. The debts which were paid off
must have been legal debts. This right is commonly known as the right of subrogation.
l Directors may well be personally reasonable in the event of failure by the banker to recover
money lent to a company, which had no capacity to borrow it. A claim may be made against
the directors as trustees of the money so lent or for a breach of warranty or authority. Whilst
the matter is not, perhaps, free from doubt, the better view is that the banker will be able to
effect recovery from the directors personally. If it can be established that the directors had
full knowledge of the company's incapacity to borrow when they raised the loan, an action
for deceit might be maintainable and to which a claim for damages could be added.
v. Borrowing which is ultra vires the directors: Although an advance may be within the
borrowing powers of the company but may be in excess of the directors' powers,
transgressing a limitation imposed on their powers by the articles of association or Section
293 of the Companies Act, 1956. The bank's position in regard to such transgressions may
not be serious but the fact remains that any borrowing ultra vires the directors is void and
the bank cannot sue the company as a creditor in respect of any excess, unless the company
ratifies the transactions. The Memorandum and Articles of a company are public
documents, the contents of which are known to anyone dealing with the company and it
follows that a bank cannot acquire contractual rights against the company when the loan is
inconsistent with the articles.
vi. In case of an advance ultra vires the directors but intra vires the company the following
remedy is available to the bank:
l If the limit to borrow has been exceeded under section 293 (1)(d) of the Companies
Act 1956 then under sub-clause 5 of the same section if the lender advanced the
money in good faith and without knowledge that the limit has been exceeded the debt
would be recoverable. The burden of proving good faith and absence of knowledge is
on the lender.
l As there is no restriction on the powers of the company to borrow (the directors can
borrow beyond the limit with the sanction of the company in general meeting) the
company may ratify the irregular borrowing by a resolution in general meeting.
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l If the borrowings are beyond the powers mentioned in the Articles of Association, it
may alter its articles by a special resolution in general meeting or it may alter its
articles by a special resolution extending or removing any restriction.
l The Manager/Officer-in-charge should satisfy himself that the persons who sign the
documents and operate the accounts have the necessary authority to do so. Such
authorization should be available in the form of a resolution of the Board of Directors
of the Company. The power to borrow on behalf of the Company can, however, be
done only by a resolution passed at a Meeting of the Board.
vii. By Section 293 (I)(d) of the Companies Act the Board of Directors of the Public Company
cannot borrow money in excess of the aggregate paid-up capital and its free reserves i.e.
reserves not set apart for any specific purpose except with the consent of the Company in
General Meeting. Temporary loans obtained from the company's bankers in the ordinary
course of business may be excluded when reckoning the limit up to which a Company may
borrow.(Explanation: Temporary loans mean loans repayable on demand or within six
months from the date of the loans such as, short term Cash Credit arrangements, the
discounting of bills and the issue of other short term loans of seasonal character but does
not include loans raised for the purpose of financing expenditure of a capital nature.
Borrowing above the limit should be authorized by the General Body. Any restriction on
the powers of the Board of Directors imposed by the above section not, however, apply to a
Private Company, if it is not a subsidiary of Public Company. Borrowing powers of the
Board of Directors in excess of such powers may, however, be revised by a resolution
passed by the General Body Meeting of shareholders of Public Companies but every such
resolution should specify the total amount up to which the money can be borrowed by the
Board).
viii. The power to borrow cannot be exercised by the Board of Directors by means of a circular
resolution passed by them without holding a meeting of the Board. The Bank should,
therefore, ensure that the resolution furnished to them by a company in connection with
any credit facility sanctioned or granted to it is not a circular resolution, but the resolution
has been passed at a duly convened meeting of the Board of Directors. For this purpose, a
certificate in the following form signed by the Secretary of the company and countersigned
by the Chairman of the meeting of the Board of Directors at which the resolution was
passed should also be furnished by the company along with the true copy of the resolution.
25 - III
CERTIFICATE
Certified that the above is a correct copy of the resolution passed on………….. at a duly convened
meeting of the Board of Directors of………………… and that it has been entered in the usual course
of business in the Minute Book of the Company and signed therein by the Chairman of the Meeting/
Company and is in accordance with the Memorandum and Articles of Association of the Company.
…………………… ……………………
Secretary Chairman of the Meeting
ix. The Board, by a resolution passed at a Meeting, can delegate to any Committee of
Directors, the Managing Director, the Manager or any other principal officer of the
company or in the case of a Branch Office of the company, a principal officer of the Branch
Office, the power to borrow money otherwise than on debentures to the extent specified
and on such conditions as the Board may prescribe. Such resolution must specify the total
amount outstanding at any time up to which moneys can be borrowed by the delegate/s.
The exercise of the powers delegated to their attorney/ s by the Board of Directors of
company cannot be further delegated by the attorney/ s to other person or persons. The
attorney of a company cannot sub-delegate to any person the power to borrow, etc., vested
in him and all sub-delegation in this regard will be invalid and ineffectual.
x. Before an application for advance by a Limited Company is entertained, a resolution

should be passed by the Board of Directors of the Company specifying:
l Nature and extent of borrowing;
l Securities offered;
l Persons authorized to give securities and sign documents; and
l Persons authorized to operate on the account.
xi. No resolution of the Board of Directors will bind the company on matters in which a
Director having an interest also participated in the discussion of the Board on that
particular subject. In a matter in which an individual Direct or has interest, the Branch
Manager should satisfy himself of the compliance of the requirement and call, if
necessary, for a certificate that the particular Director did not participate in the proceedings
thereof.
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xii. A delegation of authority by the Board of Directors in favour of the officers of the company
or by the company at its General Meeting in favour of the Board of Directors should be
clear and specific as already stated. The resolution to execute the documents including
affixing of common seal and charge the securities for the advances should be separate and
distinct.
xiii. The power to operate the account should name the person and define the extent of his
powers, as mere power to operate on an account alone will not be sufficient to permit
borrowings by him or his endorsement on instruments or discount bills for and on behalf of
the company. Further, the power to pledge or discount or endorse should be expressly
provided for in the resolution authorized by the Board of Directors. In the absence of such
explicit mention, the company will not be bound by the borrowings or charging of
securities by the person named.
xiv. A power to execute a document may not include power to deposit title deeds of the
company's property to create an equitable mortgage. A power to deal with the assets of the
company may not empower a company to create an encumbrance on them. All such
acts/operation should be specifically indicated in the resolution of the Board of the
company. The Bank may ask for the additional personal guarantee of some or all of the
directors or other third parties to ensure the fulfilment of its obligations and strengthening
the security. In such an event, the resolution of the company authorizing the availing of the
advance should also make a mention of the additional guarantee required. An
authorization by a resolution is also required for any subsequent variation in the terms of
the advance to the company.
xv. Common seal is the official signature of the company. Affixing the common seal of a
company on the documents is not necessary and therefore need not be insisted upon, unless
the same is enjoined in the Articles of Association or in the relative resolution of the Board
of Directors authorising the borrowing. In that event, affixing of the common seal should
be done in the manner indicated therein. According to Table A of the Companies Act, the
seal of the company shall not be affixed to any instrument except by the authority of a
resolution of the Board or of a Committee of the Board authorized by it in that behalf and
except in the presence of at least two directors and the Secretary or other person as
aforesaid shall sign every instrument to which the seal of the company is so affixed in their
presence.
xvi. If the seal is affixed without an authority the act will not be an act of the company and the
instrument to which it is affixed shall be treated as a forged instrument.
f. Advances to banking companies:
i. Certain additional requirements under the Banking Regulation Act may have to be
complied with, if the advance is to a banking company. Generally, borrowings are sought
by non-nationalised banks. Non-nationalised banking companies entering into
transactions which may result in borrowings (e.g., against Government Promissory Notes,
encashment facilities, grant of guarantees etc.,) will be subject to the regulations under
both the Companies Act and the Banking Regulation Act as amended from time to time.
27 - III
Prior sanction of Board of Management should be obtained in all cases and the Branch
Manager should satisfy himself that the G.P.N. or shares pledged do not form part of the
securities left with them by their own customers i.e., not re-pledges – but they were out of
their own investments by obtaining a declaration to that effect. These will be in addition to
the other general requirements under the Companies Act.
g. Guarantee by the company:
i. The Memorandum of Association of the company must specifically and unequivocally

give power to the company to give guarantees on behalf of the company. No reliance
should be placed on the omnibus clause of the Memorandum reading“The Company shall
have power to do such other things as are incidental or conductive to the attainment of the
above objects or any of them”.
ii. If a limited company has no power to give guarantee and the guarantee is taken from such a
company, the transaction would be ultra vires and void against the company. The
guarantee can neither be enforced nor ratified.
iii. The Articles of Association should be studied to understand the mode of execution of
guarantees. Certified copy of the resolution of the Board should be taken authorising the
giving of guarantee and the person authorised to sign the guarantee. The draft copy of the
form of guarantee should be attached to the resolution and initialled by the Chairman of the
company for the purpose of identification.
iv. Where the company's Articles of Association provides for giving guarantees under the
company's seal, then it is essential to affix the same in accordance with the provisions
contained in the Articles.
v. There are certain statutory restrictions under Section 295,369,370, etc., of the Companies
Act, 1956 on guarantees to be given by a limited company. It would, therefore, be
advisable to seek legal advice before accepting the guarantee of a company.
h. Advances to Private Companies becoming Public Companies:
i. If, in a private company, not less than 25% of the paid up share capital is held by one or
more bodies corporate, then such private company becomes a public company. For
advances made to such a private company which has subsequently become a public
company, by virtue of the above section, no fresh documents need be taken, since even
after the change in the nature of the company by operation of law, the changed company
will continue to be liable for the debts of the private company. However, in such cases the
branches should obtain consent/fresh guarantee from the guarantors, if any, to avoid any
possible chance of raising this issue by them, to get discharged.
ii. Similarly, in case of existing companies taken over by new group/management also, the
consent of the guarantors to continue the guarantee for the company in new
management/group or fresh guarantee should be obtained.
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i. Guarantees of Directors:
i. Advances made to Private Limited Company customers are often covered among other
things by the joint and several guarantees of its directors. Where the directors have ample
means outside the company, such a guarantee is a good security, but usually the guarantee
is obtained in addition to and not instead of direct security from the company.
ii. Where advances are sanctioned taking the director's guarantee as collateral security, the
branch should obtain an undertaking letter from the company that the company will not
pay any fee/commission or brokerage to the directors for furnishing guarantees/co-
obligancies, counter-guarantees or indemnities or for undertaking any other liabilities in
connection with any financial assistance for the company.
iii. It should be remembered that there is risk in taking the company's security subsequent to
the directors' guarantees because if these directors voted on the resolution authorising the
charging of the security and the Articles do not expressly permit them to vote on a contract
in which they are interested, the security may be void as against a liquidator.
iv. In case, for any reason, a guarantee by Directors is not considered expedient by the bank at
the time of sanctioning the advance, an undertaking should be obtained from the individual
Directors and covenant should invariably be incorporated in the loan/CC/BP agreement
that in case the borrowing unit shows cash losses adverse current ratio or diversion of
funds, the Directors would be under an obligation to execute a guarantee in their individual
capacities, if required by the bank. The bank may also obtain a guarantee at its discretion
from the parent/holding company, when credit facilities are extended to borrowing units in
the same group.
v. Reserve Bank of India has advised that ordinarily banks need not insist on personal
guarantees from professional Managers/Directors except in cases where they have a
significant shareholding in the company. However, branches should insist on the personal
guarantees of all financially involved directors i.e., other than managerial personnel and
professional directors. They should also take the personal guarantee of the managerial
personnel and professional directors wherever those persons have a significant
shareholdings in the company. If any request is received for waiver of personal guarantees
of the directors, such request should be forwarded to Head Office along with their
recommendations. Even if some promoters are not in the Board of Directors guarantees of
such promoters should also be obtained. Any waiver from this stipulation should be
referred to Head Office.
j. Debentures of companies:
i. Application for advances against debentures should be submitted with an upto date
certified copy of the Memorandum and Articles of Association, copies of balance Sheets
for the last three years together with a draft copy of the Debenture Trust Deed. A debenture
which includes debenture stock, bonds and any other securities of a company is an
acknowledgement of debt under its signature whether constituting a charge on the assets of
the company or not though it is usually secured by the tangible assets of the company, the
29 - III
details of which are cited in the Debenture Trust deed. The charge on the assets may either
be limited to its fixed assets or by way of a floating charge over all its assets both fixed and
current assets. The debentures may either be redeemable after a certain period of time or
re-issued after redemption of the earlier issue/s.
ii. A trustee is usually named for all debentures issued at the time of issue. A debenture deed is
usually backed by all the fixed assets of the company and sometimes also by a floating
charge on all or any other particular asset/assets. The debenture deed, the scheme framed
for issue of debentures and the resolution of the company in that regard should be carefully
scrutinised before any advance is considered for the company. The assets charged for the
debentures would be insured for the usual risks at all times. When debentures are issued for
the specific purpose of raising finance from banks and/or financial institution, the lenders
(Bank and others) are consulted before the trustee is appointed. Any modification of the
terms of debentures can be made by convening a meeting of the debenture holders and with
the consent of the company and as per Companies Act.
iii. In some of the debenture deeds, there may be restrictions against creation of any further
charge on the assets of the company in general or certain specified assets. Where such
restrictions are noticed or apparent a meeting of the debenture-holders should be called for
to pass a resolution and issue a supplementary deed raising such restrictions. Where
debentures are issued by a company where stock-in-trade is already under pledge or
hypothecation, Branch Managers should take care to see that the Bank's interest is
protected by exclusion of such items from the debenture security, before considering any
advance to the company as already mentioned. Issue of debentures should be registered
with the Registrar of Companies within the 30 days period.
k. Search in the Books of the Registrars of Companies:
i. Before considering applications for borrowings, the branch shall arrange for a search in the
books of the Registrars of companies to ascertain company's earlier borrowings and the
nature of charge created by it and extracts thereof should be taken and kept in the branch's
file so that the company's indebtedness/business dealings may be known to the Bank at the
time the borrowings are sought or earlier.
l. Registration of charges:
i. Mortgages and charges of the description mentioned in Sec.125 of the Companies Act,
1956 must be registered with the Registrar of Companies within 30 days from the date of
creation of charges. Therefore, prior search should be made in the books of the Registrar of
Companies to take a list of subsisting charges in duplicate and a copy of the same should be
sent along with the proposal.
ii. Filing of charges with Registrar of Companies:Section 125 of the Companies Act applies
to the following charges:
30 - III
l a charge for the purpose of securing any issue of debentures;
l a charge on uncalled share capital of the company
l a charge on any immovable property, wherever situated or any interest therein;
l a charge on any book debts of the company
l a charge not being a pledge, on any movable property of the company;
l a floating charge on the undertaking or any property of the company including stock
in trade;
l a charge on calls made, but not paid;
l a charge on a ship or any share in a ship;
l a charge on goodwill, on a patent or a license under a patent, on a trademark, or on a
copyright, or a license under a copyright.
iii. A hypothecation accepted from a Company registered in a foreign country must, in

addition to being registered in the country concerned, be also registered with the Registrar
having jurisdiction over New Delhi, as well as with the Registrar of the State where the
company has its principal place of business in India.(vide Sections 597 and 600 of the Act).
iv. The responsibility for registration of charges is primarily that of the company. However,
the bank, to safeguard its interest, should ensure that the requirements are completed
within the prescribed period.
v. The obligation to register the charge within the time is statutory. If the registration is not
made in time, necessary condonation of delay up to 30 days may be allowed by the
Registrar of Companies, condonation for further delay shall have to be sought from the
Company Law Board of the Region through the Registrar. The application for registration
should be made in the forms prescribed under the Act, remitting the prescribed fee along
with certified copy of documents executed by the Company.
vi. In the interest of the Bank, the charge or modification thereof should be filed with the
Registrar of the Companies of the State in which the Registered Office of the Company is
situated soon after execution of documents so that anyone seeking to acquire any interest
in the Company's assets may have notice of the charge to the Bank at the earliest. Before
issue of certificate of Registration of charge, the Registrar may ask for clarification or
further information subsequently but the charge is deemed to have been registered on the
date on which it was filed and fee paid. However, for obtaining the Registration of Charge
from the Registrar, necessary clarification/information or further documentary evidences
if any, called for by the Registrar may have to be produced to the Registrar.
vii. During the pendency of the advance, a search should be made once in a year in the books of
the Register of Companies and an updated list of charges should be sent along with the
review/renewal proposals in the prescribed form.
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m. Procedure for Filing of charges with Registrar of Companies
i. Form-13 and Form-8 should be prepared in triplicate and signed by Branch Manager as
well as the authorised officials of the company.
ii. Three copies of the agreement/documents creating/modifying the charge should be
certified as true copies by the company.
iii. Form-8 and13 with certified copies of the documents should be filed with the Registrar of
Companies by paying the prescribed fee.
iv. A copy of forms 8 and 13 along with copies of agreements/documents containing the date,
signature of the Registrar under the stamp 'Registered' should be obtained and kept in the
records of the Branch/Bank's H.O.
v. Branches may utilize the services of Chartered Accountants wherever necessary for this
purpose by paying the appropriate fee as specified from time to time. (Note: As per the
amended rules Registrar of companies shall affix his stamp on the related forms and
accompanying instruments with the word 'Registered' under his signature with date and
shall deliver a copy of such forms to the company and the charge holder e.g.Bank).
n. Filing of Charge prior to disbursal of advances:
i. Not with standing the legal provision m (v) above the release of credit limits to the
companies should be made only after the charges are filed with ROC and a copy of Form 8
and Form 13 duly containing the stamp 'Registered' and signature of the Registrar with
date is obtained and kept in the Bank's records. Branch Managers have no discretion
whatsoever in disbursing the advance before receipt of the 'Registered' forms and
documents from the Registrar of Companies.
ii. The above decision has been taken in view of the following legal aspects:
l A charge is a security for the debt. If a charge is created and the consideration is paid
at a later date, even then the charge is enforceable. After creating a charge, if it is
found that there is a failure of consideration, the charge would become
unenforceable. If the consideration for the charge is not to the extent to which there is
a recital in the deed, then the charge would be enforceable only to the extent to which
consideration was passed. It is not necessary that the consideration should be paid on
the date on which the charge was created.
l It would, therefore, be in order for the bank to file Form-8 and Form-13 with the
Registrar of Companies along with certified copy of the instrument creating charge,
though at the time the charge was created, the charge was not supported by
consideration. It is said so because consideration can be paid at a later date and when
once the consideration is paid, the-charge becomes enforceable.
32 - III
l If the borrower of the bank becomes the owner of any property purchased out of loan
availed of by him, he can certainly create a charge over the property. On the other
hand, if the terms and conditions of the loan stipulate that he cannot claim ownership
to the property, no charge can be created in respect of the said property.
l In various cases, courts have held that charge can be created in respect of future
property and charge operates as soon as it comes into existence. Likewise, charge
can be created for a future debt, since the use of the word debt includes future debts
also.
iii. The DPN can be obtained even in respect of an advance to be granted. In view of the bank
deferring disbursement of the advance till filing of Form-8 and Form-13, the executants in
respect of advances to limited companies.
iv. Procedure for creation of Equitable Mortgage:In respect of joint stock company
borrowers, the execution of DPN and the deposit of title deeds (with an intention to create a
valid equitable mortgage) should be simultaneously done i.e., on the same day. However,
the date of memorandum of title deeds should be a day subsequent to the deposit of the title
deeds.
o. Consequences of Non-Registration of Charges:
i. If a mortgage or charge which requires registration is not registered, it does not mean that
the transaction is altogether void or the debt not recoverable. The only consequence is that
the security created by the mortgage or charge becomes void as against the liquidator and
other creditors. It must be noted that as against the company itself (so long as the company
does not go into liquidation) the mortgage or charge is good and may be enforced.
ii. Where an earlier charge and a subsequent charge have been created in succession in favour
of the same charge holder, if, on account of non- registration or other cause, the later charge
is or becomes void, the equitable doctrine of reviver will apply so as to revive the earlier
charge.
iii. Where a charge is void for non-registration no right or lien can be claimed on the
documents of title, as they are only ancillary to the charge and would have been delivered
pursuant to the charge.
p. Registration of Modification of Charges:
i. As per Section 135 of the Companies Act, 1956, any change in the terms and conditions of
advances like acceptance of additional securities, changes in the places of storage of
goods, enhancement in limits, rephasement of repayment schedule, changes in the rate of
interest should be registered with the Registrar as modification of original charge within
30 days of such modification. For this purpose Form-8 and Form-13 with copies of
relevant documents duly signed by the company and the bank should be filed. The forms
and documents with the Seal, date and signature of the Registrar under the seal 'Registered'
should be obtained and kept in Bank's records.
33 - III
ii. Searches should be made at the office of the Registrar of Companies to find out if there is
any intervening charge before enhancing the limits on the same securities or accepting any
other securities.
iii. Whenever there is any change in terms and conditions or extent or operation of any charge
no fresh deed of hypothecation should be obtained and instead a supplemental deed of
hypothecation regarding the change in the terms and conditions or extent or operation or
advances should be obtained from the company. Before execution of a supplemental
agreement, a true copy of the resolution passed by its Board of Directors approving the said
changes and authorising any of the directors to execute the documents required in
connection therewith should also obtained.
q. Registration of complete satisfaction of charge:
i. As per Section 138 of the Companies Act 1956, when the advance is completely paid by the
Limited Company, satisfaction of charge should be filled with Registrar of Companies
within 30 days of the payment or satisfaction of charge. For this purpose three copies of
Form-17 prescribed under the Companies Act, 1956 duly completed and signed by the
bank and borrowing company should be filed with the Registrar of Companies.
ii. If the debt is required to be progressively reduced in instalments, it is not necessary to
register part satisfaction every time. It will be enough if the satisfaction is filed within the
prescribed period of 30 days after complete adjustment of the liability.
iii. It may be noted that though there is no specific provision in Section 138 of the effect that
the person who files the charge should also file satisfaction thereof, this seems to be the
requirement of the law, if a reference is made to Section 142. It would appear from sub-
clause (1) of the said section that the person who files the charge must also file satisfaction
thereof failing which he will be liable to pay penalties prescribed under the Section. As in
most of the cases, bank files the charge, it is necessary for branches to ensure that on final
adjustment of the account, the satisfaction of charge is filed by them or the borrower within
the stipulated period.
r. Fraudulent conveyance of property to a company:
i. When a sole proprietor customer or partners sell a business of a limited company and
immediately make application to the bank for accommodation on the account of the new
company secured by a charge on its assets, there is always the risk that unsatisfied creditors
of the original business may object to the sale of the assets to the limited company and
succeed in setting aside the sale as a fraudulent conveyance. In other words, a trader cannot
remove his assets from the reach of his creditors by transferring them to a limited company
formed to acquire his business. Prudence demands in such circumstances that steps be
taken to ensure that the creditors of the original business have agreed to the conversion in to
a limited company.
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s. Board Resolution at the time of renewal of documents:
i. Board Resolution is necessary for the purpose of execution of renewal

documents/Acknowledgement of Debt. Board Resolution should contain the following
particulars:
l Nature of Facility
l Limit
l Securities charged
l Details of renewal documents (to be executed)
l Persons authorised to execute renewal documents/acknowledgement of debt.
ii. Ratification from the Board of Directors has to be obtained in cases where renewal
documents have been obtained from the company without appropriate Board Resolution.
t. Negative Lien:
i. Sometimes, it is stipulated by the Bank that the borrowing company should not create
further charges on any of its assets. This is required especially when the advances are
'Clean'. In such cases, the bank may stipulate that no loan from any other source shall be
raised by the Company against its assets so long as the advance to the Company persists or
that the borrower shall not alienate the stipulated assets owned by them without the written
consent of the Bank.
ii. As negative lien does not create any encumbrance on the properties of the company, it does
not amount to a charge. As such, the provisions of Section 125 of the Companies Act, 1956,
relating to registration of charges would not be applicable.
7. Cooperative Institutions:
a. The Cooperative institutions borrow either for their own requirements or for on-lending to their
member-affiliates. The Cooperative Institutions function as per the guidelines of the
Cooperative Societies Act, Rules framed under the statute, bye-laws of the institution and also as
per the terms and conditions of the financing institutions from which monies were borrowed.
b. The resources of a cooperative institution for functioning depend on the various ingredients of
items in its liabilities side of the balance sheet. This may be briefly explained as follows:
c. A cooperative institution formed of members, by the members benefited the members. As such,
core capital contributions from the members along with the capital contributions from
Government become the main stay in the organisation. The reserve fund and other statutory/
non-statutory allocations out of profit earned (each financial year) deposits from its members
and other payables (in the liabilities side of its balance sheet) are the internal resources available
to the cooperative institutions.
d. In order to expand its activities, the cooperative institutions may approach the financing
institutions and borrow funds subject to the terms and conditions laid down by such lending
institutions.
35 - III
c. A cooperative institution formed of members, by the members benefited the members. As such,
core capital contributions from the members along with the capital contributions from
Government become the main stay in the organisation. The reserve fund and other statutory/
non-statutory allocations out of profit earned (each financial year) deposits from its members
and other payables (in the liabilities side of its balance sheet) are the internal resources available
to the cooperative institutions.
d. In order to expand its activities, the cooperative institutions may approach the financing
institutions and borrow funds subject to the terms and conditions laid down by such lending
institutions.
e. If the borrowing unit is a cooperative financial institution, the guidelines prescribed by the Bank
for International Settlements (Basle Agreement) to be followed in total. The Board of
Management of the lending institutions will determine the rules and regulations for its lending to
the cooperative institution including any or all of the under mentioned stipulations viz.
i. Required share capital contribution to the higher financing agency

ii. Executions of agreement accepting laid down terms and conditions.
iii. Execution of DPN and continuing guarantee
iv. Agreement wherever necessary, endorsing its own securities in favour of lending
institution.
v. Submission of monthly/ quarterly/ half- yearly on due dates
vi. Provide adequate cover to the lending institution
vii. Agreeing for inspection of its books by the lending institution.
f. If the cooperative institution borrows funds for on-lending to its affiliates, it will be constrained
to follow strictly the guidelines of financing institution in its lending operations. The member of
a cooperative institution can alone get the services of financial assistance by becoming a regular
member/ associate member of the organisation.In the aftermath of the implementation of Prof.
Vaidhyanathan Committee recommendations, despite the nomenclature of Short Term
Cooperative Credit Structure, these institutions have been permitted to finance ST/MT/LT
agricultural/ non-agricultural activities.
g. On Lending: The credit cooperatives which are being financed by the (higher) lending
cooperative institutions inter-alia have to enforce certain disciplines based on the policy
circulars of lending institutions. There are multifarious government loan schemes for the benefit
of backward class and minority class people. Under these schemes, the Government lends at
subsidised interest rate to the ultimate identified borrowers through credit cooperatives. The
borrowing institutions from government have to strictly enforce financial discipline so that
benefit reaches the targeted people. The medium term loans for asset creation for rural people
through credit cooperatives attract subsidy from Government subject to the condition that such
subsidy amount to be adjusted to loan dues towards final instalments of the loan provided earlier
instalments were duly repaid. The cooperative institutions which implement these schemes
should carefully watch the loan accounts while availing refinance for them.
36 - III
h. Prudential norms: The higher financing agencies viz., NABARD, Apex Cooperative Bank
cautiously provide refinance to DCCBs under ST Agriculture and ST Weavers, based on the
Non-overdue Cover (NODC), etc. Despite the implementation of prudential norms to DCCBs
(from 1996-97 onwards) PACS (from 1.4.2010), the major issue of imbalance at the level of
PACS is to be dealt with by improving collection at ground level of 100% of the loans by due
date. Similarly certain conditions while sanction ST weavers imposed which is to be
scrupulously followed by the borrowing cooperative institutions viz.,
i. One Junior Supervisor for inspecting Ten PWCS

ii. One Senior Supervisor for overseeing Three Junior Supervisor
iii. Adequate cover for drawing under wavers' finance as per NABARD guidelines.
iv. Special programmes under weavers' finance to be followed by Asst. Director of
Handlooms.
j. The large scale lending activities to cooperative processing institution/ NFS activities by DCCB
were done previously by 'Credit Authorisation Scheme' which have subsequently come under
'Credit Monitoring Arrangement'. This transformation led to turning of such loan accounts into
NPA. Hence borrowing units to be supervised by technical persons and monitored by Chartered
Accountants following NABARD guidelines. Even though in certain cases finance is provided
under consortium arrangement, the funds of cooperative lending institution are to be
safeguarded.
k. The recovery mechanism prescribed under the State Cooperative Societies Acts ensures
relatively faster recovery at cheaper rates and hence the cooperative recovery procedures shall
form part of loan policy of the cooperative institutions.
37 - III
CHAPTER – 4
PROCESSING OF CREDIT PROPOSALS

1. General:
a. The ideal advance is one, which is granted to a reliable customer for an approved purpose in
which the customer has adequate experience and a security is taken as insurance in case of
need.The management of credit portfolio has three important stages, viz.,
i. Pre-sanction appraisal.
ii. Sanction and disbursal.
iii. Post sanction/disbursal follow up and monitoring.
2. Forms of Credit:
a. Working Capital Loans:

i. The borrowers generally require credit facilities either for meeting their working capital
requirements or for purchase of fixed assets, construction of factory buildings or office
buildings etc.
ii. The borrower may require finance for pre-sale transactions i.e. for the purpose of
production. During the process of production it is required to hold raw materials, work-in-
process and finished goods at different levels. The actual holding of such inventory
depends on factors like nature of industry, size of the unit, volume of production and sales,
availability of raw material, capacity utilisation, etc. Banks are extending cash credit limits
for financing against stocks and inventories.
iii. The borrower may require finance for meeting post-sales transactions i.e. credit sales
through bills. Banks extend credit facilities for post-sales transactions by way of Bill
Finance (Bill purchase and discounting of Bill, Bills Negotiated under LC).
iv. Consideration of Credit Needs:While considering the proposals for working capital
assistance, the Bank/branch should inter alia take the following aspects into consideration.
l Past performance, past holding level
l Future projections - It must be ensured that they are realistic, justifiable and there is
no huge increase in projection as compared to past performance except in case of
expansion/ modernisation programme.
l possible diversion to other units or uses,
l the quantum of funds being ploughed back from profits into business,
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l total outside liabilities (there should be a reasonable proportion between the total
outside liability and the owned funds of the borrower so that the creditors can also
have a satisfactory margin) and
l goods bought on credit - Goods which have already been obtained on credit should
not be financed.
b. Term Loan:
i. The borrower may require funds for purchase of fixed assets, for construction of Factory
Building, for construction of Office Building, for purchase & erection of machinery and
equipment.
ii. Such assistance may be provided by the Bank/Branch in the form of Term Loans/Deferred
Payment Guarantee (DPG). Project appraisal techniques must be followed for considering
proposals involving Term Loans/DPG.
3. Documents / Documentations: Irrespective of the nature/quantum of credit facility, a

fresh/renewal proposal should contain the following essential particulars:
a. Name, address of the borrower/guarantor along with Asset Classification assigned to the
borrower.
b. Net Worth of the borrower/guarantor along with the Assets and liabilities statements and credit
reports.
c. Purpose of advance/nature of facility required.
d. Quantum of Credit requirements of the borrower.
e. Basis on which projection of performance viz., production/sales etc. given and the reliability of
such projections. The acceptance of the projections must be based on the actuals of the previous
period and firm orders on hand.
f. Margin proposed, sources from which the borrower would bring in such margin.
g. Nature and value of security offered, its title, the mode of charging such security.
h. Deposit/business connection already available from the borrower or from associate concerns or
proposed deposit/business connection.
i. Scope of availability of refinance, if any, in case of term loans
j. Availability of Credit Guarantee cover, in case of Export credit facility or facilities granted to
priority sector segments.
k. Detailed working of account/facilities in case of existing borrowers enjoying facilities with the
Branch along with the Branch Manager's comments.
l. The renewal proposals should also carry the particulars such as :
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l Date of inspection,
l Name and designation of the officer who inspected the go down/unit and
l Brief remarks with observation made during the inspection by the branch regarding
value of stocks and other securities including adverse features, if any.
m. Proposals should contain full information regarding the extent of deposit held by the
customer/guarantor and/or the relatives/connected concerns or the extent to which the customer
has been useful to the bank in canvassing deposit from others. Since the level of bank's advances
has to be oriented with bank's deposit position, it is necessary that branches invariably furnish
information on deposits held by the borrower/guarantor with the Bank, while submitting
proposals for advances, in order to avoid the risk of the bank rejecting proposals which may be
beneficial to the bank from the deposit angle.
n. At the same time, it should be ensured that there is no dilution in credit appraisal for the sake of
deposit benefits. It should also be seen that there is no violation of any of the guidelines of the
RBI, NABARD, Government of India and any other laws of the country.
4. Pre-sanction Process:The stages of Pre-sanction are:
a. Obtaining duly filled in application in the prescribed format from the prospective borrower
along with the requisite documents.
b. Analysis of the financial statements submitted by the borrower to assess his credit worthiness.
c. Analysis of project/proposals to assess/confirm the credit requirements.
d. The borrower and the Guarantor /surety should be personally interviewed by the Bank Officer
authorized to sanction the credit facility to ascertain the identity of the borrower as per KYC
Norms.
e. The details of relations employed in the Bank and the details of legal heirs of the borrower and
guarantors shall be obtained.
f. During the personal interview of the borrower, the complete details of the borrower, his status,
his family background, nature of business/income, his economic conditions, financial stability,
various types of risks involved, etc. should be collected.
g. During the interview, the Bank Officer should adhere to the Banker – Customer relationship with
the Borrower and furnish the details / terms & conditions to be adhered to, as per the prescribed
Policy / norms by the Bank without any violation of his discretionary powers.
h. The details of legal heirs of the borrower / guarantor (Name, Age, Relationship, Address, etc.)
should be obtained in the loan application. These details should be obtained from the borrower
and guarantors separately. The information should be updated on an on-going basis, till the loan
dues are totally cleared, even after filing suit against the borrower. The recourse for recovery
from the legal heirs (to the extent of property inherited by them) should not be impaired for want
of these details.
40 - III
i. After scrutiny of the application, analysis of the financial statements and personal interview of
the Borrower, subject to the delegation of powers, the sanctioning authority vests with the
Branch / authorized officer of the Head Office of the Bank.
j. If the applicant is already a customer of the bank, a scrutiny of the operations in the account will
reveal the trends, connections, nature of business dealings etc. Before sanctioning a credit
facility, the borrower's place of business should be visited and the correctness of the data
furnished by the borrower should be ascertained. It should also be ensured that the borrower
confines himself exclusively with one bank except in case of borrowers coming under
consortium arrangement.
k. The data collected should be critically and carefully analysed. After analysing the data, the
branch has to prepare Credit report/s of the borrower / guarantors and present the applicant's
request in the form of a credit proposal to the sanctioning authority.
l. For all credit proposals, branches should bring in all major aspects/particulars that are covered in
the Board Memorandum Format, wherever warranted.
5. Credit Report:
a. Credit Report is the basic document prepared by the Banker for assessment of the borrower's
Character, Capital and Capacity (3 Cs).
b. Before extending any credit facility whether fresh or additional, to any of the units belonging to a
particular group, the branch should obtain a credit report/consent of the Lead Bank financing the
main Company.
c. In preparing credit reports, the branch should be careful about the following:
l Inclusion of assets not standing in the applicant's name

l Inclusion of other's share of property
l Suppression of encumbrances on the property
l Overvaluation of assets
l Suppression of liabilities.
d. As the sanctioning authority relies on the credit reports received from the Branch Manager, it is
necessary for the latter to compile credit reports on borrowers, only after independent
verification of the information relating to the assets and liabilities furnished by them.
e. If the estimates of the means as furnished by the applicant is very much higher than those
furnished by outside parties, the Branch Manager should have a cautious approach in assessing
the credit worthiness of the party.
f. The branch should indicate in the credit report both the fund based and non-fund based limits
enjoyed by the party at different offices of the bank including the branch compiling the credit
report and also at other banks. If the borrower has stood as co-obligant/guarantor for any facility
extended to a third party, such details should also be incorporated.
41 - III
g. In the event of the prospective borrower enjoying credit facilities with other banks, confidential
report should be obtained from such banks and a certified true copy of the same should be sent to
the appropriate sanctioning authority along with the proposal.
h. Particulars of all litigation against the borrower/s or their partners/Directors etc. (initiated by
other financial institutions/banks) should also be incorporated in the credit report.
6. Net Worth: The tangible net worth shall be arrived at as under:
a. For individuals/ Proprietorship concerns.

i. Add:-
l Movable assets such as Bank deposits, gold ornaments/jewellery etc.
l Personal immovable properties ( self acquired properties of an individual and also
any share in the ancestral properties acquired on the division of the Joint Hindu
Family)
ii. Less:-
l Loans taken against any of the above assets in individual name or offered as third
party security.
b. For partnership / Joint Hindu Family firms:
i. Add:-
l Capital invested in the business
l Undivided profits
l Total worth of individual partners
ii. Less:-
l Accumulated losses
l Investments made by partners in the firm.
c. For Limited companies:-
i. Add:-
l Paid up capital and Free Reserves
ii. Less:-
l Accumulated balance of loss, balance of deferred revenue expenditure and also
intangible assets in all the above cases.
d When the borrower's/ guarantor's declared Net worth exceeds Rs.50 lakhs, the following
documents should be obtained:
i. Certificate from a Chartered Accountant
ii. Photocopy of the title deeds in case of immovable properties
iii. A declaration that any disposal of properties will be intimated to the Bank
iv. A declaration that additional liability assumed will be intimated to the Bank
42 - III
e. It is necessary to obtain a separate statement on the contingent liabilities of a borrower/guarantor
along with the Assets and Liabilities statement. Even though the contingent liabilities need not
be taken into account for the purpose of arriving at the net worth, a footnote should be given in
the Credit report. While appraising proposals, the appraising authority should consider the likely
impact of the contingent liabilities on the party's financial position.
f. Branches should send one set of all financial statements such as Profit and Loss Account,
Balance Sheet, Assets and Liabilities Statement, Wealth Tax/Income Tax Assessment Order and
Credit Reports received from other banks directly to the appropriate sanctioning authority along
with the fresh/renewal proposal.
g. Reasons for increase or decrease in net worth should be indicated in the report. Reduction in net
worth due to disposal of fixed assets or incurring of loss is a danger signal. If there is any increase
in fixed assets, source of acquiring them should be ascertained or it should be verified whether it
is due to any revaluation of the assets.
7. Assessment of quantum of credit required:
a. In order to assess the credit requirements of the applicant, the purpose, the period for which the
advance is required, type of facility, security offered, additional benefits that may accrue to the
Bank etc. should be ascertained without any ambiguity.
b. The assessment of Working Capital shall be made, taking into account reasonable projected level
of activity, so as to avoid frequent sanction of adhoc limits and excess drawings. Sanctioning of
adhoc limits shall be restricted to execution of additional orders, bunched import, procurement,
etc. Excess drawings shall also be permitted only against expected receipt of funds in transit/
receivables and not on a regular basis.
c. The assessment process involves three stages i.e.:
i. Assessment of the level of current assets required to be held for a given level of production,
ii. Determination of credit other than bank finance available to the borrower and
iii. Calculation of bank finance required.
d. The following methods are adopted for assessment:

i. Turnover Method: Under this method, the limit will be arrived on the following basis:
l 20% of the projected annual turnover or
l The actual working capital needs as assessed in detail by STBC method (refer para on
STBC below ) whichever is higher;
l The Bank Finance is intended only to support the need based requirements of the
borrower. In order to ascertain the extent of assistance, the marginal contribution by
way of Net long surplus viz., Networking Capital (NWC) should be reckoned. If it is
more than 5% of the turnover, the limit (being 20% of the turnover) shall accordingly
be reduced. For instance, if NWC is 8% (3% in excess of the prescribed 5%), then the
limit will be computed as 17% (20% minus 3%) of the turnover. Thus, the aggregate of
the limits plus NWC shall not exceed 25% of the turnover.
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l While applying the above simple formula of 20%, it has to be ensured that the
borrower's financial health is satisfactory as revealed by the following:
Ø Borrower's operations result in net profit every year.

Ø Borrower's Credit Ratio as per the latest Audited Balance Sheet is not less
than 1.20. (Current Assets around 331/3% of sales and Net Working Capital
around 5 to 6 % of sales).
Ø Borrower's Total Outside Liabilities do not exceed 3 times of the equity
(equity would include quasi-equity represented by subordinate debt, owned
to owners of the business).
ii. Short Term Bank Credit (STBC) Method:
l The Short Term Bank Credit Methodology of working capital assessment

should be made applicable to all industrial advances in excess of Rs. 2
Crores. However for SSI units, the method will be applicable only for fund
based working capital limits of over Rs.5 crores. The computation of
working capital under this method is primarily concerned about the level of
Current Assets and the Net Working Capital.
l Level of Current Assets: The level of Current Assets is expressed as a

percentage of Gross Sales projected. However, it is necessary to ensure that
no individual item of Current Assets is held for unduly longer periods.
Banker has to use his judgement and experience in appraising inventory.
There should not be any excessive inventory with speculative interest to
make profits. If excessive raw materials is due to poor working capital
management and inefficient distribution channel, Bank should not
encourage this.
l Net Working Capital: The minimum level of Net Working Capital (NWC)
will be the highest of the following:
Ø 25% of the assessed level of current assets less Annual maturing term
liabilities
Ø 16.66% of assessed level of current assets*
Ø Actual projection as per Balance Sheet
*Applicable only for companies with annual maturing term liabilities
l For borrowers with no Annual Maturing Term Liabilities, current ratio
should be minimum 1.33. However, in respect of borrowers having annual
maturing term liabilities, the relaxation is made in the following manner:
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Ø Current Ratio should be at least 1.20 where annual maturing liabilities are included under
Current Liabilities.
Ø Current Ratio should be at least 1.33 where annual maturing liabilities are excluded from
current liabilities.
Ø In cases where the Current Ratio remains below the benchmark level continuously for a
period of 3 years, the Bank has to re-examine the need for restructuring or otherwise after
analysing the reasons.
e. If the borrower enjoys more than one facility with the bank, the particulars of all the limits
including the proposal under consideration, the outstanding balances and the conduct of the
respective accounts should be given in the proposal.
f. In case of advances commented upon by NABARD Bank's inspectors in the Inspection Reports,
the nature of comments and the progress of rectification of irregularities should also be
mentioned in the proposal.
g. Where a customer who enjoys facilities with other banks approaches us for fresh/additional
facility, reports from other banks should be obtained and sent along with the proposal. The need
for having facilities with more than one bank should also be stated in such cases. RBI guidelines
on Consortium Lending should be borne in mind, before handling the proposals of borrowers
enjoying credit facilities with more than one bank.
h. If any branch of another bank has an attitude of non-cooperation and fails to furnish reports in
spite of our reminders, branches need not give up pursuing the proposal. They could obtain
written or oral reports from reliable and knowledgeable persons/firms/companies. In case of
oral reports, branches must record in their books the name/s and mailing address/addresses of
the informant/s, the date/s and time and place/s of the report/s and the precise text of the reports.
Branch Managers should report to the sanctioning authority the fact of his failure to obtain the
required information despite his concerned efforts. He has to furnish the name/s
address/addresses, date/s, time and place/s and precise nature of reports obtained from other
persons/firms/companies. The sanctioning authority will then examine the proposals on their
merits.
i. While assessing the credit requirements of a party, the branch should take into consideration the
party's financial requirements for the next 12 months. This will avoid referring to the sanctioning
authority very often for additional/adhoc facilities. However, for reasons unexpected, if
temporary increase in limits or additional facilities are required and recommended, the reasons
for such increase or additional facility and the period for which they are required must be clearly
stated.
8. Time Norms for disposal of Credit Proposals
a. Proposals must be prepared in triplicate of which two copies shall be forwarded to Head Office
and the third copy retained for branch records. Of the two copies received, one copy will be
returned by the Head Office with their sanction or rejection order.
b. In any case, a proposal should not be kept pending beyond three months from the date of receipt
from the branch subject to the time norms prescribed for priority sector advance/other advances.
45 - III
c. All sanctioning authorities should exercise caution, while entertaining fresh proposals and refer
to the list of Defaulters/Wilful Defaulters /caution Lists circulated by
HO/ECGC/RBI/BIFR/CIBIL so that financing to such persons/activities shall not be
entertained. For this purpose, they must diarize the lists circulated by the above authorities.
9. Sources of Information:
a. Application for advance:The application tendered by the prospective borrower is one of the
primary sources of information available to the Bank. The Branch Manager has to verify the
same including for KYC compliance, while appraising a proposal.
b. Market reports through friends or competitors of similar trade or business:All such reports
sometimes through contradictory to each other have to be weighed independently and a
balanced opinion has to be formed about the 'three Cs' of the borrower. At least, two opinions
from parties unconnected with the constituent should be furnished.
c. Mode of living: While preparing a credit report, the applicant's mode/style/status of living has to
be ascertained to assess whether he is normal/moderate/lavish in his lifestyle.
d. Borrower's other accounts:
i. If the Borrower is having accounts with other banks, the transactions of such accounts are
to be analysed.
ii. Income-tax assessment order/returns to ascertain the various sources of income and the
investments declared may be studied.
iii. Wealth-tax assessment order/returns may be verified to ascertain the various properties
furnished in the Assets and Liabilities statement.
iv. Sales-tax assessment order/returns may be compared to ascertain the turn over
declared/assessed in the financial statements given by the borrower.
v. More details about the borrower may also be obtained from the following::
l Reports about auctions and decrees in Government Gazette.
l Registration, revenue and municipal records.
l Reserve Bank Credit Information Bureau/ Credit Information Bureau of India Ltd
(CIBIL).
l Report from Trade bodies, Merchant Associations and Export Promotion Councils.
46 - III
Note: The Reserve Bank of India is empowered under Section 45 B of the Reserve Bank of India Act 1934 to
collect credit information from banks and furnish such information to any bank which applies for such
information. In order to get the requisite information from RBI, the applicant bank must be contemplating to
enter into or should have already entered into a financial arrangement with the party on whom the report is
sought.
e. Interviewing the borrower: The points that will be covered in an interview with the borrower are.
i. his business,
ii. his capital,
iii. his experience in the line,
iv. working results,
v. amount of advance and period,
vi. purpose of the advance,
vii. source of repayment,
viii. terms of repayment,
ix. security offered,
x. type of charge available, etc.,
Note: While ascertaining the assets and liabilities of the borrower/ co-obligant/ guarantors from
independent sources, Branch Managers should also ascertain this information from the borrower/ co-
obligant/ guarantor orally where submission of written Assets and Liabilities statements have been waived
under exceptional circumstances. Separate Credit Reports for borrowers, guarantors, directors, etc., are to
be compiled.
f. Statements of Assets and Liabilities – Scrutiny and Verifications:One of the vital sources of
information for compilation of credit reports is the Assets and Liabilities Statement submitted by the
borrower/ guarantor to the Bank. The Assets and Liabilities Statements are to be necessarily
obtained along with the applications for credit facilities. The general guidelines forScrutiny of
Assets and Liabilities Statement shall be:
i. The Assets and Liabilities Statements should be obtained separately for each applicant and
guarantor.
ii. While obtaining the Statements, it has to be ensured that they are duly dated and signed by the
borrower/guarantor. They should bear the latest date as far as possible and should be obtained
within a reasonable time, say, not more than 3 months from the date of such statements.
ii. The statement shall contain complete details regarding the assets and liabilities of the borrowers
and guarantors. It must be accurate by collecting documentary evidences regarding all movable
and immovable assets of the firm/ person to whom the statement is related to. Similarly, all
liabilities must also be recorded to arrive at the actual worth.
47 - III
iv. In respect of immovable properties, the particulars of the document like registration
number, date and address of the Registrar Office etc. should be recorded in the Assets and
Liabilities statements submitted.
v. If the property of a guarantor has already been offered as a security to the Bank or/
Financial Institution, the value of the same has to be excluded while arriving at the net
worth of the guarantor.
vi. It is necessary to obtain contingent liabilities of a borrower/ guarantor along with the
Assets and Liabilities Statement. Even though the contingent liabilities need not be taken
into account for the purpose of arriving at the net worth, a footnote should be given in the
Credit Report.
vii. While appraising a proposal, the appraising authority should consider the likely impact of
the contingent liabilities on the party's financial position.
viii. If any of the guarantees issued by the Bank on behalf of the borrower/ guarantor in favour
of other banks/ Government Department is invoked or action initiated, then such
commitments must also be treated as funded liabilities.
ix. Branches must obtain Assets and Liabilities Statement from borrowers and guarantors
once in a year in all borrowal accounts and compile reports. All proposals (fresh and
renewal) should invariably be accompanied by Assets and Liabilities Statements and
Credit Reports.
x. Reasons for increase or decrease in net worth should be indicated in the credit reports.
Reduction in net worth due to disposal of fixed assets or incurring of loss is a danger signal.
If there is any increase in fixed assets, source of acquiring them should be ascertained or it
should be verified whether it is due to any revaluation of assets.
g. Sole Proprietorship Concerns: In case of sole proprietorships, the assets and liabilities of the firm
and that of the proprietor should be merged to have a clear picture of the net worth. Alternatively, in
the personal assets and liabilities statement, the capital employed in the sole proprietorship concern
should be shown as Investment in Business. The other assets held by the sole proprietor outside the
business should be shown in respective columns of the Assets and Liabilities statement.In respect of
sole traders/partnerships, it may be based on their declared assets and liabilities (and their audited
Balance Sheets, if available) and verification thereof shall be done from independent sources, the
sales-tax/ income-tax/ wealth-tax returns and assessment orders, etc.
h. Partnership Firms: In the credit report format of the firm, there are columns for reporting
individual net worth of each partner of the firm. For compiling the individual net worth of the
partners, Assets and Liabilities statements from individual partners showing all their private assets
and liabilities should be obtained and credit report prepared. The capital employed by a partner in
the firm should be ignored in the individual credit reports of the partners, as these
48 - III
these investments form part of the firm's Net Worth.In case a firm is reconstituted after submission
of the credit report, the same should be indicated at the top of the report. Any reduction in the
estimated worth of the firm/partners should be cautiously studied.In the event of the branch
accommodating the partnership firm and the partners, it has to be ensured that a partner's Assets and
Liabilities statement submitted for the firm's advance is not inconsistent with the one submitted for
advances availed by him in his personal capacity.The particulars of the bankers of associated firms,
facilities enjoyed and the financial position of the associated firms should be carefully studied to
avoid diversion of funds.
i. Limited Companies: In case of companies, their audited Balance Sheets and Profit & Loss
accounts for three years should be obtained and an analysis and interpretation of the financial
statements shall be done. In case of non- corporate borrowers enjoying working capital limit of
Rs.10 lakhs and above or having an annual turnover of Rs.40 lakhs and above, audited Balance
Sheet and Profit and Loss account should be obtained along with the auditor's report.
j. Verification and Valuation of Assets and Liabilities: A check list on verification and valuation of
various assets shown in the Assets and Liabilities Statement is given below:
No. List of Documents to be verified Valuation Procedure

i. In case of Immovable properties (Land and Building)
a. Non- encumbrance certificate
b. Sale deed and other title deeds, patta, etc.
c. Wealth tax assessment order
d. Municipal tax receipt, ground rent receipt
e. Search report on the searches made in
the office of the Registrar of Assurances
f. Registration of charges with Registrar
of Companies in case of Limited
companies
e. Verification of charges in the register
of charges maintained by the company
ii. In case of Machinery
a. Original sale invoices of plant and
machinery should be verified.
Copies of the same should not be accepted Cost less Depreciation. i.e.,
Note: The factory should also be visited Book value
to see that the machinery is in working
condition
iii. In case of Case and Bank balances
a. Pass Book or Statement of account As cash balance cannot be
physically verified by the Branch
b. Balance Sheet statements or discount enquiries.
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iv. Realisable Book Debts
a. Making enquiries as to the long pending Sundry Debtors figure less
reserve for bad and doubtful
debts given in the audited
b. Search at the office of the Registrar Balance Sheet
of Companies (in case of limed
companies)
c. Test check of prospective borrower's
account books
d. Bazaar reports
v. In case of Investment in Government Pro-notes(GPNs)
Value given in the Balance Sheet
(it is usually valued on the cost
price or market price whichever
Government Promissory notes is lower)
vi. Shares and Share certificates and Value given in the Balance Sheet
Dividend Warrants (it is usually valued on the cost
price or market price whichever
is lower). In case of D'mat
shares the statement of account
issued by the depository
participant should be verified.
vii. Life Policies and last Premium paid Total amount of premium paid
receipts
10. Over-trading and Under-trading:

a. Over trading implies doing more business than that can be conveniently carried on with the
finance available. In other words, given the credit period for debtors and creditors and the net
working capital available, there is a limitation on the sales/turn over that is possible. Any further
increase in sales requires pumping in of additional working capital.
b. If a unit attempts to sell more without bringing in the necessary working capital, then it is a case
of over trading. The main feature of over trading is that the unit is bent upon selling goods
without having control over realization of the sale proceeds. With the result, it is not in a position
to meet the obligation to its creditors, payment of Government dues etc. Acute cash shortage is
always felt and the facility is always fully utilized and/or the account is in excess without any
seasonal fluctuations.
c. Symptoms of over trading: Bank account will reveal hand-to-mouth position as follows:
i. Smaller swing-no healthy fluctuations in the operations
ii. Development of hard-core- balance in the account, which remains almost constant.
iii. Frequent excess drawings
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iv. Frequent return of cheques
v. Payment in round sums to suppliers
vi. Issuing post-dated cheques
d. Two clear symptoms of over trading are:
i. High inventory turnover ratio.
ii. Low current ratio.
e. The following are the dangers arising out of over trading:
i. Most of the profits tend to be book profits only.
ii. Severe cash shortages will be experienced.
iii. Heavy bad debts will result.
iv. Pressure from creditors will mount up and they may take the business to bankruptcy.
f. Under-trading (Conservative):
i. There is another typical situation known as under-trading which is just the opposite of over
trading. Under-trading means trading at a level which is far below the limit that the
resources can permit. Its major symptoms are:
l Low inventory turnover ratio and
l High current ratio.
ii. If an organization under-trades, its installed capacity remains under-utilised. Due to low
inventory turnover, there will be high stock carrying costs.
11. Staff Related Advances:

a. Normally, no credit facility should be granted by the bank to the spouse/close relatives of
their employees for the purpose of any trade/business. On exceptional circumstances, the
competent authority can grant such credit facility depending upon the genuineness of the
case. Close relative for this purpose would include the relationships as shown
below:
Spouse Brother (including step-brother)

Father Brother's wife
Mother (including step-mother) Sister (including step-sister)
Son (including step-son) Sister's husband
Son's wife Brother (including step-brother)of the spouse
Daughter (including step-daughter) Sister (including step-sister)of the spouse
Daughter's husband
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b. HO alone is empowered to grant advances to relatives of staff, even if the limits would
otherwise fall under the discretionary power of the authorities at a lower level. Stricter
credit appraisal and staff accountability should be ensured in processing/monitoring of
staff related accounts.
c. In case of advances to relatives of staff, the guarantee of the staff to whom the proposed
borrower is related shall, normally, be stipulated in the terms of sanction by the
sanctioning authority. Even for the existing loans, the guarantee must be insisted upon, if
sanction stipulates so.
d. Advances to the directors / relatives of Directors of any Bank has to be referred to Head
Office.
e. No officer or any committee comprising inter alia an officer as member, should, while
exercising powers of sanction of any credit facility, sanction any credit facility to his/her
relative. such a facility should ordinarily be sanctioned only by the next higher authority.
f. When a credit facility is sanctioned by an authority other than the Management committee
of the Board to:
i. any firm in which any of the relative of any senior officer of the bank holds
substantial interest or is interested as a partner or guarantor or
ii. any company in which any of the relative of any senior officer of bank holds
substantial interest or is interested as a Director or guarantor, the sanctions, other
than the exempted categories, should be reported to the Management committee of
the Board.
iii. In case of consortium arrangements, norms relating to grant of credit facilities to
relatives of senior officers of financing bank will apply to the relatives and senior
officers or all the participating banks.
iv. It should be made as a condition that where the declaration made is found to be false
subsequently, then the bank should be entitled to revoke and/or recall the credit
facility.
12. Rejection of Proposals
a. To have consistency, the reasons for rejecting a proposal may be stated as:
i. Past dealings with the bank not satisfactory;
ii. Project not considered technically feasible;
iii. Project not considered financially viable;
iv. Party's experience in business does not inspire confidence;
v. Credit rating is not of the required standard;
vi. Any other to be specified;
b. If a proposal is rejected, the reason for rejection shall have to be communicated in writing. The
rejection letter should be worded briefly on the following lines and any wording to suggest that
the rejection was made by a particular office or officer shall be avoided.
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' i. We have for acknowledgement your letter/application dated ………… requesting for an
accommodation for Rs……… We gave full and mature consideration to the matter and
regret to have to advise you that the proposal does not suit the Bank, (express the
appropriate reasons applicable to each case) in view of (1) economic reasons (2) technical
viability (3) operational difficulties. Thanking you for the interest shown in us'.
c. In case of credit proposals upto Rs.2 lakhs, any of the reasons as illustrated below may be
attributed for rejection of the same. Branches should incorporate the appropriate reason in the
rejection letter written to the applicant:
i. Applicant not within the service area of the Bank's branch

ii. Activity not viable/ not feasible
iii. Lack of experience/ skill of the borrower in the activity proposed.
iv. Past experience of the borrower is unsatisfactory
v. Bank's experience with similar line of activity is not satisfactory.
vi. Borrower overaged.
vii. Persisting overdues (direct or indirect) with the Bank/ other banks.
viii.Application not conforming to the Bank's Loan policy.
ix. Application not conforming to scheme requirements
x. Projections/estimates not realistic
xi. Borrower's financial ratios not within the Bank's acceptable parameters.
xii. Proposed activity does not come under bankable proposition.
xiii.Insufficient income to meet commitments to the Bank.
xiv. Application does not hold the registration / permission issued by competent authority
(wherever registration is applicable)
xv. Non-compliance with the terms/ conditions of previous sanction.
xvi. Other reasons(to be clearly specified)
b. In cases of SSI sector, Educational Loans, borrowers belonging to SC & ST and other general
proposals falling under the powers of higher authorities, if rejection of application is to be made
by the Branch Manager, it can be with the approval of the Head Office.
c. A proper note shall be made about the rejections including applications related to priority sector
advances.
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CHAPTER - 5
CREDIT SANCTION
1. General:
a. After analysis of the credit proposals, the credit shall be sanctioned by the appropriate authority
of each Bank as per the prescribed norms/delegation of powers, duly approved by the Board of
Management along with relevant/necessary/prescribed terms and conditions.
b. On approval by the Board of Management, the sanction should be informed to the borrower in
writing mentioning therein the terms and conditions to be complied with. The sanction
communication should clearly divide the terms and conditions into Pre-disbursement conditions
and Post-disbursement conditions.
2. General Terms and Conditions of Sanction:
a. A copy of the sanction letter and terms and conditions should be resubmitted to the Bank duly
signed by the borrower as a token of acceptance.
b. The advance will be released only upon completion of documentation in all respects as per
Bank's rules.
c. The limit /advance is valid for a period of …………. years and is repayable in monthly/
quarterly/ half – yearly/ yearly instalments.
d. Processing fee and other charges as prescribed by the Bank should be paid in time.
e. The rate of interest/charging of interest will be …… % as prescribed by the Bank
f. Bank is entitled to charge and recover interest, various fees, charges as per actuals / prescribed
tariff from the borrower as applicable from time to time.
g. The limits shall be availed within the prescribed time limit from the date of communication of
sanction.
h. The advance must be used for the purpose for which it is sanctioned. Unless otherwise
specified, the working capital limits disbursed are valid for a period of one year from the date of
sanction. For any request for renewal/enhancement, application should be made at least three
months in advance furnishing all the relevant data as required by the Bank.
i. Acceptance of immovable properties offered as security is subject to the legal opinion of the
Bank's approved lawyer conveying a clear, valid, subsisting and marketable title.
j. Valuation of the property, wherever given as security, should be done by the Bank's approved
engineer/revenue authorities/ approved valuer.
k. In the case of immovable properties given as security, the borrower should furnish up-to-date
encumbrance certificate showing NIL encumbrance and up-to-date tax paid receipt at the time
of documentation.
l. Immediately on completion of 4 months from the date of creation of Equitable Mortgage, further
encumbrance certificate should be produced. Thereafter, encumbrance certificates and property
tax paid receipts shall be produced every year.
54 - III
m. Securities for one or more facilities shall also stand as additional security for all other facilities
granted or shall be granted from time to time to the said borrowers, unless specifically waived
by the Bank.
n. Fixed assets charged to the Bank shall not be leased / disposed / substituted / re-located /
mortgaged / assigned without the prior approval of the Bank.
o. All the assets charged to the Bank [except for the assets exempted from insuring in certain loan
Products/ Schemes] shall be adequately insured against all attendant risks at the expense of the
borrower(s). The insurance policy with Bank clause (viz. Bank as mortgagee, hypothecatee or
pledgee as the case may be) shall be lodged with the Bank. The insurance cover shall be kept in
force at all times through prompt renewals and with suitable enhancements to include any
increase in the value of securities.
p. Machinery, equipment, vehicles, etc. charged to the Bank should be painted with the Bank's
name or affixed with the bank's name board. In the premises where stocks
hypothecated/pledged to the Bank are stored, Bank name board with specific mention of the
branch name should be displayed prominently both inside and outside the premises.
q. Assets charged to the Bank are subject to inspection by Bank's officials from time to time.
r. For working capital facilities against stock etc, monthly stock statement with breakup of stocks
as required by the Bank is to be submitted. Delayed submission of stock statements / financial
statements etc., will attract levy of penal interest as per Bank's rules in force from time to time.
s. All fund based/non-fund based /fee based transactions shall be routed only through the account
with the Bank.
t. Interest will be generally charged on the last working day of every month and should be paid as
and when charged.
u. Default in payment of interest / instalments on the respective due dates will attract overdue
interest on the defaulted amount at a described percent over and above the contractual /
Maximum interest rates or at such rates as applicable from time to time.
v. Stipulated margin on securities charged to the Bank should be maintained during the currency
of the advance.
w. If any default / deterioration occurs in any security charged to the Bank, the liability of the
borrower shall become immediately due and payable.
x. The Bank is not under any obligation to make further advances or other accommodation to the
borrower, unless deemed fit and necessary by the Bank.
y. Changes, if any made to the structure of ownership/management of the borrowing concern shall
be promptly informed to the Bank.
z. Besides the general terms and conditions, Scheme-specific / activity-specific terms and
conditions will also be stipulated in the sanction order and should be complied by the applicant,
based on the nature of facility; constitution of the borrower; purpose; end use; security and
nature of charge on the security.
55 - III
aa. For Scheme-specific / activity-specific loans for activities like Small Scale Industries,
Agriculture, allied activities, Poultry, Minor irrigation, Land Development, Self Help Group,
Crop Loans for specific crops, Personal loan products, consumer articles, vehicles for
Commercial / Personal use, Retail Traders, service providers, etc. specific terms and
conditions in additions to the general conditions will have to be insisted upon in the sanction
letter.
bb. The Bank may at its discretion recall the entire advance upon default of a single instalment /
interest.
cc. In addition to these terms and conditions all the facilities sanctioned shall be subject in
NABARD, guidelines directives issued by RBI or any other Regulatory Authority from time
to time.
dd. The Bank reserves to itself the right to withdraw/cancel / suspend / reduce any or all the
facilities sanctioned/alter /amend /vary the terms of sanction including rate of interest at its
sole discretion at any time without notice and without assigning any reason.
ee. No relaxation shall ordinarily be made in respect of the Bank's norms or in the standard set of
terms and conditions. In exceptional cases, requests for relaxations may be considered on
merits by appropriate Higher Authority as provided for in the rules by the bank.
ff. No relaxation shall ordinarily be made in respect of the Bank's norms or in the standard set of
terms and conditions. In exceptional cases, requests for relaxations may be considered on
merits by appropriate higher authority as provided for in the rules by the Bank.
gg. Cover Documents must be obtained for the facilities extended; Proportionate processing
charges should be recovered; The stocks / securities / asset created out of Adhoc Limits, if
applicable, should be inspected; Stock statements should be obtained, wherever applicable.
Note: The standard terms and conditions as stated above are only indicative. They should be
suitably rephrased according to specific requirements. For instance, depending on the repayment
schedule proposed, holiday allowed, etc., the condition for repayment of instalments may be
suitably modified.
3. Allowing Excess over Sanctioned Limit:
a. Credit disbursed beyond the sanctioned level or drawing limit (whichever is less) in a working
capital account is termed as Excess. One of the vital areas of credit discipline relates to
sanctioning of limits within delegated powers / allowing operations within the sanctioned /
drawing Limits. The excess may be caused in any working capital account by any one or
combination of the following factors.
i. powers as per the prescribed norms. Depletion of stocks under hypothecation leading to
reduced drawing limit.
ii. Erosion in value of stocks under hypothecation/pledge.
iii. Non-servicing of interest, other charges debited to the account and default by the borrower
to conduct the account properly.
56 - III
b. Branches should desist from the practice of granting excess over the sanctioned/drawing limits.
If there is a need to allow excess based on business requirements, it may be permitted strictly
within delegated powers as per the prescribed norms.
c. If the credit requirements of a borrower who conforms to financial discipline are properly
evaluated, there will not be any need for allowing excess drawings to him. However, considering
the need to allow excess for business considerations, which may arise due to unforeseen
situations, Branch Managers can consider allowing further debits consciously in the account
over the limit sanctioned or drawing limit on the request of the party or otherwise. When there is
need to allow excess beyond the tolerance level, the request is to be taken up with the appropriate
higher authority.
c. Excesses due to depletion or erosion of stocks should be detected in time and ascertained on a
case to case basis. Suitable remedial measures should be initiated for recovering the excess or to
secure the advance adequately as per the terms of sanction.
d. The risk arising out of non-servicing of interest and other charges debited to the account or due to
default by the borrower to conduct the account properly shall be mitigated by informing the
customers in advance about the interest to be charged and to provide for the same so as to keep
the account within the Drawing Limit on the date of debit of interest. However, 15 days' time
may be allowed by the Branch Manager to regularise the interest on a case to case basis and on
merits.
4. Guidelines on allowing excesses:
a. Branch Managers may be empowered to allow excess drawing in an account subject to the
prescribed tolerance level and monetary ceiling, if the following conditions are fulfilled:
i. Account is of standard category,
ii. Group accounts, if any, are also regular,
iii. All terms and conditions of sanction have been complied with,
iv. Accounts have regular sanctioned limits in force duly reviewed/ renewed or for which
proposals have already been submitted and
v. The track record and the operations in the sanctioned working capital limits are good.
5. Confirmation of Excesses allowed:
a. Sanctioning authorities exercising their delegated powers for allowing excess has to report all
such sanctions periodically, as per the prescribed reporting system. Such excesses allowed do
not warrant a confirmation, if they are allowed within the delegated ceilings and as per the
guidelines.
b. Prompt reporting is to be made in the prescribed format to facilitate the sanctioning authority to
accord confirmation within 30 days.
c. The confirmation of excess accorded shall be for the specific transaction or uptothe monetary
limit and for the specific period.
57 - III
6. Overdue Excess / Out of order:
a. Any amount due to the Bank under any credit facility is overdue, if it is not paid on the due date
fixed by the Bank. Accordingly, beyond the permitted period, if excess persists then it is to be
treated as Overdue Excess.
b. RBI defines that an account should be treated as Out of Order if the outstanding balance remains
continuously in excess of the sanctioned limit / drawing power for 90 days.
c. Situations/ requests may come to allow operation in an out of order / overdue excess account,
against the credits brought in. Such operations can be allowed with the approval of the
competent authority, if the excess level is beyond the delegated limit of the Branch Manager.
d. Vigorous follow up action has to be taken for recovery/regularisation of such overdue excesses.
7. Penal Interest:
a. Penal Interest at an appropriate rate over the contracted rate as fixed by the Bank from time to
time should be levied for the excess portion till the excess portion is cleared.
58 - III
CHAPTER – 6
CREDIT DOCUMENTATION
1. General:
a.“Documentation”means obtaining of RELEVANT documents (here' relevant' means relevant to

the advance, to the terms and conditions of the advance, to the security and to the legal status of
the borrower) properly executed by the constituents to whom credit facilities have been
sanctioned by the Bank and/or by whom the said facilities are guaranteed. While nature of
documents obtained varies with the nature of advance, terms and conditions of the advance,
nature of security and nature of the legal status of the borrower, mode of execution thereof varies
with the legal status of the borrower alone.
b. Correct documentation is essential to ensure the safety of an advance. The documents should be
rightly stamped, properly executed and should effectively create the necessary charge on the
security.
c. The documents should mention :

i. The correct name of the parties
ii. contain proper recitals
iii. Give a detailed description of the security if any to be charged
iv. the consideration
v. rate of Interest
vi. Terms of repayment and
vii. Other important conditions agreed to.
d Any deviation from the standard form should not be permitted without obtaining the requisite
permission from controlling office (Regional/Zonal/Head Office). The legal formalities as to
the registration of charge with the Registrar of assurances and /or the Registrar of
Companies should be complied with wherever necessary.
2. Stamping and Execution of Documents:
a. Section 17 of the Indian Stamp Act, 1899 states that all the documents chargeable with duty and
executed by any person in India shall be properly and duly stamped before or at the time of
execution. An unstamped or insufficiently stamped document will not be admitted in evidence or
form the basis of a suit. Permission however can be accorded in certain cases by the Court or an
appropriate authority to admit an unstamped or insufficiently stamped document on payment of
certain penalties in addition to the duty with which the document is chargeable or in the case of
an instrument insufficiently stamped the amount required to make up the required stamp duty. It
must however be remembered that an unstamped or insufficiently stamped, acknowledgement
of debt or promissory Note or Bill of Exchange is an invalid document ab- initio and cannot be
admitted in evidence even on payment of duty and or penalty. Stamps are of three kinds i.e.
59 - III
i. Adhesive Revenue Stamps: Adhesive Revenue Stamps are affixed on Promissory Notes,
receipts and acknowledgement of debts. Revenue stamps are cancelled by borrowers by
signing across or otherwise. The best way of cancelling a Revenue stamp is by ensuring
that the executants signs over all the stamps in such a manner that the signature extends
even beyond the stamps.
ii. Special Adhesive Stamps: Special Adhesive Stamps when affixed to documents are
cancelled by Treasury by punching dates across them. Special Adhesive stamps are
affixed on Agreements, Bill of Lading, Contracts, Insurance, Bill of Exchanges, Shares
etc. Sometimes the Treasury impresses or engrosses the Stamp value on the documents
when the Special Adhesive Stamps are not available. If Special Adhesive Stamps or
impressed /engrossed documents are not readily available, documents may be executed on
Non Judicial Stamp paper for the requisite value of stamps. The Stamp duty must be in
accordance with the provisions of Stamp Law in force in the respective States.
iii. Bill of exchange Stamps.
b. All documents must be executed in the presence of the Manager or any other Officer of the
Bank. The parties should sign in full, according to their specimen signatures. If the document
consists of number of pages all the pages should be signed by the borrower. As far as possible
there should be no correction or overwriting or interlineations in the document. Corrections,
overwriting etc. must be signed by the executants. All the blank places in the document should
be filled in with the relevant particulars. The execution of the documents and the disbursement
of the advance should be on the same date.
3. Importance of Documentation:
a. Appropriate documents properly executed, signify and incorporate the following:
i. The contractual relationships between the Bank and the constituent such as creditor –
debtor, agent – principal etc.,
ii. The nature and description of the security, if any, offered for the advance, and
iii. The terms and conditions of the advance.
b. Documents obtained by the Bank form the basis upon which a suit, as and when found
necessary, may be filed by the Bank in a competent Court of Law against the defaulting
borrower. Although it may be argued that the Bank may be able to proceed legally against the
defaulting borrower on the basis of debit entries themselves appearing in its books, the
difficulties that confront the Bank in proving each such debit entry to the Court's satisfaction are
so enormous that no Bank generally relies totally upon them. In other words, the burden of proof
gets shifted to the defaulting borrower when proper documents (which are enforceable) can be
produced to the Court by the Bank. In the absence of such properly executed documents, the
onerous burden of proof is on the banker.
60 - III
4. Defective Documentation: Consequences:
a. Defective Documentation' means:

i. Inappropriate documents, i.e. documents not relevant to the advance.
ii. Incomplete set of documents.
iii. Documents, not filled in/partially filled in/incorrectly filled in.
iv. Documents with unauthenticated over – writings / erasures / cancellation / corrections /
Insertions.
v. Unstamped or inadequately stamped or improperly stamped documents.
vi. Documents not executed properly or not executed by all the persons who are required to
execute such documents.
vii. Documents executed by persons incompetent to contract, i.e. by persons who have no
Legal capacity to contract and hence to borrow.
viii. Documentsexecutedbypersonsnotauthorizedtosoexecute,e.g.byagentswhodonot have
necessary power to borrow and execute the documents.
b. Consequences of Defective Documentation: Defective Documentation may lead to a situation

where the Bank may either lose the legal remedy against the borrower and/or the guarantor or
may not be able to enforce its rights and the advance may become irrecoverable.
5. Points for observation while obtaining Documents for Advances:
a. Before obtaining documents for advances, it should be ensured that all the facilities are
supported by sanction from the appropriate authorities. (Credit facilities, if any sanctioned,
beyond the discretionary powers of the branch manager the same should be supported by
confirmation of the higher authorities. Sanction letters should be kept attached to the
documents.)
b. All relevant documents as stipulated in the sanction or as per the bank's laid down guidelines
should be obtained in respect of different kinds of facilities granted to the borrowers.
c. Documents must ordinarily be executed in the presence of the Branch Manager / Accountant in
the branch premises. If documents are required to be got executed outside the branch premises,
they must be sent with one of the officers of the Bank, in whose presence only they should be
executed.
d. The Branch Manager or the Officer in whose presence documents are executed should not initial
or sign thereon to authenticate the genuineness of the signature or thumb impression of the
executants as such authentication is likely to be interpreted attestation, which in turn may attract
higher stamp duty. For this purpose 'Attestation Memo' (as given in the General Annexures
(LDOC-1) under Chapter – 48) should be filled in and kept along with the documents. However,
where a document is required to be witnessed as in the case of a Mortgage Deed, it may be
witnessed and the name, description and address of the witness should be given.
61 - III
e. Where a document is executed by an illiterate or by a person not knowing the language in which
the document is written/printed, a letter (as per LDOC) should be obtained duly signed by a
person conversant with English language as well as the language of the executant and also
known to the bank. In addition the officer in whose presence the documents are executed should
prepare a note as per the 'Attestation Memo' (LDOC-1) and keep it along with the documents.
f. Documents should be complete in all respects. Blank spaces in the printed document forms
should be correctly filled in, before execution and the same should be initialled / authenticated
by the executants. Wherever blanks are filled in, the executants should initial/sign against the
portion so filled in. The executants should also sign at the end of each page of document.
g. All documents should state the place and date of their execution. Normally, all documents
should bear a uniform date of execution unless a particular document is required to be executed
on a different date.
h. Rate of interest entered in all the documents in respect of a particular credit facility granted to a
borrower should be uniform. It should be as stipulated in the sanction.
i. All documents should be properly and adequately stamped as per law in force at or before the
time of their execution. For rate of stamp duty branches should seek guidance from their
Regional / Zonal authorities. Stamp duty should be borne by the borrower
j. The documents should be affixed with the stamp of the State in which the Branch granting the
advance is functioning.If one or more of the executants is / are residing in different states. No
further stamps need to be affixed if the Stamp Duty in both / all the States is the same or if the
instrument has already been stamped with a higher value stamp. If the Stamp Duty in any state is
higher than that prevailing in the state wherein the advance has been granted, the stamps of the
former state, (i.e. where the Stamp Duty is higher) should also be affixed. The amount of stamps
so to be fixed would be the difference in the rate of Stamp Duty prevailing in these two states.
k. If any advances are given in one state to a company the Registered Office of which is situated in
another State where the documents are executed, the documents so executed should be first
stamped with the requisite stamps of that State where the registered office of the company is
situated and thereafter, the said documents when brought into another state where they are to be
used, the deficit amount if any, as per the Stamp Act of the second State should be paid. The same
will be the position in respect of the documents executed by the partners of a firm in different
states.
l. The above conditions are not applicable to an instrument executed in or brought into the State of
Jammu & Kashmir after it is executed outside the said State. As regards the documents executed
in Jammu & Kashmir and relating to properties or things to be done in another state, the said
documents when brought in that State will have to be stamped with the full stamp duty payable
in that state according to that state laws.
62 - III
m. Revenue stamps should be used for paying stamp duty in respect of the demand promissory
notes (and the letters of acknowledgement of debit in some states). In other cases, special
adhesive stamps are to be used. Usually, branches should approach the Government Treasury or
stamp office to get a reasonable stock of blank document forms duly affixed with special
adhesive stamps of proper value. In case of non-availability, non-judicial stamp papers can be
purchased in the name of the Bank or the party executing the documents. The Government
Treasury / Sub-Treasury, Stamp Office or the authorized stamp vendor (or the Managers of
Nationalized Banks in some States) are entitled to affix the stamps and cancel the same. The
whole document is not to be typed on the non-judicial stamp paper and the printed document
may be typed on the non-Judicial stamp paper and the printed document (with the typed matter
duly cancelled under authentication) should be attached to the non-judicial stamp paper. Pages
should be numbered beginning with the non-judicial stamp paper and the borrower's full
signatures be obtained on all pages.
n. Revenue stamp affixed on a document should be cancelled by the executants by putting his/her
signature across it. In addition, the executants should also sign the document separately without
revenue stamp. Where a document is to be executed by a joint stock company under its common
seal, the seal should be put across the revenue stamp.
` o. Documents are required to be stamped at or before their execution. Therefore, branches should
note that in no case the date of execution of a document is earlier to the date mentioned in the seal
affixed by the Treasury Officer on the stamp for cancelling the special adhesive stamp or the date
on which a non – judicial stamp paper is purchased.
p. The documents should be executed by the borrowers themselves. However, if it is decided for
valid and just if iable reasons to permit the Power of Attorney holder to execute the documents,
the relative powers of attorney should be registered in the book soft he Bank and a true copy of
the Power of Attorney should be kept with the documents. It should be ensured that they have
been conferred with necessary powers to execute the documents on be half of the principals. The
irrepresentative capacity should clearly be indicated in the documents. The documents should
be signed by the principal also as soon as he/she is available for execution.
i. The document should state full names of the parties. Initials/short names or abbreviated
names of the parties should not be written.
ii. In single account, D.P. Note meant for individual should be obtained. Signature of the
borrower should be obtained across the revenue stamp/s affixed on the D.P. Note. Letter of
continuing security and other documents should also be executed in the same manner as D.P.
Note but without affixing revenue stamps (but stamping is necessary).
iii. In a joint account, joint and several D.P. Note should be obtained. Parties executing the D.P.
Note should sign across the revenue stamp/saffixed there on. Letter of continuing security
and other documents should be executed in the same manner as D.P. Note but without
affixing revenue stamps.
63 - III
iv. In case of sole proprietorship concern, joint and several D.P. Note should be signed by the
sole – proprietor over the revenue stamp/s in the capacity of the proprietor of the firm by
affixing the rubber stamp of his concern, while his signature in the personal capacity
should be obtained on the left hand side of the D.P. Note.
q. Letter of continuing security and other documents should be got executed in the same manner
but without affixing revenue stamps thereon. The letter of sole proprietorship should, however,
be signed by the proprietor in his personal capacity only.
i. In case of partnership firm, joint and several D.P. Note, letter of continuing security and
other documents should be executed by all the partners of the firm as usual in the firm's
capacity, and personal signatures of all of them should also be obtained on the left hand
side of the above documents. The partnership letter should however be signed by the
partners in their personal capacity only. Execution of the documents should be under the
firm's rubber stamp.
ii. At the time of scrutinizing proposals for advances to a limited company, the company's
objects and powers to borrow and the method prescribed for such borrowing should be
ascertained. The Articles of Association of the company should specifically empower it to
borrow for the objects stated in the Memorandum. The power to borrow should also
indicate the power to give security. It should be ascertained from the Memorandum and
Articles of Association whether any restrictions have been imposed upon the company in
the matter of mortgaging / charging of its assets. The Articles of Association vest the
exercise of the power of borrowing by the company within the limit approved by the
General meeting of Shareholders, the borrowing power can be allowed to be exercised
after getting a certified copy of the resolution of the General meeting authorising the
borrowing.
iii. Under section 292 of the Companies Act, the Board of Directors of a Public Limited
company on behalf of the Company can exercise the powers to borrow only by means of
resolutions passed at a meeting of the Board and not by circular resolution. The resolutions
should be certified true by the Chairman of the meeting.
iv. Under Section 293 (i)(d) of the Act, the Board of Directors of any Public Limited
Company cannot borrow in excess of the Paid – up capital and free reserves of the
company without the consent of the company in their General meeting. Temporary loans
(i.e. the loans which are granted for a period not exceeding six months and are not meant
for financing expenditure of a capital nature) obtained by the company from the Bank in
their ordinary course of business are excluded from the purview of this Section. Therefore,
a certificate should be obtained from all borrowing companies that their total borrowings
together with the limit fixed by the Bank for the advance are not in excess of the limit
prescribed under this section for borrowings by the Board of Directors and that the Board
of Directors will see that such limit is not exceeded at any time. If in certain cases, their
borrowings exceed their paid – up Capital and Free Reserve, a resolution passed by the
Company in their General meeting authorizing the borrowings from the bank should be
obtained. These instructions apply only to Public limited Companies and to Private limited
Companies, which are subsidiaries of Public limited Companies incorporated under the
Companies Act, 1956.
64 - III
v. Advances to limited companies should be made only after satisfying by a search in the
office of the Registrar of Companies in the respective State, that there is no outstanding
charge on the securities proposed to be given to the Bank. The branch has to arrange to
make a search in the books of the registrar of companies to ascertain whether any prior
charge exist against the same security. The search can be made by the officials of the
branch or by utilizing the services of a chartered accountant.
vi. The execution of all documents by a limited company should be in conformity with the
stipulations contained in the relative resolution of its Board of Directors which should
mention clearly who would execute the documents and the manner in which the same will
be executed on its behalf. If, however, the provisions contained in the Articles of
association of the Company specifically require any or all documents to be executed only
under its common seal, it will be necessary to do so. In cases, where no common seal is
required to be affixed, the mode of execution of documents will be simple one viz. “for and
on behalf of the company” by the office bearer named and authorised in the resolution.
vii. Where common seal is affixed, relative narration is also mentioned in the documents. The
officials of the company, who are witnesses to the affixation of the common seal, should
not sign on behalf of the company but only in their individual capacity. However, their
designations may be mentioned below their signatures.
r. Registration of Charges : In the case of all companies including private limited companies,
certain charges on their assets have to be compulsorily registered with the registrar of joint stock
companies under Sec 125 of Companies Act 1956.The charges by way of hypothecation (but not
pledge) or legal or equitable mortgage or its modification should be registered in form 8 with the
Registrar of Companies of the respective State / Union Territory within 30 days of the execution
of the documents, or creation of equitable. Failure to do so within the time frame would involve
the company to unnecessary expenses for obtaining an order of the Company Law Board for
permission to register it after the expiry of the stipulated period. The charge should be registered
with the Registrar at the place where the property is situated. The copy of the letter of
hypothecation or the mortgage deed should bear the seal of the Registrar's Office. The
Certificate of Registration should be attached to the documents. Charges by way of pledge of
movable properties are not required to be registered. Supplementary agreements for increase in
hypothecation limit or extension of legal / equitable mortgage to secure additional advance
should also be registered. Modification on account of increase in rate of interest, which is not
because of change in the Bank Rate/Bank's Prime Lending Rate, should also be registered with
the Registrar of Companies. (As regards other countries, the position of law prevalent in such
countries will have to be ascertained. For this purpose, branches should obtain notarised
certified copies of the Act under which the company is incorporated).
65 - III
i In case of H.U.F. accounts, joint and several D.P. Note and letter of continuing security
should be executed by the karta of H.U.F. for and on behalf of the firm and by karta and all
the adult members personally. Other documents should be executed only by the Karta for
and on behalf of the firm.
ii. In case of advance to Club / Association / Trust, D.P. Note and the other relative documents
should be executed as per the resolution passed by the Club / Association / Trust in terms of
the rules of the respective institutions / Bodies. Bye – laws of Club / Association and rules
of the Trust, as contained in the Trust deed should specifically permit such borrowings.
iii. In the State of Maharashtra and Gujarat the Charity Commissioner's permission is
required for borrowings by the public trusts. In other States, similar permission should also
be obtained if so required by the law of the concerned State.
s. The following points should be noted while taking documents in respect of advance facilities
granted to a partnership firm wherein a private trust is one of the partners:
i. All the Trustees must pass a resolution to the effect that the trust do become a partner in the
firm and one or more Trustees (as may be provided in the Trust Deed) do represent the trust
as the partner in the firm.
ii. The mode of execution of the document will be as under if the partnership firm is named
say, X & Company having A and B as the individual partners and the trust T as the third
partner with power to C to sign on behalf of the Trustees, the documents should be signed
as under:
For X & Co. For T Trust

Sd/- A Sd/- B Sd/- C
Partners Trustee Partner
Signature of the Trustee in the individual capacity, wherever required, should be as under:
For T Trust
Sd/- C
Trustee
iii. The documents should include the usual partnership letter, which the Bank takes in all
advances to partnership firm.
iv. In addition to the usual documents, joint and several Guarantees should be obtained in the
prescribed format (as given in the General Annexures (LDOC-1) under Chapter – 48) from
all the Trustees in their individual capacities. This means, they should sign their names at
the end of the form and nothing should be written there under to show that they are
Trustees.
v. In addition to Guarantee as aforesaid, it will also be necessary to take an indemnity from all
the Trustees as well as the individual partners of the firm. The Indemnity Letter be stamped
as an agreement.
66 - III
vi. In some cases all or some of the beneficiaries, or the beneficiary, may be minor/s that
however, does not affect granting of the advance and adopting the above procedure.
vii. Letter of Guarantee executed by a partnership firm should be signed by all the partners on
behalf of the firm and also in their individual capacities.
viii. All corrections, cancellations, overwriting and additions in the documents should be duly
authenticated by all the Executants of the document.
t. Equitable mortgage: For creating equitable mortgage, the title deeds must be deposited by
owner of the property or his agent, authorized by a power of attorney who must attend the office
of the bank for the purpose. If there are more than one owner, all the owners must attend the
office and incase all cannot attend, a power of attorney in the name of one of them must be
executed by others for depositing the title deeds.
i. Where the title deeds are in favour of a partnership firm, the documents must be deposited
by all the partners jointly and in case all the partners cannot attend office they must
authorize in writing one or more of them to attend and deposit the title deeds on their
behalf. If the borrower is a company a resolution delegating the powers to one of the
Directors or to one of their officers to deposit the title deeds must be passed by Board of
Directors. The Power of Attorney / certified copy of the resolution should be kept along
with the title deeds.
ii. The title deeds should be original. Copies of the title deeds should not be accepted without
prior reference to the controlling office (Regional/Zonal/head office). The narration in the
title deeds registered has to be made in the title deed register by an officer of the bank and
witnessed by two officers. The owners of the property/borrower should not sign the
register and no acknowledgement or receipt should be passed on to their
mortgager/borrower by the bank. The owner/borrower should however execute a letter of
confirmation of deposits of title deeds preferably on the next day of the deposit.(In Tamil
Nadu its required that the memorandum has to be registered with sub registrar office after
creation of equitable mortgage).
iii. Mortgage by deposit of title deeds or registered mortgage is valid for a period of 12 years
from the date of mortgage. To extend the mortgage a fresh mortgage has to be created. An
equitable mortgage can only be created at notified centres / towns and an equitable
mortgage taken at any place other than a notified centre / town is ab-initio void and
unenforceable against a mortgagor. Therefore, branches located at places other than
notified centres / towns should arrange for creation of equitable mortgage by the borrower
at any of the branches located in the notified centres / towns. A list of notified centres /
towns may be obtained from Regional / Zonal authorities.
67 - III
u. As regards the Guarantee to be executed by the State Government to secure Bank's advance, the
position is as under:
i. Articles 293 of the Constitution of India provides that the State issuing the Guarantee,
must do so, within the limits, if any, as may be from time to time be fixed by the State
Legislature. It will, therefore, be necessary to ascertain whether the Guarantee to be issued
by the State Government is within the limits, if any Fixed by the State Legislature.
Secondly, article 299 of the Constitution of India provides that all contracts made in the
exercise of the executive power of the state shall be executed on behalf of the Governor, by
such manner as he may direct or authorize. It will, therefore, be necessary for the Bank to
obtain from the Government a true copy of the notification under which the officer
executing the Guarantee on behalf of the Government has authority to do so.
ii. A mere letter / Resolution written passed by the Govt. agreeing to Guarantee the advances
is not sufficient and document of Guarantee should be got executed.
v. Consortium advance: In consortium advances two or more financial institutions join together
in meeting the financial requirement of a borrower .They share the securities on pari-passu basis
or in such a manner as per the terms of agreement among themselves.If the Bank decides to
participate in a consortium advance, it has to be ensured that the terms and conditions stipulated
by the Bank are correctly incorporated in the relevant documents. In addition to the usual
security documents, a pari-passu agreement or inter – se agreement setting down the relative
shares of participating institutions and the respective rights, duties, responsibilities etc, is
entered into. This is usually finalised by the lead banker, a solicitor appointed by mutual consent
of all concerned. Where working capital is provided jointly with other banks, separate D.P.
Notes should be obtained by each of the participating banks for the limits sanctioned.
w. Other documents such as letter of continuing security, undertakings, Power of Attorney, letter of
acknowledgement of debt etc. as applicable should be obtained by the Branches. However, only
original joint deed of hypothecation may be executed by the borrowers for hypothecating the
stocks jointly to the Banks for the aggregate limit. The original executed deed would remain
with the lead Bank, while the others keep a copy thereof. The Bank holding the original security
documents should certify that it holds the original set of documents for itself and on behalf of the
participating banks / institutions. The certificate so issued by the Bank holding the original
security documents should remain with the participating Bank and it should not be parted with.
The following matters are worth noting:
i. In case of limited companies, the resolution should also mention the names of all
participating institutions and the limits sanctioned by each of them.
ii. Names of all participating institutions should appear in the certificate of registration of
charge when the advance is granted to a limited company.
iii. The institution holding the original certificate of registration of charge should send
certified copy thereof to the other participating institutions.
68 - III
iv. No change in the terms and conditions whatsoever should be made without the consent of
the other participating institutions. Insurance policy should be taken out in the joint names
of all the participating institutions covering all the required risks. The original policy
should be kept with the lead Bank or one of the participating financial institutions which
should issue necessary certificate periodically to the other participating institutions stating
the total amount of insurance taken out. However, if copies of the policy are available with
the company, the same could be sent to the other participating institutions also.
v. When Limited Company is the sole proprietor of a Sole Proprietorship firm: D.P. Note as
prescribed by the bank should be obtained [Specimen given in General Annexures LDOC-
3(c)(i) under Chapter – 48]. The documents should be executed as indicated therein.
vi. When Limited Company is one of the partners of Partnership Firm D.P. Notes as specified
by the bank should be obtained. The documents should be executed as indicated therein.
vii. Where advances are made to parties against securities standing in the names of one or
more of them, a letter (as per Specimen LDOC-61 given in General Annexure Chapter –
48) duly signed by all the borrowers should be obtained. Similar letter should be obtained
in the case of an advance to a partnership firm against securities standing in the names of
some or all the partners of the firm.
viii. Where an advance is made against securities standing in the name of a third party (and not
in the name of the borrower) branches should obtain his / her Guarantee for the said
facility. The person in whose name the securities are standing should execute the relative
security documents and should not join execution of other documents other than the
general form Guarantee such as D.P.N. etc., signed by the borrower as otherwise he / she
would become a joint borrower.
ix. Additional clauses to be incorporated in printed document forms: (if not already
incorporated):
l Loans granted under Refinance Scheme of NABARD: -Where loan has been
granted to a borrower under the Refinance Scheme of NABARD, the following
clauses should be incorporated in the loan agreement executed by the borrower:
l “In case of failure of financing bank: To apply for refinance as per schedule or to get
the scheme rephased or due to failure of the ultimate borrower to draw the loan
instalment/s from the financing bank as per schedule, or to advise the financing bank
to apply for rephasement (in view of the anticipated delay in the implementation of
the project) respectively, the commitment charges levied on the financing bank by
the NABARD may be passed on by the financing bank to the ultimate borrower.”
69 - III
l “The Borrower will buy / procure only such equipment as shall comply with the
specifications for such equipment laid down by the Bank in conformity with the
specifications given in the NABARD's sanction to such schemes.”
6. Periodicity of Renewal of Documents:
a. In case of all advances the renewal documents should be obtained before the end of the fourth
year calculated from the date of the documents on hand. But a letter of acknowledgement of debt
signed by all the signatories who have signed the original documents, should be obtained at the
end of every second year, calculated from the date of documents on hand for all types of
advances whether the advance is to limited companies, firms or individuals.
b. In respect of advances to limited companies, the matter regarding obtaining fresh documents
should be referred to the Regional Authority for necessary guidance. Along with the letter of
reference, a copy of the last search report taken from the records of the Registrar of Companies
should be sent to the Regional Authority.
c. In case of secured advances (mortgage) the following procedure should be followed:
i. A letter of acknowledgement of debt should be obtained every two years from the date of
documents on hand.
ii. As the period of limitation for mortgage is 12 years, the branch should obtain only a letter
of acknowledgement of debt for about ten years, at the end of which each such case should
be referred to the Zonal Legal Department through the Regional Authority for further
advice.
d. In case of Bills Purchase / Discounting facility (Inland/foreign) fresh B.P. Undertaking letter
should be obtained every two years from the date of existing documents.
e. In all letters of acknowledgement of debt subsequent to the first one (relating to the same set of
documents) reference to all the previous letters of acknowledgement of debt should be made in
addition to the reference to the documents.
f. Signatures of each of the borrowers and guarantors to an advance should be obtained on separate
revenue stamps of appropriate value, on the letter of acknowledgement of debt.
g. In respect of advance account wherein a letter of Guarantee is obtained, same letter of

acknowledgement of debt should be got signed by the principal parties as well as by the
guarantor/s.
h. In case of change in the constitution of a borrower's firm, fresh sanction and documents should
be obtained and a fresh account should be opened. In case the existing advance is secured by
mortgage of title deeds to landed property then the bank should ensure that the property
mortgaged is unencumbered before closing the existing loan and opening fresh loan facility.
70 - III
i. Branches in such cases should ensure creation of fresh equitable mortgage over the properties,
simultaneously with closing and opening of loan accounts.
j. When the limit in an existing account is subsequently increased, supplemental set of documents
should be obtained for the amount by which the limit is enhanced. For example, if a limit is
increased from Rs. 1 lac to 2 lacs or from Rs. 5 lacs to Rs. 10 lacs, the supplemental set of
documents to be taken will be for Rs. 1 lac and Rs. 5 lacs respectively. As regards obtaining of
the renewal documents in such cases, the renewal documents should be taken for entire limit
(including the enhanced limit).
k. If a charge by way of loan or overdraft or Cash Credit has already been created and the same is to
be either extended or otherwise a fresh additional advance is to be made, then the documents
required to be obtained in such a case will be full set of documents as may be appropriate to the
type of advance and the document should be limited to the extended or a fresh additional
advances, as the case may be.
l. Memorandum of deposit taken in connection with equitable mortgages should not be renewed,
as otherwise any lien created in the meantime would take priority over the Bank's lien. However,
a letter of acknowledgement of debt should be obtained.
m. It should be carefully seen that the advance documents do not become time-barred due to not
obtaining in time the renewal documents, confirmation letters or letters of acknowledgement of
debt from the borrowers/guarantors.
n. Usual debit balance confirmation letters and confirmation letter of securities should invariably
be obtained every half year.
7. Regularization of time barred debt:
a. For any reason if a loan account is time barred in the absence of any revival letter or a
confirmation of balance or letter of acknowledgment or payment under borrowers full signature,
the matter should be immediately reported to head office for further guidance/for necessary
instructions as to the remedial measures to be taken to revive the time barred debts.There are two
ways to revive the time barred debts:
i. New loan can be opened after taking fresh loan/security/guarantee documents in order to
close and transfer the debit balance in the time barred account to the new account.
ii. Without closing and opening the account, an agreement can be taken from the borrower
and a fresh guarantee can be taken from the guarantor. In this case the agreement should be
stamped with stamp duty payable on an agreement.
iii. A model 'Letter to be obtained from the borrower/guarantor for revival of time barred
debts' is given below:
71 - III
Model Letter to be obtained from the borrower/guarantor for revival of time barred debts
To
The Manager
………….State Cooperative Bank,
……………Branch
Dear Sir,
Sub: Credit facilities granted to me/us by way of ………. Loan.

Account no:
I/We availed a loan of Rs……… on ….. from the bank. There is an outstanding of Rs……… as
on…………which remains unpaid till date due to my financial difficulties.
As I/we would like to keep up my/our obligation to pay the said dues and to maintain good relationship
between the bank and myself/ourselves, I/we hereby expressly promise to pay the said dues entirely with
interest within………………… months.
Yours Faithfully,
Date
Place
iv. Model Title deeds narration applicable for borrowers other than limited companies:
a. Shri/Sarvasri………….. called at the bank and deposited the above mentioned title deeds.
When making the deposit he/they stated that he/they did so with intend to create a
mortgage in favour of the bank as continuing collateral security for advances made and/or
to be made by the bank to……………….. by way of ……………… (nature of facility) or
otherwise and for all other indebtedness and liability of his / theirs whatsoever and all
costs, commission and charges outstanding at any one time together with interest of their
own.
8. Annexure/s:
a. The following Annexures are appended to this Chapter:
Annexure – 1 : A chart indicating the Mode of Execution of Documents (with Illustrations)

Annexure –2 : List showing the documents to be obtained in respect of Credit facilities
sanctioned to constituents - TNSCB practice.
72 - III
Annexure – 1 to Chapter – 6
CHART INDICATING
MODE OF EXECUTION OF DOCUMENTS
(WITH ILLUSTRATIONS)
1. For Individual/s : Arvind A. Shah

2. For Joint Borrowers : Arvind A. Shah
Govind A. Shah
3. (a) for sole-proprietorship firm: for M/s. Arvind & Company
(where an individual is the Arvind A. Shah
sole-proprietor) sole-proprietor
personal signature of
Sole Proprietor in full
Arvind Ambalal Shah
(b) For Sole-Proprietorship firm: For M/s. Arvind & Company
(where a limited Company For M/s. X & Company Limited
is the Sole-Proprietor)
Personal Signature of the: A.A. Shah
Sole-Proprietor Director / Sole-proprietor
For x and company Ltd.
A.A. Shah
Director
(c) For sole-Proprietorship Firm: For M/s. Arun & Company
(where a private Trust
is the Sole-Proprietor)
For Xyz Trust: For Xyz Trust
A.A. Shah A.A. Shah
Trustee Trustee
Sole-proprietor.
(d) For Sole-Proprietorship Firm: For M/s. Arvind & Company

(Where the HUF is the Sole-Proprietor)
For Xyz HUF : For Zyz HUF
A.A. Shah A.A. Shah
Karta Karta/Manager
Sole-Proprietor
4 (a) For Partnership Firm: For M/s. Arvind & Company
(where all the partners are individuals)
Personal Signatures of the : Arvind A. Shah
Partners in full Govind A. Shah
Arvind Ambalal Shah: Partners
Govind Ambalal Shah
73 - III
4 (b) for partnership Firm: for M/s. Arvind & Company
(where a limited company : for X & Company Limited is a Partner)
Personal signatures of the A.A. Shah
Partner Director
For X & Company Limited Arvind A. Shah
A.A. Shah Govind A. Shah
Director Partners
Arvind Ambalal Shah
Govind Ambalal Shah
(c) For Partnership Firm For M/s. Arvind & Company
(where one Partner is a Private Trust)
For Xyz Trust For Xyz Trust
A.A. Shah A.A. Shah
Trustee Trustee
Personal Signatures of the (Signatures of other Partners)
Partners Partners
(d) For Partnership firmFor M/s. Arvind & Company
(Where are Partner is a HUF)
For XYZ HUF For XYZ HUF
A.A. Shah A.A. Shah
Karta Karta/Manager &
Personal Signature of the Partners Signature of the Partners
PARTNERS
5. For Limited Company For Arvind & Company (P) Ltd.
i) when the document is to Arvind A. Shah
be executed for and on Director
behalf of the Company,
(that is, without affixing common seal)
ii) when the document is to be executed under the common seal of the Company
The common seal of______________ Privated Ltd.
Was hereunto affixed pursuant Common seal of
to a resolution passed by the company
Board to Directors at their
meeting held on _____ (date)
in the presence of _________sd/-Director
__________ and _________
two-directors of the company sd/-Director
and ___________ secretary who
have affixed their signatures here to sd/- Secretary
74 - III
Note : In case of illiterate individual Borrower/s, the left-hand thumb impression in case of a male borrower
(right hand thumb impression in case of female) should be got affixed in the presence of the Bank's official
and the wordings “left/right hand thumb impression of Shri/Smt/Kumari __________________ “should be
written just below the thumb impression.
6. Association / Society Club

For __________________________ Association/Society Club
President/Secretary/Treasurer
75 - III
List showing documents to be obtained in respect of credit facilities sanctioned to constituents –
TNSCB practice.
Sr. LDOC Name of the Document When to be obtained Whether
No NO. required to
be stamped
or not
(1) (2) (3) (4) (5)
1.1 Attestation Memo. In all cases is obtained No.
where any kind of document
2.2 Single Advances to individuals. Yes
3.3 3(a) For Joint Borrowers Advances to individuals in Joint Names Yes
4.3 (b) For Sole-Proprietary Concern Proprietary Concerns, Joint Hindu Yes
Concern Family Firms and (all institutions
other than Private/PublicLimited
Companies).
5.3 (b)(I) For Sole-Proprietary Concern (where Limited When Limited Company is the Sole- Yes
Company is the proprietor) Proprietor of a Proprietary Concern
6.3 (c) For Partnership Firm Advances to Partnership Firm. Yes
7.3 (c) (I) For Partnership Firm When Limited Company is one of Yes
the Partners of the Partnership Firm
8.7 Letter of continuing security (with negative lien clause) Unsecured Overdrafts/Cash Credits/ Yes
Packing Credits to all types of
borrowers. – all secured advances
9.8 Application for Letter of Credit. For opening In land/Foreign Letters Yes
of Credit on behalf of all kinds of
constituents
10.11 Letter of Pledge(for Government Securities, Advances to all constituents against Yes
Shares, Documents of Title pledge of shares, Government
to good setc. other than Securities, LIC Policies, Documents
securities of immovable of Title to goods, etc.
property).
11.16 Letter Depositing the F.D.R./S.D.R. (Time Advances to all constituents against Yes
Deposit Receipts). pledge of discharged Fixed/Short
Deposit Receipts of the Bank
standing in the name of the
borrower of third parties.
12.17 (b) Composite Hypothe- Loan (including secured Packing Yes
cation Agreement of Credits) and Cash Credit facilities to
Stocks/ Book Debts/ all constituents against Hypothe-
Vehicles Movable cation of goods/stocks/Book debts/
Machinery. Movable / Machinery / Vehicle
76 - III
No NO. required to
be stamped
or not
(1) (2) (3) (4) (5)
13.19 Instrument of Hypothecation of movable Loan/Cash Credit facilities to all Yes

machinery constituents against hypothecation
of movable machinery.
14.20 Instrument of Hypothecation of Vehicles. Advances to all constituents Yes

against hypothecation of
Vehicles such as Trucks, Cars
Passenger Buses, Dumpers, etc.
15.23 Refinance Agreement in Form 'A' Term loans to all constituents under Yes
Refinancing Scheme of I.D.B.I.
against mortgage of fixed
assets (equitable or registered and/
or hypothecation of movable
machinery.
16.33 General Form of Guarantee. Where credit facilities are to be Yes

Guaranteed by third party/ies.
17.34 Counter-indemnity/ Where Guarantees are to be No

Guarantee for issuance issued by the Bank on behalf of
of a Bank Guarantee. all kinds of constituents.
18.37 Letter of undertaking with Unsecured Demand Loans to Yes

“No Lien” clause. all types of borrowers.
19.38 Letter (Declaration) of Sole-Proprietorship All kinds of advances to sole- No

proprietary firms
20.39 Letter of Partnership All kinds of advances to Partnership Firms. No
21.39 A Letter of Authority Partnership firm Accounts No Advances to Joint Hindu Family. No
Advances to
22.40 Letter of request from Advances to Joint Hindu Family. No

HUFs.
23.48 Letter of Appropriation– Advances against balances Loan/Over draft facilities to all No
in Recurring Deposit account. constituents against balances in
Recurring Deposit A./c.in the
Bank, in the name of the borrower.
24.49 Letter of Lien-Advance against balances in Savings Advances to all constituents

Bank / Current Accounts against earmarking of balances in No
Savings Bank /Current A/cs.
Standing in the name of the
borrower of third parties.
25.50 Letter of Recording for temporary over drafts Temporary Over drafts to all No
granted with prior arrangements. constituents granted with prior
arrangements
26.53 Letter of Attestation To be obtained when thumb- impressions are to be witnessed. No.
77 - III
No NO. required to
be stamped
or not
(1) (2) (3) (4) (5)
27. 57 Letter of instalment with Demand loans repayable in No

“Acceleration Clause”. instalments.
28. 60 Take Delivery Letter. For advances against No

shares securities.
29. 63 Letter of Cost For advances against properties No

mortgage of
30. 64 An undertaking not to withdraw When stipulated in sanction. Yes

deposits by the Partners/Director
still the advances is liquidated.
31. 72 Letter of Authority to make For Personal Loan Scheme No

payment directly to the dealer
32. 81 Draft of resolution of the Managing Advances to Clubs, Literary No

Committee of a Club/Literary Societies Schools, Associations,
Society/ Schools, etc. when any Committees, etc
credit facilities are to be made
available
33. 84 Form of assignment of Life Policy. Advances to all constituents against No

pledge of L.I.C. Policies which are
to be assigned in Bank's favour
34. 85 Letter of assignment of Advances to all constituents against No

Life Insurance Corporation pledge of L.I.C. Policies
35. 90 Memorandum Deposit of Where Title Deeds. property is created for upon the
equitable mortgage of immovable securing an advance. local stamp
Depending act
provisions
36. 90A Memorandum of Entry. Incase of mortgage of Depending

Individual's property Depending upon the
local Stamp
Act
provisions
37. 90 C Declaration for Mortgage In case of mortgage of individual's No

Equitable property.
38. 90D Letter of confirmation of Incase of mortgage of individual's No

Equitable Mortgage. property.
39. 90E Declaration Incase of mortgage Companys' property No

offirms'/
40. 90F Memorandum of Entry Incase of property

mortgage of Company's
78 - III
No NO. required to
be stamped
or not
(1) (2) (3) (4) (5)
Depending
41. 90G Supplemental memorandum In case of mortgage of Company's upon the
of Entry property. local stamp
act
provisions
42. 90H Confirmation Letter Incase of property (Consortium Accounts) No

mortgage of Company's
43. 90J Confirmation of Extension Incase of mortgage of property No.

of mortgage jointly owned by individuals
44. 90K Confirmation of Extension Incase of mortgage of company's No.

of mortgage property
45. 90L Second Extension of mortgage Incase of mortgage of individual's Depending

upon the local
property to secure advances stamp act
to company provisions
46. 90P Letter of Confirmation- In case of all advances No

mortgage creation/extension
47. 92 Letter of Authority for In case of all advances No

creation/extension of equitable
Mortgage
48. 96 Draft of irrevocable Power Advances to all constituents Yes

of Attorney for equitable against mortgage by deposit of
mortgage of property title deeds to properties and/or
hypothecation of movable
machinery (for conversion of
equitable mortgage in to registered
mortgage, as and when desired
by the Bank).
49. 100 True Copy of Board To be obtained from Limited No

resolution for facilities against Companies
uncleared effects
50. 101 Power of attorney in favour of the (a) Under Scheme for Financing Yes
Bank for transfer of vehicle in Road Transport Operators.
its name (b)Under Scheme for Financing
Yes
Purchase of Tractor Tailors etc.
51. 104 Letter of undertaking to For loans repay advance in stipulated

to the members of the staff. instalments-Loans to staff
members form arriage and
miscellaneous purposes.
52. 107 An undertaking to maintain For loans to the members to Yes

vehicle for five years. the staff
79 - III
No NO. required to
be stamped
or not
(1) (2) (3) (4) (5)
53. 108 Irrecoverable Power of For loans to the members to Yes

Attorney empowering the the staff.
Bank to execute in its
favour a legal mortgage of
the right, title and interest
in the said flat/plot.
54. 109 Stamped letter of authority For loans to the members of Yes
to deduct instalment from the staff.
salary every month.
55. 111 Undertaking to obtain and tender(I) For loans to the member of Yes
original agreement between the the staff
Housing Society and the
borrower (ii) share
certificate issued by the Housing
Society (iii) letter from Co-operative
Housing Society Ltd. accepting
Bank as nominee when Society is
formed.
56. 112 Undertaking to create a legal For loans to the member of Yes
mortgage in favour of the Bank of the staff
the right, title and interest in the
flat/plot/House .
57. 115. Letter of instalment under For loans to the members of No.
Personal Loan Scheme. the staff and Constituents.
58. 136 General Undertaking To be obtained in all advances Yes
80 - III
CHAPTER – 7
CREATION OF CHARGE
1. Lien:
a. Lien is the right to retain securities/goods belonging to another, until a debt due from the latter is
paid. There are two kinds of lien viz., general and particular. A particular lien is the right to retain
securities/goods in respect of which the debt was incurred. For example, a carrier has a lien on
goods entrusted to him for transport for the transportation and other charges incurred in
transporting such goods and not for any other debt. A general lien is the right of retaining not
only for a debt incurred for particular security/goods but for the general balance due. The general
lien of a banker is defined by Section 171 of the Indian Contract Act, 1872. Bankers have a
general lien on all securities deposited with them as bankers by a customer, unless there is an
express contract or circumstances that show an implied contract inconsistent with the lien. A
general lien does not, as a rule, carry with it the right to sell the security/goods. The person
exercising the lien has simply the right of retention till the dues are paid. A banker's lien is more
than a general lien; it is an implied pledge. It, therefore, follows that the bank can exercise all the
rights of the pledge in case of banker's lien. In the event of default by the customer, the bank can
exercise the right of sale after giving a reasonable notice to the customer. What is a reasonable
notice is a question of fact depending on the circumstances of each case.
b. The criteria for deciding whether a particular security will fall under the Banker's lien will be as
follows:
i. the property should come in the hands of the banker in his capacity as a banker;
ii. the possession of the property should have been lawfully obtained in his capacity as a
banker;
iii. there should be no entrustment for a special purpose inconsistent with the lien; and
iv. there should be no agreement inconsistent with the lien.
c. When Lien cannot be exercised,

i. No lien can be exercised in respect of the customer's valuables received for safe custody, as
they are received for a specific purpose.
ii. No lien can arise on the valuables or documents left inadvertently by a customer or on
property which is placed in the Banker's hands with the object of covering an advance
which is not granted.
iii. It must also be noted that a banker to whom money is paid by mistake, cannot set up a lien
or claim for a set-off, which he can otherwise do against his own customer, even where the
money is paid to the banker as an agent for that customer. Lien can only extend to the
customer's money or securities, but not to the money, which is paid by a mistake of fact by
a third person, as it belongs to him and not to the customer.
81 - III
iv. Lien cannot be exercised in respect of a contingent liability. (E.g.) Bills discounted but not
yet due. But a contingent debt is provable in insolvency and a lien can then be claimed.
v. No lien arises, if the credit and the liability are not in the same right (E.g..) If the customer
maintains a separate Trust Account, lien cannot be exercised thereon for customer's debts
in his personal name.
vi. A banker does not have a lien over a customer's credit balance. The banker's right over a
customer's credit balance is the right of set-off.
vii. In the absence of an agreement to the contrary, the banker has a lien on all bills, cheques
and notes sent to him by a customer for collection. It should be noted that a lien does not
give any property in the thing subject to lien, but merely a right to retain it. The banker
whose interest in a bill is partial does not have the property in the bill that an ordinary
holder for value would have. The property remains with the true owner. But the banker
who has a lien on the bill can retain his interest even against the true owner.
viii. No lien can be exercised by a banker where securities are deposited specifically for
specific debts, unless there is a contract to the contrary. In the bank's agreements, the
following clause has to be incorporated.
Note: The borrowers agree that the bank may hold all securities belonging to them (which
may now be in bank's possession or which may at any time hereinafter come into bank's
possession) and the proceeds thereof respectively not only for the specific advance made
thereon but also as collateral security for any other moneys now due or which may at any
time be due from them, either singly or jointly with another or others.
ix. The bank has a lien on securities allowed to remain in the banker's hands, after adjustment
of the advance.
x. The banker's right of lien is not barred by Law of Limitation. The effect of limitation Act is
to bar the remedy and not to discharge the debt. Consequently, it does not affect property
over which the banker has a lien.
2. Set Off:
a. Set-off means the total or partial merging of a claim of one person against another in a counter
claim by the latter against the former. It is in effect the combining of the accounts of the debtor
and the creditor so as to arrive at the net balance payable to one or the other.
b. The right of set-off is a statutory right and can also arise out of agreement between the parties.
c. All the branches are considered as one for the purpose of exercising the right of set-off. The right
to combine the accounts is, however, a right only of the banker and not of a customer and so a
customer cannot expect his cheques on one account to be paid by combining the balance of all
accounts which he maintains and the aggregate balance of which would have been adequate to
pay the cheques unless, of course, he has asked the bank specifically to do so.
82 - III
d. Ingredients of set-off:
i. Both the debts must be certain sums. The debts must be due as between the parties. In other
words, debt accruing due cannot be set-off against a debt already due.
ii. The banker cannot set-off the credit balance in the account of the guarantor till the liability
of the guarantor is determined. For this purpose, it is essential that the banker must first
demand payment from his debtor. If the latter commits a default in making payment of the
debt due, only then the liability of the guarantor arises and the banker can exercise his right
of set-off against the credit balance in the account of the guarantor, after demand for
payment is made against him.
iii. The credit balance in a Current Account cannot be set-off against a contingent liability of a
bill discounted but not yet due. However, in the case of insolvency of the
customer/liquidation of the company, all future debts and contingent liabilities become
immediately due and the bank would be justified in combining these accounts, even in
respect of debts which were not hitherto due.
iv. Similarly in the event of the customer's death or insanity the credit balance in the account
could be retained against bills discounted but not yet due. Further, a mere appointment of
Receiver of a Company does not have the same effect and this event will not by itself give a
banker the right to combine accounts in regard to a contingent liability.
v. A banker cannot set-off a debt due to him upon a loan account repayable on demand or at a
specified date against a credit balance in the Current Account, for until the demand is made
or due date arrives the loan is not due for payment.
vi. The parties must be mutually indebted in the same right. A customer may maintain two or
more accounts in some of which he may be acting in a fiduciary capacity.
vii. The credit balance of a solicitors' client account cannot be set-off against moneys owing on
Solicitor's other accounts.
viii. If the customer has one account in his own name and another for Trust money, the bank
cannot set-off the credit balance in the Trust Account against a debit balance in the personal
account.
ix. The credit balance on a Joint Account cannot be set-off against a debt of one of the joint
parties.
x. The credit balance in the partners account can be set-off against a debit balance of
partnership account since the liability of the partners is joint and several according to
Sec.25 of the Partnership Act and also joint and several DPN signed by the firm and its
partners in their individual capacity is usually taken.
83 - III
xi. The Partnership firm is not a separate entity distinct from partners. Right of Set-off can be
exercised as between two firms, which have separate names but are composed of the same
set of partners.
xii. The credit balance in the personal account of the sole proprietor can be set-off against the
debit balance of the sole proprietary concern account and vice versa.
xiii. The bank has the right of set-off under law provided the conditions stated above are
satisfied and further there is no express or implied agreement to the contrary.
e. Notice of Set-off:
i. It is sometimes argued that the bank when allowing a customer to open two or more
separate accounts cannot arbitrarily combine them as the very basis of the dealings with
the customer is that the two accounts should be kept separate. Therefore, if any cheque
drawn by a customer on his account in credit is returned for want of funds after the
accounts are combined, the bank may be inviting trouble for itself.To avoid this situation, a
clause has been incorporated in most of our agreements which reads as under:
Note: That in addition to any general lien or similar right to which the bank may be entitled
by law, the bank may at any time and without notice to me/us combine or consolidate all or
any of my/our accounts with the liabilities to the bank and set off or transfer any sum or
sums standing to the credit of anyone or more of such accounts in or towards satisfaction of
any of my/our liabilities to the bank on any other account or in any other respect, whether
such liabilities be actual or contingent, primary or collateral and several or joint.
ii. This clause of set-off has definite advantage. It is a proof that the banker's right of set-off
exists and he has not waived it. Such a letter also dispenses with the need to issue notice to
the customer in combining various accounts to avail himself (Banker) of the right of set-
off.
Note: In practice, however, the bank sends a notice to the customer as so as the right of set-
off is exercised.
f. Set-off against surplus:
i. According to Sect. 176 of Indian Contract Act, 1872, in case the proceeds of the sale are
more than the amount of the debit, the pledge shall pay over the surplus to the pledger. In
order to safeguard the Bank's interest, the following clause may be incorporated in the
pledge/hypothecation Agreement.
84 - III
Note: 'Inthe event of there being a surplus available out of the net proceeds of such sale of my/our securities
after payment in full of the balance owing due to you, it shall be lawful for you and you shall have the right to
retain and apply the said surplus together with any money or moneys belonging to me/us or any one or more
of us for the time being in your hands in or under whatever account as far as the same shall extend in or
towards the payment or liquidation of any and all other moneys which shall be or may become due to you
from me/us or any one or more of us whether solely or jointly with any other person or persons, firm or
company on any account, whether by way of loans, bills discounted, letters of credit, guarantees, charges or
any other debt, liability or obligation, whether current or not yet become due and whether by way of
principal or by way of surety'.
ii. Automatic right of set off arises on the death, insanity or insolvency of the customer or on the
insolvency of a partner of a firm or winding up of a company or on receipt of a Garnishee order or
on receipt of notice of assignment of a customer's credit balance.
3. Pledge:
a. Pledge is bailment or delivery of goods as security for payment of a debt or performance of a
promise (Section 172, Indian Contract Act).The pledge gets the possession of the property but
does not become its legal owner. Any kind of goods, documents or valuables of a personal
nature, can be pledged as security. Government promissory notes, which are negotiable
instruments, can also be pledged when duly endorsed and delivered. Delivery of the goods
pledged by the pledger to the pledge is essential for creating a pledge. The delivery may be (i)
actual or (ii) constructive. Delivery of the key of a godown with the intention to create a pledge
would be a constructive delivery.
b. A pledge is entitled to the possession of the goods pledged till the debt is repaid with interest or
the promise is performed. In the event of default, the pledge can (i) sue the pledger, retaining the
goods pledged as a collateral security or (ii) sell the goods after giving a reasonable notice to the
pledger of his intention to sell (Section 176, Indian Contract Act). The notice need not specify
the date, time or place of the intended sale and what period of notice would be reasonable will
depend on the facts of each case. The period of notice for the sale of a commodity in a rapid
falling market cannot be the same, when the market is steady. If the sale proceeds are less than
the amount due in respect of the debt or promise, the pledger will be liable to pay the balance and
if there is any surplus, the pledge must pay the surplus to the pledger.
c. The pledge cannot retain the goods pledged for any debt or promise other than that for which the
pledge has been contracted. However, in the absence of any contract to the contrary, such an
agreement will be presumed in regard to subsequent advances made by the pledge. Normally, it
would also be covered by a letter of continuity or a continuity clause in the letter of the pledge
making the security a continuing security, in case of a fluctuating cash credit or overdraft
account.
85 - III
d. If the pledger has a limited interest in the goods pledged, the pledge is valid to the extent of that
interest. If he has no title, he can give none to the pledge. If the pledger has obtained possession
of the goods under a voidable contract like misrepresentation or undue influence, a pledge will
acquire a good title to the security, if he acts in good faith and without any knowledge of the
defect in the title of the pledger. Since a pledge is a bailment of goods (Indian Contract Act.
Sec.172), the pledger and the pledge will have all the rights and the obligations of a bailer and
bailee.
e. According to Section 151, bailee is bound to take as much care of the goods bailed to him as a
man of ordinary prudence would, under similar circumstances, take of his own goods of the
same bulk, quality and value as the goods bailed. The burden of proof is on the bailee that there
has been no negligence, when he fails to return the goods or returns them in a damaged condition
and that the loss or damage occurred in spite of the fact that he took reasonable care of them.
Section 152 provides that in spite of the bailee's reasonable care, if goods are damaged or
destroyed in any way, the bailee is not liable for the loss, destruction or deterioration of the thing
bailed.
4. Hypothecation:
a. When the possession of the property in the goods and other movables offered as security
remains with the borrower and only an equitable charge is created in favour of the lender, the
transaction is called a hypothecation. Mortgage of immovable property is covered by the
Transfer of Property Act and pledge of movable is covered by the Indian Contract Act. But
neither of the Acts deals with mortgages of movable property which stands on the same footing
as hypothecation.
b. Hypothecation of movable property not accompanied by delivery of possession is valid and

recognized in Indian Law. The charge which is normally created by an instrument in writing
known as the 'letter of hypothecation' is ambulatory and shifting in nature and it hovers over and
floats with the property until some event like default in the covenant between the borrower and
the lender causes it to settle on or seize the hypothecated security.
c. Since a transfer of movable property is not complete without delivery of possession,

hypothecation creates only an equitable charge which is liable to be defeated, if the borrower in
possession sells the goods to a bonafide purchaser without notice or creates a pledge in favour of
another innocent lender. Only in case of advances to limited companies the lender is protected
by such charge being registered with the Registrar of Joint Stock Companies according to the
provisions of Section 125 of the Indian Companies Act which serves as a notice to all.
86 - III
d. The hypothecator not only has the possession of the security hypothecated but he is free to deal
with it. He can sell, transfer, process and substitute the security provided the value of the security
continues to cover the advance in the manner agreed in the letter of hypothecation.
Hypothecation can, therefore, cover goods coming into the hands of the borrower in future as
also future crops.
e. After obtaining possession of the property hypothecated, in the event of any default or any
breach of covenant of the borrower, provision for which is normally made in the letter of
hypothecation, the lender can sell the property without the intervention of the court. Otherwise,
he can sue the hypothecator and try to seize the hypothecated movables (if they have not
disappeared as the borrower is free to deal with them) by obtaining a court decree.
f. Apart from movables, book debts can also be hypothecated by a letter of hypothecation. An
equitable and floating charge similar to that of hypothecation of movables can be created on the
present and future book debts of the borrower. If the borrower is a joint-stock company, the
charge has to be registered as in the case of movable property, according to the provisions of
Section 125 of the Indian Companies Act.
a. Although the security is not in his possession, a hypothecatee is a secured creditor and he would
be treated as such in insolvency or liquidation proceedings.
5. Mortgage:
a. Mortgage is defined by Section 58 (a) of the Transfer of Property Act, 1882 as: A Mortgage is the
transfer of an interest in specific immovable property for the purpose of securing the payment of
money advanced by way of loan, an existing or future debt or performance of an engagement,
which may give rise to a pecuniary liability.
b. A person who creates the mortgage is called Mortgagor, the person in whose favour the
mortgage is created is known as Mortgagee and the principal money and interest, payment of
which is secured for the time being is called Mortgage Money and the instrument(if any) by
which the transfer is effected is called a Mortgage Deed.
c. Who can create mortgage: The owner/s of the property having clear marketable title and
competent to contract can create a mortgage. A mortgage by a minor is void. A mortgage can be
created by an individual, joint owners, partners of a firm (if empowered to do so by the
Partnership Deed), the Karta of a Hindu undivided family (if it is for legal necessities or for the
benefit of the estate), a guardian of a minor (if permitted by a competent court).In case of joint
owners, all the co-owners must join creating the mortgage and in the case of a partnership firm
all partners should join in creating the mortgage.
87 - III
d. Consideration for mortgage: Like any other contract, consideration is necessary for creating a
valid mortgage. Consideration in a mortgage may be
i. Payment of money by way of loan,
ii. Existing or future debt or
iii. Performance of an engagement giving rise to a pecuniary liability (for example- creation
of a mortgage in respect of bank guarantees).
e. Different kinds of mortgage: There are the six types of mortgages:
i. Simple Mortgage:
l The mortgagor does not part with the possession of mortgaged property.
l The mortgagor binds himself personally to pay the mortgaged money.
l The mortgagor agrees, expressly or impliedly that in the event of his failing to pay
according to his contract, the mortgagee shall have the right to cause the mortgaged
property to be sold. The words “cause the mortgaged property to be sold” imply that
the mortgage has no power to sell the property without the intervention of the court.
l A simple mortgage will invariably be registered with the Sub-Registrar, where the
principal money secured is Rs. 100/- or more.
ii. Mortgage by Conditional Sale: It is a transaction in which the mortgagor ostensibly sells
the mortgaged property on condition that,
l on default of payment of the mortgage-money on a certain date, the sale shall
become absolute or
l on such payment being made, the sale shall become void or
l on such payment being made, the buyer shall transfer the property to the seller.
l It is to be distinctly understood that the transaction will not be considered to be a
mortgage, unless the aforesaid condition is embodied in the very same document,
which ostensibly purports to effect the sale.
l If the mortgage-money is not repaid on the agreed date the ostensible sale will
become absolute, upon the mortgagee applying to the court and getting a decree in
his favour since the right to redeem is then lost. The mortgagee can sue for
foreclosure (foreclosure means and implies the loss of the right possessed by the
mortgagor to redeem the mortgaged property). The failure of the mortgagor to pay
the mortgage debt within the period allowed to him to do so puts an end to his right of
redemption of the mortgaged property, after the mortgagee obtains a decree for
foreclosure but not for the sale of the property. This type of mortgage is not usually
taken by banks, as there is no personal covenant for repayment of the debt.
88 - III
iii. Usufructory Mortgage:
l Where the mortgagor delivers possession or binds himself expressly or by

implication to deliver possession of the mortgaged property to the mortgagee and
authorise him to retain such possession until repayment of the mortgage-money and
to receive the rents and profits accruing from the property or any part of such rents
and profits and to appropriate the same in lieu of interest or in payment of the
mortgage-money or partly of both, then the transaction is known as an usufructory
mortgage and the mortgagee an usufructory mortgagee. Unless there is a personal
covenant for the repayment of the mortgage-money, the usufructory mortgagee
cannot sue the mortgagor for repayment of the mortgage debt; nor can the mortgagee
sue for the sale or foreclosure of the mortgaged property.
l The only remedy for the mortgagee is to remain in possession of the mortgaged
property and pay himself out of the rents and/or profits of the mortgaged property.
No one can say when the mortgagee will fully recover the mortgage money through
this process. Banks hardly entertain advance proposals of this type.
iv. English Mortgage:
l Where the mortgagor binds himself to repay the mortgage-money on a certain date
and transfers the mortgaged property absolutely (i.e. conveys all interests in the
property)to the mortgagee subject to the proviso that the mortgagee will retransfer it
to the mortgagor upon repayment of the mortgage-money as agreed, the transaction
is called an English Mortgage.
l It is characteristic of the English mortgage that the personal liability of the

mortgagor remains notwithstanding the absolute transfer of the property to the
mortgagee. Further, in case of default in repayment of the mortgage-money, the
mortgagee has a right to sell the mortgaged property outside the court in special
circumstances mentioned in Section 69 of the Transfer of Property Act, 1882.
v. Anomalous Mortgage:
l A mortgage which is not a simple mortgage, a mortgage by conditional sale, an

usufructory mortgage, an English mortgage or a mortgage by deposit of title deeds is
called an anomalous mortgage. An anomalous mortgage must, however, satisfy the
definition of mortgage as given in Section 58 of the Transfer of Property Act, 1882.
l There are two kinds of anomalous mortgages which are often noticed in practice.
They are a simple-cum-usufructory mortgage and an usufructory mortgage
accompanied by a conditional sale.
89 - III
vi. Equitable Mortgage:
l Equitable Mortgage is defined by Section 58(f) of the Transfer of Property Act as 'Where a
person, in any of the following towns, namely, the towns of Kolkata, Chennai and Mumbai
or in any other towns which the State Government concerned may, by notification in the
official Gazette, specify in this behalf, delivers to a creditor or his agent, documents of title
to an immovable property with an intent to create a security thereon, the transaction is
called a Mortgage by deposit of title deeds'.
l This form of mortgage is very popular amongst bankers because it is easier to create, takes
less process time and is not much expensive. No lengthy formalities are required to be
compiled with nor is such Mortgage subject to stamp duty or payment of registration
charges except in the states of Maharashtra, Gujarat, Tamilnadu and Andhra Pradesh.
Moreover, this type of mortgage enables the mortgagor to avoid undue publicity of the
mortgage. There is no compulsory registration with Registrar of Assurances.
l The Bank can sue on the personal covenant. The Bank can exercise the Right of sale or the
Right to appoint a Receiver or the Right to take possession only with the intervention of the
Court. However, the provisions of SARFAESI ACT 2002 empowers the Bank to exercise
these rights provided the liability is above Rs. 1 lakh and the property is not an agricultural
land.
l Essential requisites of an Equitable Mortgage include,

Ø There must be an existing or future debt.
Ø Delivery of documents of title must be by a Debtor or his authorised Agent or by
guarantor or third party in case of advance against third party immovable property is
sanctioned.
Ø Delivery of Title deeds must be in the towns mentioned in the Act or notified by the
State Government for the purpose.
Ø Delivery must be to the Creditor or his Authorised Agent
Ø Delivery must be of documents of title to immovable property.
Ø Delivery must be with intent to create a security on the property comprised in the
documents of title deposited.
6. Assignment:
a. The transfer of the right, title and interest in a contract by a party to the contract to another person
is called an assignment of the contract. Assignment may also be made by operation of law.
Insolvency or death of a party to the contract, when the legal representative or the official
assignee or the receiver steps in, are examples of assignment by operation of law. If the contract
involves personal factors, qualification or consideration or if the benefit to be assigned is
90 - III
coupled with any special liability or obligation which the assignor is required to discharge, the
assignment of the benefit would require the consent of the other party. The benefit of a contract
can be assigned, but not the burden, because the promisor cannot shift the burden of his
obligation without entering into a new contract with the promise. Otherwise, it can be assigned
without the consent of the other party. A contract for future performance can also be assigned.
b. In terms of section 130 of the Transfer of Property Act, the transfer of an actionable claim,
whether with or without consideration, can be effected only by the execution of an instrument in
writing signed by the transferor or his duly authorized agent. Section 3 of the Transfer of
Property Act defines actionable claim as a claim to any debt other then a debt secured by a
mortgage of immovable property or by a hypothecation or pledge of an movable property or to
any beneficial interest in movable property not in the possession of the claimant which the
Civil Courts recognise as affording grounds for relief. All the rights and remedies of the
transferee vest with the transferee whether the notice of assignment is given or not. Notice is thus
not necessary to perfect the title of the assignee of a debt but until the debtor receives notice of
the assignment, his dealings with the original creditor will be protected. The transferee of an
actionable claim takes it, subject to all the liabilities and equities to which the transferor was
subjected to on the date of the transfer (Transfer of Property Act, Sec.1o2).
c. As regards the mode of assignment, no particular form of words is necessary for effecting an
assignment, if the intention is clear from the language used. An assignment can be absolute or by
way of security. A deposit merely creating a pledge cannot amount to an assignment. Generally
speaking, negotiable instruments can also be assigned by an instrument in writing but such
assignment would be subject to the equities to which the assignor himself was subject.
d. A policy of marine or fire insurance can be assigned by endorsement on the back of the policy or
by a separate deed of assignment. These policies constitute an exception to the general rule of
giving notice, because they cannot be assigned without a transfer of the property insured. Under
the provisions of the Insurance Act, a life Insurance Policy can be assigned by an endorsement
on the back of the policy or by a separate deed of assignment but notice of such assignment must
be given to the insurer by the assignee or by the assignor.
7. Procedure for creation of second charge:
a. At the time of considering a working capital proposal, the Bank should obtain a consent letter
from the borrower agreeing to create second charge in favour of the Bank on the fixed assets in
respect of which first charge in favour of a financial institution already exists.
b. A letter should be sent to the financial institution concerned seeking a no objection certificate for
creation of second charge.
c. The first charge holder, before giving the no objection, will send a format of the
consent/authority letter to be signed by the Bank which contains the details of terms and
conditions on which the first charge holder is willing to cede second charge on fixed assets.
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d. The above formalities should be completed, before sanctioning of working capital facilities to a
borrower.
e. After sanction of working capital facilities, the branch should sign the authority letter and send it
to the first charge holder for ceding of second charge.
f. The borrower will have to call on the first charge holder on an appointed day for creation of
second charge by extending the mortgage/charge already created in favour of the Financial
Institution. Generally, this extension is done in the presence of the bank's representative by
recording a memorandum of entry in the books of the Financial Institution/s holding the title
deeds of the immovable property/fixed assets including machinery. The second charge in
respect of some State Financial Institutions holding the first charge is created by entering into a
tripartite agreement to be signed by the institution, borrower and the bank ceding second charge.
g. Branches should follow up and ensure that the second charge is actually created by the browser
as agreed. A letter to this effect from the first charge holder ceding second charge in favour of the
bank along with the copies of memorandum of entry/tripartite agreement should be obtained and
kept along with the documents.
h. In case of limited companies, modification of charge should, be registered with the register of
companies (ROC) by filling Form Nos.8 and 13 along with the copies of memorandum of
entry/tripartite agreement, board resolution, etc.
i. On renewal of the working capital limits to be availed, there is no necessity for any further
documentation.
j. When there is any enhancement in limit on renewal, a simple agreement of second charge should
be obtained from the browser. The agreement should be sent to the first charge holder and his
acknowledgement duly obtained. Arrangement should be made at the earliest for creation of
second charge.
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CHAPTER – 8
CREDIT DISBURSEMENTS
1. General:
a. The advance will be released only upon
i. Completion of documentation in all respects as per Bank's rules.

ii. registration of charge with Registrar of Companies, wherever necessary
iii. payment of processing fee, EM creation charges and any other charges as may be
prescribed by the bank from time to time and
iv. prior clearance by the competent authority based on pre-release audit report(s) in those
where the aggregate of the limits sanctioned is Rs.50 lakhs or above.
b. A copy of branch sanction duly signed and accepted by the borrower should be received back
and kept with documents.
c. In case of corporate accounts, societies and trusts, the facilities sanctioned and other terms and
conditions have to be accepted by the company's Board of Directors, General Body and Trustees
and the branch should obtain a resolution to this effect. The resolution should specifically state
the names of persons authorized to execute the security documents.
d. On being satisfied that complete documentation / security creation / compliance of terms and
conditions are completed, pre-release audit to be conducted for applicable advances.
2. Documentation Process:
a. The purpose of documentation is to enforce Bank's legal rights when it becomes difficult to
recover an advance in the normal course. The form of documents, mode of execution, stamping,
attestation, registration, etc., are dealt with in detail in the Documentation Manual. The
instructions in the Documentation Manual should be strictly complied with.
b. Branches should scrutinise the sanction, list out documents appropriate to the advance with
reference to the terms and conditions, procure them and fill in the blanks correctly without
overwriting, cutting, erasing, etc., Advances should not be released except when all the relevant
documents are obtained from the parties concerned duly executed by them. The documents
should be duly filled in and properly stamped before obtaining the signature of the borrowers.
c. It must be ensured that all the documents / undertaking letters as stipulated in the sanction letter
are obtained.
d. A separate declaration from the borrower should also be obtained that the documents were
executed by him / her / them, only after they are duly filled in and understood by him / her / them.
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e. Branches should appreciate that once the borrower/s avail(s) the facility, it may become very
difficult to get the documents or other covenants executed by him / them afterwards, if not
already done. Practice of disbursing advance before obtaining proper and full set of cover
documents and securities may go against the bank's interest at a later date.
f. All fresh disbursements under consortium (whether additions / adhoc / new / modification) shall
be effected only after the documentation is completed, which shall be certified by the Circle
Head under whom the Branch falls.
g. As regards advances for which no standard forms have been prescribed, the branch manager
should get the document drafted by a competent legal adviser / bank's approved lawyer. The
draft format of the document should be sent to HO : Legal Services Dept for their approval.
h. In cases where the prescribed formats of documents are not suitable to any of the terms and
conditions, modification/s as considered necessary should be made only with the approval of
HO: Legal Services Department and the concurrence of the sanctioning authority.
i. In the process of documentation, it should be ensured that,
l the set of documents are those stipulated for the category of borrower, nature of facility,
nature of charges and securities involved.
l the stamping is adequate for the State concerned.
l the executants are duly empowered to execute the documents.
l DPN is stamped adequately with adhesive revenue stamps and signed by the executants
across the stamp.
l printed documents are stamped for appropriate values at the stamp office of the State
concerned. In certain states like Tamilnadu, Branch Managers are empowered to affix
special adhesive stamps on the documents before or at the time of execution and cancel
them by signing across the stamp with date.
l any correction / addition / deletion / interlineations in documents are authenticated by all

the executants.
l each page of the document is signed by the executants as a token of having read the terms
and also as a safeguard to avoid interpolation of pages.
j. If the sanctioning authority has prescribed any pre-conditions before allowing disbursals or
operations, these conditions should be fulfilled without fail before disbursal. There should not
be any laxity in this area.
k. Before actual release / disbursement, a note of compliance shall be prepared indicating whether
all terms of sanction have been complied with.
l. The Branch Manager / Chief Manager / Assistant General Manager shall endorse an order
clearly permitting release of limits.
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3. Registration of charges in case of Limited companies:
a. In case of advances to Limited companies charges as required by Companies Act should be filed
with Registrar of Companies.
b. Before creation of charge on land, buildings, Plant and Machinery, share securities, fixed
deposits etc., income tax certificate as required u/s 281(i) and (ii) should be obtained in all cases
where borrowers are assesses to Income Tax.
c. The advance(s) sanctioned shall be secured by the personal guarantee of all financially involved
Directors. A declaration shall be furnished to the effect that the Company has neither paid nor
pay in future any commission /fees/salary to any Director for giving his/her guarantee.
d. Charge by way of hypothecation/mortgage must be registered with the Registrar of Companies

within 30 days from the date of execution of the documents and copies of Form 8/13 and receipt
for payment of necessary fees for filling the same must be furnished.
e. Search will be conducted at the office of the Registrar of Companies to ascertain the subsisting
charges, if any. All fees, charges and other expenses in this regard shall be to the account of the
borrower(s).
f. The Bank shall have a nominee director on the Board of the borrower-company, whenever so
required by the Bank. Promoter directors / majority shareholders shall not sell / pledge their
shares to third parties without bank's prior approval.
g. The company shall pass necessary resolutions under the Companies Act 1959, for availing
facilities from the date.
h. The borrower – company shall produce the certified copy of the relevant pages of Register of
Charges maintained in accordance with Sec.143 of the Companies Act, 1956 as and when
required by the Bank.
4. Conduct of Pre-release Audit:
a. Pre-release Audit is stipulated in respect of advances with limits of Rs.10 lakh and above in order
to bring in discipline with regard to compliance of terms and conditions of credit sanctions, zero
error documentation and conduct of accounts.
b. Pre-release Audit shall cover only pre-disbursement conditions and completeness in
documentation.
c. Request for any modification / amendment / waiver of the terms and conditions of sanction and
for taking individual documentation pending finalization of joint documentation should be
referred to the respective sanctioning authority.
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5. Valuation and Verification of Securities:
a. Fixed Asset - Acceptance of immovable properties offered as security is subject to:

i. legal opinion of the Bank's approved lawyer(s) conveying a clear, valid, subsisting and
marketable title.
ii. valuation of the property by the Bank's Approved Engineer / Revenue authorities.
iii. furnishing of up-to-date encumbrance certificate showing NIL encumbrance and up-to-
date tax paid receipt at the time of documentation.
iv. If immovable property is taken as additional security, Equitable Mortgage by depositing
original title deeds or Registered Mortgage as the case may be should be done before
disbursal. The property should be valued by the Bank's approved Engineer and also legal
opinion from Bank's lawyer should be obtained in the prescribed formats.
v. In respect of landed property, the valuation may be obtained from the Revenue Authorities.
In any case, the valuation must be conservative and the Branch Manager should make
discreet and independent enquires about the property, the market value and the guideline
value to satisfy himself that the value of the property, the market value and the guideline
value to satisfy himself that the value of the property has not been inflated.
vi. Immediately on completion of 4 months from the date of creation of Equitable Mortgage,
further encumbrance certificate shall be produced; Thereafter, encumbrance certificates
and property tax paid receipts shall be produced every year.
vii. In case where first charge on fixed assets is in favour of other banks/financial institutions,
it should be ensured that second charge on such assets is made in our favour, unless waiver
of the same has been permitted by the sanctioning authority.
viii. Machinery, equipment, vehicles, etc., charged to the Bank shall be painted with the Bank's
name or fixed with the bank's name board.
ix. Securities offered for one or more facilities and charges to the bank shall also stand as
additional security for all other facilities already granted or shall be granted from time to
time.
x. Fixed Assets charged to the Bank shall not be leased / disposed / substituted / re-located
without the prior approval of the Bank.
b. Stocks under Hypothecation / Pledge:
i. Bank's name board with specific mention of the branch name shall be displayed
prominently both inside and outside the premises where the stocks pledged / hypothecated
to the Bank are stored.
ii. It should be impressed upon the borrowers that they could undertake job works only with
the prior approval of the Bank. Such cases should be advised that the goods received for
job works should be kept separate and should not be included with the stocks under
hypothecation. During inspection of the unit, this aspect should be specifically verified.
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iii. Where our borrower has given goods/stock to third party for processing, the said third
parties processors / their bankers should furnish a no-lien certificate on the stock lying
with them on behalf of our borrowers. A list of such third party processors / location
should be held on record for registration at their sites.
iv. Strict discipline should be ensured in regard to the monthly submission of stock statements
by the borrowers. Periodical inspection of the unit/stocks/assets should be conducted.
v. While arriving at the drawing power against stocks/book-debts in the monthly statements,
sundry creditors for goods (including those under suppliers' credit and co-acceptance) and
stock under DA/LC are to be deducted from the value of stocks declared.
vi. Confirmed orders based on which packing credits are to be advanced shall be subject to
obtention of proper credit opinion on the buyers.
6. Precautionary Measures for Different types of Facility:

a. Term Loans:
i. No advance payments should be made to the suppliers of machinery. While making
disbursements of the term loan for purchase of assets including machinery, payments
should be made directly to the suppliers. Proper follow-up should be made to ensure that
the assets have been delivered / installed in terms of the delivery schedule.
ii. Disbursements towards cost of construction should be made in stages depending on the
progress made. For valuation upto Rs.5 Lakhs. Bank's approved valuation need not be
insisted at each stage and the assessment could be done by the Branch Manager himself.
Where the valuation exceed Rs.5 Lakh, certificate from the approved engineer should be
obtained at each stage, before making further disbursements.
iii. Any shortfall in margin/cost overrun shall be met by the borrower(s) from his/their own
sources.
iv. Repayment of instalments shall commence from the month succeeding the month of
availment. Interest shall be paid as and when charged by the Bank. Any default in payment
of interest/instalments on the respective due dates will attract overdue interest on the
defaulted amount at 2% over and above the contractual rates or at such rates as applicable
from time to time.
v. The Bank may at its discretion recall the entire advance even upon default of a single
instalment.
vi. In case of advance against vehicles, Bank's hypothecation shall be noted in the RC book
and a copy of the RC Book along with the duplicate keys of the vehicle shall be lodged with
the Bank. Comprehensive insurance cover must be obtained for the purchase value and
renewed thereafter annually.
vii. At its sole discretion, the Bank may consider availing refinance from IDBI/SIDBI or such
other refinancing agency and the borrower(s) shall be bound by the terms and conditions
stipulated by such refinancing agency.
7. Release of Bills Purchased Limit:
a. In case of DABP limit, pre-accepted hundies should not be purchased.
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b. Documentary bills must be accompanied by RRs/LRs of IBA approved transport operators.
c. In case of DABP limit, bills drawn on reputed parties on whom satisfactory credit reports are
available from their bankers will alone be purchased.
d. In case of Supply BP limit, bills drawn on Government Departments/Undertakings and reputed

Limited Companies alone will be purchased. A Power of Attorney in favour of the Bank to
receive all payments shall be executed.
e. The Power of Attorney executed in favour of the Bank in respect of supply bills limit should be
registered with the drawees.
f. Permitting operations in KCC / PC
g. In case of KCC/PC limits sanctioned, the Bank will advance only against fully paid stocks.
Stocks of more than 6 months old will not be reckoned for drawing power, unless specifically
approved by the sanctioning authority. Whenever job works are to be undertaken, they shall be
only with the prior approval of the bank. In such cases, the goods received for job works should
be kept distinctly and not included with the borrowers' stock under hypothecation.
h. Monthly declaration of stocks with break-up of items as (a) less than 6 months old and (b) others
shall be submitted in the Bank's format within 15 days from the end of every month. Non-
compliance in this regard may lead to the return of cheques issued for want of cover, as the
Drawing Limit in such cases will be marked as 'NIL'. Delayed submission will also attract levy
of additional interest as per Bank's rules in force from time to time.
i. While submitting stock statements, the amounts payable to creditors / suppliers of materials,
advance received against orders, etc., as on the date of stock statement as also the full particulars
of stocks sent to subcontractors for processing shall be furnished.
j. In case of KCC, separate godowns / enclosures must be provided to the satisfaction of the Bank
and free accessibility to the Bank's officials for lodgement / release / inspection of goods must be
ensured.
k. Assets charged to the Bank are subject to inspection by Bank's officials from time to time.
Goods charged will also be subject to stock audit as per the Bank's norms. All expenses incurred
in this regard will have to be borne by the borrower(s).
l. Stock under hypothecation shall be converted into pledge at the Bank's discretion, as and when
considered necessary.
m. Where goods are purchased under Letters of Credit on usance terms, the borrower(s) will build
up funds to meet the LC on the due date. Such goods should not be included in the stock
statement.
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n. The borrower should ensure that the balance in the account including the periodical interest
chargeable is well within the drawing limit at all times.
o. Before availing packing credit facility, irrevocable LCs of prime banks / firm orders shall be
lodged with the branch. Where post-shipment credit is sanctioned by way of FBN / FBP etc.,
pre-shipment advance against the relative irrevocable LC/Confirmed Order will be adjusted out
of the proceeds of the said bills.
8. Export Credit:
a. In case of exporter borrower(s), he / they shall,
i. apply for suitable credit limit, buyer-wise and get them approved by ECGO,
ii. obtain for suitable credit limit, buyer-wise and get them approved by ECGC,
iii. obtain specific approval of ECGC for any extension of Usance under DA or conversion of
DP Bill into DA Bill and
9. Ensuring end-use of funds:
a. The branch should take utmost care to verify whether the advance granted is used for the purpose
for which it is raised. In case of advances for purchase of equipment/machinery/vehicle/other
movable assets, the cost price of such articles should be sent directly to supplier of goods. The
delivery of articles by the supplier to the borrower should be ensured. On arrival of equipment
or machinery etc. a visit to the factory/premises of the borrower should be made to ensure the
equipment/machinery is installed and is in working condition. The case receipt / bill should be
kept with our records similar procedure may be followed in case of advances given for purchase
of immovable property, say for example, purchase of flat or industrial shed by the borrower.
b. In case of advances given to construction activity the disbursal should be made in stages in
accordance with the progress of construction already achieved.
c. In case of OCC accounts borrower's factory or shop or premises is to be visited to ensure

availability of sufficient stocks to cover our limit. The first stock statement obtained should be
attached along with OCC agreement executed by the borrower(s), as it forms part and parcel of
the agreement.
d. When borrower(s) purchase(s) stock from the advance amount, it is desirable to instruct the
borrower to ask his suppliers to route the bills and document of title to goods through our branch.
e. Before allowing operations in KCC account, the Branch Manager should personally inspect the
goods offered as pledge which is stored in the godown.
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10. Insurance:
a. Insurance against fire, strike, riot and wherever necessary burglary risks covering the
goods/articles/machinery/immovable property taken as primary or collateral security should be
taken. Due date of expiry of insurance policies covering our securities should be diarised and
action taken for renewal of such policies well in time. For this purpose an insurance register
should be maintained month wise so as to enable the Branch Manager / Officers to get the dates
of policies expiring on a particular month at a glance.
a. If loss of securities occurs at a later date due to fire, burglary or any risk covered under the policy,
steps should be taken immediately for lodging our claims with Insurance Companies. If the
Branch Manager has a liaison with the field level officers of the Insurance Company, his work
will become easy for getting settlement of claims etc.
11. Financial Discipline:
a. All fund based / non-fund based / fee-based transactions shall be routed through the account with
our Bank only, unless specifically exempted. Incase of consortium accounts pro-rata share shall
be routed through our Bank.
b. The borrower(s) shall submit audited / unaudited financial statements on quarterly / half yearly /
annual basis.
c. Borrowing / investment programmes having an adverse impact on cash flow i.e., those affecting
the liquidity of the borrower shall not be undertaken without the prior approval of Bank.
d. The borrower(s) shall not enter into any borrowing arrangement/extend guarantee to others
without the prior concurrence of the Bank. Entering into leasing / HP transaction will be subject
to Bank's prior approval and ability of the borrower(s) to generate sufficient surplus to secure the
liabilities. (However this condition will not apply to NBFCs whose main business activies
indulge leasing / hire purchase).
e. Unsecured loans from friends / relatives / partners / Directors shall not be repaid during the
currency of the advance. An undertaking letter from such creditors to this effect shall be
submitted to the Bank.
12. Other Aspects:
a. Changes, if any made to the structure of ownership/management of the borrowing concern shall
be promptly informed to the Bank.
b. The Bank reserves to itself the right to cancel/suspend/reduce any or all the limits sanctioned and
to alter / amend / vary the terms of sanction including rate of interest at its sole discretion without
assigning any reason whatsoever.
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c. In addition to these terms and conditions, all the facilities sanctioned shall be subject to the
Bank's rules as well as the directives issued by RBI from time to time.
13. Utilisation of Limit:
a. Working Capital Advance is generally in the form of cash credit against stocks/book debts and
the parties are allowed to draw to the extent of the drawing limit for their working capital
requirements.
b. The advance must be used for the purpose for which it is sanctioned. The facility is liable to be
recalled in case of any deviation in this regard.
c. Unless otherwise specified, the sanction of working capital limits will remain in force for a
period of one year the date of sanction. Any request for renewal/enhancement should be made at
least three months in advance and the application should be accompanied by all the relevant data
as required by the Bank.
d. Processing charges for renewal of facilities will be charged irrespective of the fact whether the
renewal papers are submitted or not. However, continuation of facilities will be at the sole
discretion of the Bank.
14. Take-over of accounts from other banks/financial institution:
a. Take-over of accounts from other bank/s shall be considered where,
i. the unit's genuine credit needs are not being met by their present bankers as evidenced by
their scale of operations or for better terms with our Bank.
ii. substantial foreign exchange business especially exports will accrue to the Bank as a result
of the takeover. (The entire advances should be taken over in such cases and no concurrent
borrowings should be permitted, unless we are entering a consortium as member or
lending under a multiple banking arrangements).
iii. the existing bankers approach us for such take over either as a result of constraints in
resources or otherwise or in the interest of providing the units with better facilities than
what they are able to provide.
15. Precautions:
a. The unit's financial position and past performance should be satisfactory. The unit's equity,
liquidity and profitability should be in conformity with our Bank's norms.
b. Only borrowal accounts classified under the Standard Asset category should be considered for
take over. No sick or unsatisfactory accounts should be taken over under any circumstances.
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c. Satisfactory credit opinion on such account should be obtained from their bankers.
d. The Credit Rating parameters as applicable to other category of advances shall also be applied to
accounts proposed to be taken over.
16. Transfer of loan accounts between banks:
a. All parties including those enjoying aggregate credit limits in excess of Rs.5 Crores are free to
transfer their accounts from one bank to another without the requirement of a no objection letter
from the existing bank. Thus, for taking over any borrowal account, the transferee bank need not
obtain the consent of the transferor bank provided it involves take-over of the entire liabilities in
respect of both fund-based and non-fund based facilities enjoyed by the borrower concerned.
However, if any industrial group maintaining more than one account with a bank seeks to
transfer only a good account leaving an unsatisfactory account with the existing bank the latter
can refuse to allow such transfer, unless arrangements are made by the party concerned to the
existing bank's satisfaction.
b. Incase of borrowal under consortium arrangement, if a borrower desires to replace an existing

member bank by a non-member bank, the consortium leader or the others banks should not resist
the entry of the new bank into the consortium irrespective of the amount involved, unless the
members are satisfied/convinced that there is no need for inducting a new members just because
the borrower proposes the same.
c. Before taking over an account, the transferee bank should obtain the necessary credit
information from the transferor bank (a) Setting out the state of borrowers accounts as well as his
financial position and credibility and (b) indicating whether the borrowers relationship with the
transferor bank has been generally satisfactory and if not the specific adverse features noticed
etc., so as to enable the transferee banks to be fully aware of the irregularities, if any, existing in
the borrowers account with the transferor bank.
d. The formalities such as fresh documentation, transfer of securities etc. should be completed
between the transferor and transferee banks as expeditiously as possible and it should be ensured
that the transferor bank's interest are fully protected,
e. Soon after the takeover, the transferee bank should make an independent assessment of the
credit requirements of the borrower by calling for complete financial, production and sales
data as also the latest annual accounts of the borrower so that the borrower's genuine credit
needs are fully met by that bank. If on the basis of such assessment, grant of additional
/enhanced credit limits is warranted, the transferees bank should ensure that there is no
relaxation in financial discipline vis-à-vis the method of lending , information system, etc.
f. No Bank shall extend any additional banking facility or open current accounts, in favour of a
party already banking with one or more banks (with or without a formal consortium) without
obtaining the prior concurrence of the existing bank(s)
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g. It will not be permissible for any bank outside the consortium to extend any additional credit
facility by way of bill limits, guarantees/ acceptances, letters of credit etc. or open current
account for the borrowers without the knowledge and concurrence of the consortium members.
h. Entry in a new account under a consortium or multiple- banking arrangement shall not be
regarded as a take –over. In a running consortium/Multiple Banking arrangement, our Bank can
propose to take over the existing/ fresh share of lending from the existing member banks and
such entry is subject to the following conditions:
i. An independent marker report should be obtained which would reveal a good opinion on the
borrower.
j. Satisfactory credit opinion from banks from whom the account is being taken over shall also be
obtained, before release of the sanctioned limits.
k. Statements of account with existing banks for a reasonable period reflecting satisfactory
operations for verification and records to be obtained.
l. Standard Asset Classification for the last two years with the existing banks shall be ascertained
by obtaining Certificates/ credentials to that effect from the banks.
m. Account should have recorded net profit after tax for the previous two years out of 3 years and
business conditions indicate improvement in profitability, unless the account is in operation for
less than three years.
NB. Once the system of obtaining CIBIL report gets stabilised, Credit information Report
(CIR) can be taken from CIBIL in lieu of credit opinions from banks.
17. Security:
a. While taking over of facilities from other banks, the primary security offered/charged to them
should continue as security for our Bank. In respect of additional securities/ personal guarantees,
any substitution/ modification may be considered by the sanctioning authority based on the
current exposure and adequacy of security coverage. The proportion of security coverage for the
liabilities proposed to take over should be based on the exposure and commercial judgement and
in accordance with our policy.
18. Liquidation of liabilities:
a. In respect of take - over of standard accounts, we may consider liquidation of liabilities of loan
from the Financial Institutions/ banks, provided those liabilities are in order.
19. Repayment Terms:
a. Repayment terms shall be based on the cash flow statement and the sanctioning authorities may
determine the repayment schedule.
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CHAPTER - 9
CREDIT MONITORING
1. General:
a. While a qualitative credit appraisal indicates the viability and bankability of a credit proposal,
post sanction measures such as timely disbursement, proper documentation, monitoring and
follow-up play a crucial role in ensuring that the account continues to be a performing asset.
b. While timely disbursement of advances is the sine qua non for the initiation of a project as
scheduled, monitoring ensures that the project continues to run in terms of the projections
made. Monitoring also includes anticipation of problems in advance and taking suitable
corrective action in consultation with the borrower.
c. No industry becomes sick overnight and a careful watch over the working of the unit would help
in tracking and averting sickness in the incipient stage itself.
d. Close monitoring is of paramount importance particularly in the light of the fact that once a unit
slips into sickness, it becomes difficult for the Bank to recover its advance in full or even part of
it, at times.
e. When the release of working capital is after the capital assistance for a new project or expansion
of an existing project, bank has to be satisfied about the promoters having brought in their share
of margin on working capital provided for in the project cost. Release of working capital in such
cases need to be commensurate with the installed capacity and production projected for the forth
coming period.
2. Security Monitoring:
a. Bank borrowings must be adequately secured by core current assets. For ensuring this, margins
are prescribed on each of core current assets. Irregularity in the cash credit account arises when
bank borrowings exceed the Drawing Power and the security position is adversely affected. In
cases where assets, whether existing or to be created out of bank borrowings are taken as
security, the branch should ensure that,
i. the security conforms to the terms of sanction, is adequate, in good condition and readily
enforceable.
ii. all the legal formalities have been complied with and a valid charge on the security in the
bank's favour has been created.
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iii. the movable property such as goods, stock exchange securities, documents of title to
goods, life insurance policies, etc., pledged to the bank are in the effective possession of
the branch.
iv. where the security is not so held (as in the case of hypothecation), the branch has obtained
adequate legal documents for taking 'effective' possession of the property in case of need.
v. in cases where the securities are held with other branches, their confirmation of holding is
obtained periodically.
vi. all the securities are received and entered in Securities Register against the authentication
of Branch Manager or the officer concerned.
vii. the securities are always kept in the joint custody of two officers.
viii. the confirmation letters of securities held and the acknowledgement of securities released
are examined and marked off in the Securities Register against their joint signature.
ix. a close watch is kept by the branch on the market price of the security held, through
personal enquiries and reference to published price lists (like stock market quotations) as
also information available in financial and other newspapers, journals and periodicals,
besides obtaining from the borrower's documentary evidence, vis-à-vis the value declared
by them.
x. the goods pledged or hypothecated to the bank are according to the specifications
furnished for their prices, quantity (expected turnover) and quality and that they are
inspected periodically by the Branch Manager or other officers on rotation basis.
b. While arriving at drawing limits on stocks/book debts, sundry creditors for goods should be
deducted from the values of such stocks/book debts.
3. Collection and Analysis of Data:
a. Following are important returns/statements in the monitoring of working capital advances:
i. Monthly stock statement and Monthly Data on Production and Sales (MSOD)
ii. Inspection of stocks
iii. Operations in the account
iv. Statements under Quarterly Information System (QIS)
v. Annual Audited Accounts
vi. Review/renewal of advance
vii. Asset classification under IRAC and other norms.
viii. Credit Rating
ix. Review during quarterly consortium meetings wherever applicable
x. Stock audit and concurrent auditor's report, comments by external auditors or by LFAR
and the reports of Credit Monitoring Officers.
xi. Report on Unit Inspection
105 - III
4. Scrutiny of Stock Statements:
a. Borrowers should submit a stock statement showing the quantity and value of stocks
hypothecated to the bank. The stock statement should clearly show the value of unpaid stock,
stocks under DA/LC etc.
b. Branches should ensure submission of stock statements by borrowers at regular/prescribed

intervals. The stock statement received should be properly made use of by entering the advance
value, insurance in force, verification of declaration in the statement, entering the relevant
details in the appropriate registers, cross verification of particulars with borrower's books and
physical verification of stocks during inspection etc. Operation should not be allowed based on
an old stock statement which would not give a correct picture of the state of affairs.
c. On obtention of stock statements, branch should scrutinise the same keeping in view the
following :
i. Valuation of stocks should be done in the same manner and adopting the same principles as
for annual financial statements.
ii. Stocks - quantity and value should be reconciled from month to month showing opening
stock, receipts, issues and closing stock.
iii. While arriving at drawing power on stocks, trade creditors (including LC creditors) should
be deducted.
iv. Wherever book debts are financed, the book debts upto the tenor accepted in the CMA only
should be recognised.
v. In case no specific tenure is fixed by the sanctioning authority, only book debts upto 180
days are to be taken cognisance for arrival of Drawing Power.
vi. Receipts and Issues in turn should be reconciled with the data on production and sales. For
example, receipts in finished goods should be equal to the value of production during the
month and issues should tally with the cost of sales.
vii. All companies enjoying credit limits in excess of Rs.10 lakhs should send monthly data on
production and sales (MSOD). These data shall also be used in conjunction with the Stock
Statement.
viii. The monthly data on production/sales is to be reconciled with quarterly returns furnished
under QIS, wherever applicable.
ix. A review of stock statements (at least once in 6 months) shall reveal the degree of
movement of inventory, raw material, finished goods, etc., and indicate the non-moving
items and the degree of obsolescence of inventory. For this purpose, borrower should give
break up of large value items under raw materials, stock in progress and finished goods.
Such observations shall be confined only to high value items constituting substantial
monetary value of inventory. (Stock-in-process, for instance, would remain the same if
production is more or less uniform every month)
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x. For advances to construction companies, stock statement should include data on contract,
extent of work done, amount of advance received and value of bills raised etc.
5. Inspection of stocks:
a. Stock inspection is usually done on a monthly basis with an element of surprise maintained at the
time of inspection. Such inspections are besides Stock Audit exercise for fund based and non-
fund based working Capital limit of Rs.1 crore and above.
b. Where there are large volumes of stocks, thorough stock inspection should be taken up on a
small portion in quantity but significant in value.
c. All the establishments of the borrower in the same city like factory, godown and office should
be inspected on each inspection.
d. Stocks shown in the stock statement shall be cross verified with those in the books of accounts
and the records maintained for the purpose of excise and other statutory authorities.
e. Valuation rates adopted for stocks with market rates/cost shall be verified to ascertain whether
the company follows the same basis of valuation as disclosed in the audited Balance Sheet.
f. The supplementary data on consumption, production, sales etc., shall also be verified with the
books of accounts of the borrower.
g. Insurance on stocks shall be examined for its adequacy and coverage and to ensure that all the
policies are in force.
h. Wherever the companies have an internal audit system, the respective reports shall be called for
and checked up for its effectiveness in controlling the financial functions.
i. Other factors of relevance at the time of inspection

ii. General working and tempo of activity
iii. Power supply, alternate of power supply if any. Utilisation of power shall be verified from
meter reading. If through alternate supply the fuel consumption etc., shall be cross
checked.
iv. No. of shifts worked and labour statements
v. Purchase/sales returns, quality control, scrap/wastage management
vi. Maintenance of Account Books and Records
vii. Slow-moving/old stocks and book debts
viii. Statutory liability/pressing creditors
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ix. Difficulties, if any, experienced in carrying out inspections.
x. Wherever shortfall in stocks/book debts is noticed, the matter should be reported to
controlling office. While the borrower would be asked to regularise the accounts, the
financial position of the company has to be examined in detail.
xi. For Book Debts, books of accounts and records of the borrower must be verified and it
should be ensured that periodical confirmation from debtors has been obtained by the
company.
xii. Internal Reports of the company as to age and quality of book debts, sales returns of
finished goods may also be scrutinised.
i. Consignment stocks in and out to be supported by proper records.
j. Wherever any additional construction/other capital expenditure is noticed/incurred during unit

inspection, it should be cross checked for source of funds to finance such activities.
6. Stock Audit:
a. Stock Audit is an effective credit-monitoring tool, which offers an opportunity for making a
qualitative assessment of the advances. The scope of stock audit is to go in for a detailed study
on the adequate availability of primary security, its nature and quantity. Stock audit covers in its
ambit the quality of stocks and Book Debts, their value and their conformity to the criteria of
current assets holding levels.
b. Stock Audit is a supplement to the system of inspection. It helps in identifying irregularities,

thereby prompting for initiation of suitable and timely remedial measure which is crucial in
improving the quality of loan assets of the Bank
c. Conduct of stock audit:
i. The stock audit shall be carried out by an agency appointed by the Bank, the charges of
which are to be borneby the borrower. Any deviation in this regard shall be with the prior
approval of the sanctioning authority.
ii. The branch should initiate steps for conducting Stock Audit for all eligible accounts well
in advance before the expiry period and should time it with an element of surprise.
d. Eligible Accounts and Frequency:
i. Stock Audit has to be conducted once in a year for accounts with fund based and non-fund
based working capital limit of Rs.1.00 crore and above. The non-fund based limit
includes LC DA, Standby LCs and Guarantees permitted for procurement of raw
materials. However, the gap between two successive Stock Audits should not exceed 15
months and not less than 6 months.
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ii. For accounts identified by the Monitoring Committee for slippage/showing signs of
slippage and for accounts specifically directed by the Sanctioning Authority, Stock Audit
has to be conducted at Quarterly / Half yearly intervals as directed.
e. Consortium / Multiple Banking accounts:
i. In respect of Consortium accounts in which we are the leader, wherever stock audit norms
are applicable, our Bank has to conduct Stock Audit and circulate to all the member
banks .
ii. If our Bank is a member of the Consortium, it should be ascertained from the leader the
arrangement made for conducting stock audit wherever applicable. If stock audit is not
initiated by the leader, our Bank may conduct it by an approved cost accountant of our
Bank in consultation with the leader and other members in the consortium. This will be
applicable to multiple Banking arrangement also.
f. Coverage:
i. Stock audit should cover Book Debts, Pledge stocks, Fixed assets (charged to Bank either
as primary or as collateral security) and goods covered under LCs on DA terms and
standby LCs in addition to inventory.
ii. The stock audit report should cover the following:
l Physical verification of the quantity of stock declared in the stock statement by visit-
ing the places of storage;

l Reconciliation with the stock statement lodged with the bank;
l Correctness of valuation of stock by scrutinising invoices, valuation of raw material,
stock-in-process, finished goods, age, quality etc.;

l Valuation of obsolete / slow moving stock;
l Recovery of obsolete / non-moving stock;
l Major customers of the borrower;
l System for maintenance of stock and stock records, movement of stock from stores,
l policy of procurement, management of stocks;
l Credit policy and control of receivable (evaluate the debtors);
l Age-wise break-up of receivables and their realisability in normal course;
l Evaluation of Sundry Creditors for purchase and its relationship to the bank finance;
l Major Sundry Creditors and period of credit and outstanding LCs;
l Comment on the accounting practices of the borrowal company;
l Computation of drawing power based on physical inspection and verification of
records and whether there is variation from statements submitted to the Bank;
l Scrutiny of QIS returns, cash flow, funds flow statements etc.;
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iii. Besides the above, the stock audit shall also be extended to cover details pertaining to plant
and machinery purchased out of the Term loans. A critical evaluation in this regard will
help in ascertaining the installed capacity, life span and working condition of the
machinery.
g. Reporting, Monitoring and Closure:

i. The commencement, progress and completion of stock audit should be monitored by the
bank. The Auditors to be clearly apprised of the Bank's requirement as regards the extent
and coverage of stock audit.
ii. The bank should obtain the stock audit report and after analysis forward it to their
controlling authority along with their views/observations..
iii. In consortium accounts where we are the leader, it should be part of the agenda for the next
meeting, to be discussed and recorded.
iv. Bank should follow up for rectification of the irregularities pointed out in the Stock Audit
Report and process the closure of Stock Audit Report within 3 months from the date of
submission of the Report.
7. Periodical Inspection of Units and verification of Securities:
a. Periodical inspection and verification may also be undertaken of machineries and

immovable properties taken as security for term loans. It is to be noted that the purpose of
inspection is not only to ensure the availability of sufficient security cover for the advance but
also to have a first-handknowledge about the borrower's current business position, his problems,
bottle necks faced etc. so that necessary corrective measures can be taken immediately.
b. Branches should verify the records available with the borrowers and confirm that cash sales are
invariably remitted in the borrower's accounts and payments made for daily cash expenses are
proportionate to the size of the business.
c. Inspection of the units financed / securities charged on a regular basis constitutes a vital tool in
effective credit administration. Besides, the signals forewarning the onset of anyproblems could
also be detected during such inspection.
d. Though the inspection report must be an extensive one specifying the areas where the attention
of the inspecting official is drawn for necessary checking, the comments of the official, may be
made in brief, except where details / comments / views are required in detail so that the report
can be completed immediately after the inspection. The purpose of including various columns is
that the inspecting official does not miss anyone.
e. The inspection of units should be done on a monthly basis unless or otherwise the periodicity of
the same is specified quarterly / half-yearly etc., in the sanction.
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f. During the year between the renewals, one of the inspections may be done by an official of the
branch, who is not directly handling the account.
g. Periodical valuation of securities
i. In case of goods taken as security for CC/KCC account, a market rate register should be
maintained. Periodical movement of prices of commodities offered as security should be
recorded in that register and in case of shortfall in value below the limit, drawing limit
should be suitably altered or refixed and recovery of excess drawings if any, should be
made forthwith.
ii. If such excess drawings could not be recovered immediately, a report of such excesses
should be made to controlling authority and efforts made for regularisation of the
account early.
8. Monitoring of 'Operations in the Account':
a. The operations in the Cash Credit/Overdraft account should be watched to verify whether,
i. there are healthy fluctuations in the account, depending on the sales etc.
ii. there are any drawings for purposes other than the one for which the advance is granted.
While it is not possible to check every drawal in cash credit account, a casual check
periodically and also as and when large cash payments are drawn, it should be possible for
the Branch Manager including the officers in charge of loans and advances department to
ascertain that the funds drawn are used only for the business purposes of the customer for
which limits have been sanctioned.
iii. there is any frequent instances of request for excesses or cheques returned for financial
reasons.
b. Branch Managers should take prompt action to get any temporary excess/overdraft adjusted
immediately. In all cases, Branch Managers should report the same to respective Circle Head
and ensure that proper cover documents are taken and temporary excess/overdraft is
adjusted at the earliest.
c. In case of borrowers not having multiple banking facilities with us/consortium arrangement,
the entire sale proceeds including cash sales should be routed through the OCC accounts or all
bills raised should be under bills purchased account. If this is not done, Branch Managers have to
verify whether the borrower is having account with any other bank and if so, the borrower must
be advised to close that account and ensure that all transactions are routed through the account
maintained at the branch.
d. Branches should exercise due caution to keep proper vigil over the request of their client for
cash withdrawals from their accounts for large amount. This is particularly necessary in the
case of any cash withdrawals from the newly opened accounts. Withdrawals are allowed
normally, only when the accounts are within the drawing limits. The Branch Managers are
expected to be cautious when cheques are issued to chit companies and for self drawals for
substantial amount.
111 - III
e. Inspectors during the course of scrutiny of accounts shall comment on adverse features, if any,
noticed in the operation of the accounts by way of special report to draw the immediate attention
of the sanctioning authority.
f. The Branch Manager/Officer-in-charge should also closely watch the turn over of various
goods pledged/hypothecated to the bank. If certain types of goods charged to us are not moving
regularly, it may be a case of dead stock deposited with us. Irregularity of such nature should be
immediately brought to the notice of the borrower to regularise the same. In case of persistent
irregularities of such nature, the sanctioning/controlling authority should be informed and
proper guidance sought.
g. The operations in the account need to be put on critical scrutiny in the following aspects:
i. Unusual debit/credit entry

ii. Return of Bills Receivables/ Cheques unpaid
iii. Repeated requests for additional funds which may indicate decline in sales, low realisation
of debtors or payment to pressing creditors, diversion of funds, cash loss etc.
iv. Decline in level of operations in the account.
v. Large return of inward bills
vi. Default in payment of Term Loan instalments/interest
vii. Devolvement of LCs, invocation of guarantees or excessive extension.
viii. Notice of demand from PF/Tax assessment, law suits or other legal action against the
borrowers.
h. Though scrutiny of cheques and payments in Cash Credit account is one of the methods to
detect diversion of funds, such a study of operations in the account has to be in conjunction with
examination of the relationship between current asset and current liabilities from time to time.
The Current Ratio (with proper classification of Current Assets and Current Liabilities),
respective share of the bank and borrower's long term funds in meeting the working capital gap
are a few indicators of use of bank funds.
9. Early Warning Signals:
a. Basically, it becomes necessary for the branch to be informed of all developments in the
borrower's account. Safety of the advance depends a lot on the continued viability of the
enterprise in addition to the availability of security of adequate value. Therefore, the
performance of the borrowing company should be regularly monitored without compromising
on the supervision of the security.
b. Some of the warning signals that may help in detecting the slippage of borrowal accounts into
NPA category and the proactive measures required at the operational level are given
below:
i. Frequent excess/devolvement of commitments under letter of credit/non-servicing of
ii. Interest/request for release of margins, unencumbered deposits. ii. cheques issued getting
dishonoured for want of funds.
iii. delay in submission of stock/book debt statement.
iv. delay in submission of returns
v. year ending being postponed/non finalisation of accounts.
vi. attachment orders from sales tax/IT/PF/central excise authorities.
112 - III
vii. opening and operation of accounts with other banks without our permission resulting in
our bank's account becoming dormant.
viii. bills purchased/discounted becoming overdue (may be due to direct collection of proceeds
by the borrower).
ix. activity level coming down in the factory leading to lay off/strike.
x. disappearance of stocks hypothecated/machineries charged to the bank.
xi. The operating profit is very low but the borrower declares a higher level of Net Profit,
which may be due to other income like profit on sale of investments/fixed assets, stock
market operations etc., which will be only a one time measure in nature.
xii. change in the management/unusually high turnover of key executives/supervisors.
c. Proactive measures required at the operational level,
i. Watching the operations of the account regularly.

ii. Carrying out periodical inspection of the unit, at more frequent intervals, if warning
signals are noticed.
iii. Visit to the administrative office of the borrower and frequent interaction with
iv. Accounts/Marketing/Sales personnel of the borrowing entity.
v. Scrutiny of the financial statements and the auditors' comments/notes on accounts.
vi. Stock audit by external agency.
vii. Comparison of the projections with actuals especially sales and profit on a quarterly basis.
viii. Informal market enquiries locally and with other banks/institutions will be an enabling
factor.
ix. Getting information about operations with other banks/FIs.
x. Analysing financial data of associate/group companies.
xi. Evaluating quality of assets and liabilities which have a bearing on the safety and
security/realisability of dues to bank.
xii. If comparison of returns with earlier quarters reveal undue movement in the composition
of current assets and current liabilities, it will certainly indicate whether the borrower is
heading for a liquidity problem.
xiii. It is essential that a detailed discussion with the borrower is held and his
viewpoints/support needed is ascertained so that any action initiated is not unilateral.
xiv. Any rigid attitude on the part of the operational level will result in the borrower distancing
himself from the bank, leading to a possible stalemate situation.
10. Review/Renewal of advances:
a. Scope:
i. Review/renewal of advances is an important post sanction exercise requiring attention on
priority basis from Branch Managers and other sanctioning authorities. Review helps to identify
the state of health of an advance and is an opportunity to evaluate the performance of borrowers
and to adopt remedial measures to safeguard our Bank's interest.
113 - III
ii. As review / renewal of advances is one of the parameters for evaluation of a bank's
performance by RBI, all theborrowal accounts are subject to periodical review/renewal.
iii. Review/renewal of advances involves collection and analysis of individual account data
like
l account behaviour
l financial performance
l market reports of the borrowers
l production performance
l overall change in credit rating
iv. Such an analysis would also be seen in the perspective of industry level performance
during the relevant period. Interaction with the borrower is also an important factor at
every stage of monitoring and shall provide valuable insights into the working of the
company. It is very important that there is regular and periodical flow of information to
sanctioning authority on the above aspects.
v. The review exercise has to pay more attention to future performance of the
company, apart from detailing account operations, profitability and security. In this
connection, the review will have to cover the market risks and management risks (for
example, there may be change in the management or in the quality of management).
vi. The financial performance analysis has to give importance to the underlying reasons
for the variance in actual performance vis-a-vis projections and management action
required to correct the situation.
vii. While, normally, an increase in sales is accompanied by an increase in profits, profit
projections should be viewed from the point of reasonableness to guard against
optimistic projections. Proposals for increased working capital assistance shall be based
on increase in sales projection. While sales projections are subject to an objective study as
to the feasibility, increase in working capital requirements shall have to be critically
studied. More often, the projected increase in sales shall not call for more or less the same
increase in Working Capital limits. Any increase in demand for Working Capital without
considerable improvement in sales calls for deeper study of the circumstances. Such a
trend shall indicate that the company is using current surplus towards liquidation of term
loan dues or acquisition of capital asset.
viii. The limits sanctioned by the Bank are, normally, valid for 12 months from the dates of
their sanction. However, in the following circumstances, branches should review the
accounts and submit renewal proposals immediately, even if the limits are not due for
renewal:
ix. When a partnership firm is reconstituted owing to death or retirement of one or more of
the existing partners;
x. When there is a change in the directors of a limited company and where one or more of the
directors are guarantors;
xi. When there is a change in the management, which may materially affect the business
adversely;
114 - III
xii. When there is a reduction in the net worth of the borrower;
xiii. When there is any other factor, which affects the advance adversely.
xiv. The system of periodical renewal of limits provide the Branch Manager with an
opportunity to evaluate the borrower's operational performance both quantitatively and
qualitatively, to reassess his credit requirements, to check up afresh the continuity or
otherwise of his financial solvency, to review the rating of his credit worthiness etc.
These aspects help him decide his recommendations as to whether the limits should be
renewed or reduced or cancelled. This process also provides an opportunity to the Head
Office to consider a proposal afresh from all relevant angles.
b. Time Norms for Review/Renewal of Advances:

i. Branches should review all advances listed below once in six months and renew the
facility once in a year:
l Overdrafts
l Packing Credit
l Cash Credits
l Clean Cash Credits
l Trust Receipts
l Loan Others
l Bills Discounted
l Inland Bills Purchased
l BP/DA Bills
l Foreign Bills Purchased
l Foreign Bills Negotiated
l Although the following are not in the nature of facilities with a regular sanction,
these had to be apprised to the sanctioning authority/controlling authority by way of
bimonthly reviews, apart from regular follow up:
l Temporary Overdrafts
l Defaulted Guarantees
l Overdue Bills
l BP's Returned Unpaid
l Foreign Bills Returned Unpaid
l Advance Bills
ii. Review of accounts listed below should be made once a year:

l On Own Deposits
l Medium Term Loans – Investment credit
l Other Medium Term Loans
l Clean Small Loans
l DRI Loans
l IRDP/SPDA Loans
l On Promissory Notes
l Consumer Credit Loans
l Staff Vehicle Loan
115 - III
iii. The time frame prescribed for submission of renewal proposals is as under:
iv. For disposing credit proposals the time frame as given below may be followed:
Ø Fresh/renewal with enhancement – within 45 days

Ø Renewal of existing limits -- within 30 days
Ø Review of existing limits/sanction of adhoc limits -- within 15 days
v. The Branch Manager will not be in order in continuing the facility, if the proposals are not
processed before due dates.
vi. The due dates for renewal of limits should be promptly diarised so that the job of
gathering particulars can be taken up sufficiently in advance and the proposals can reach
the sanctioning authorities well within the time frame given above.
vii. If for some unavoidable reason, the proposals for renewal could not be submitted in time,
the branch should submit a review proposal with working of the accounts. When audited
statements are not available, financial statements can be prepared based on projections or
proforma statements. If proforma statements are also not available, branches may submit
the renewal proposals with necessary remarks. But on no account the proposals should be
delayed beyond due dates.
viii. Branches must, however, follow up with the borrowers for early submission of
particulars/financial statements etc. They should be educated in this regard and apprised
that for sanction of realistic credit limits, provision of all necessary/relevant particulars in
time is necessary. Sanctioning authority should be kept informed of the status.
ix. Regular and adhoc credit limits need to be reviewed/regularised not later than three
months from the due date/date of adhoc sanction. In case of constraints such as non-
availability of financial statements and other data from the borrowers, the branch should
furnish evidence to show that renewal/review of credit limits is already on and would be
completed soon. In any case, delay beyond six months is not considered desirable as a
general discipline.
c. Study of Balance Sheets and other financial statements:
i. The financial statements from borrowers are supplementary to the bank's assessment on
the operation of accounts, securities and documents. Branches should study the Balance
Sheet and other financial statements submitted by the borrower and give their comments
on the liquidity, solvency, profitability and turnover of assets, while submitting the
review/renewal proposals.
ii. If the study of financial statements indicates symptoms of over-trading, decline in profits,
decline in sales (in terms of quantity and/or price) decline in net worth/negative net worth,
deterioration of current ratio, decline in gross profit and/or operating profit margin,
mounting external debt, poor inventory turnover, diversion of funds outside the business,
diversion of short term funds for long term uses etc., the Branch Manager should offer his
comments on the reasons responsible for such situations and on the advisability or
otherwise of continuing the limit.
116 - III
iii. Branch Manager should make a study of performance vis-à-vis the projections made and
list out major area of variance/s and comment on the reasons for such variance/s, external
or internal, controllable factors, etc.
d. Reports on Review/Renewal of Advances:
i. Branches should submit a Quarterly Statement on Review/Renewal of Advances to their

Circle Office. The statement should include the entire borrowal accounts credit limit wise
under the respective heads including loan against deposit, Term Loans etc.
ii. In cases where neither renewal nor review is possible, a status report of the account has to
be necessarily submitted without loss of time and such reports have to suggest the plan of
action for regularisation of the account.
11. Keeping the documents alive for legal action:
a. Acknowledgement of debt in a bank specified format should be obtained from

borrowers/guarantors once in a year. This will afford an opportunity for the Branch Managers to
have a discussion with the borrower about the advance account.
b. Branches may segregate loans with balances upto Rs.25,000 and government sponsored
schemes separately for easy and prompt follow up.
c. Acknowledgement of Debt should be obtained every year from all the borrowers and the
guarantors, which would extend the Limitation period
d. The Branch Managers should maintain a diary of DPNs/dates of documentation and even when
the DPN/documents are two years old they should initiate appropriate action to get the same
renewed.
e. Officials from Head Office should be deputed to branches where time barred documents are
reported to verify the reasons given by Branch Managers like non availability of borrowers,
refusal by borrowers to renew documents etc.
f. If the DPN/documents are allowed to get time barred, the Branch Manager will be held
personally responsible and appropriate action will be initiated against him.
12. Monitoring recovery of periodical interest and instalments:
a. Proper notices should be sent to the borrowers before the due date of term loan instalments.
b. Irrevocable authority to debit loan instalments to cash credit/Current account should be

obtained before disbursing the amount.
117 - III
c. Interest debited to loan and overdraft/cash credit account should be recovered immediately. In
overdraft/cash credit account, after application of interest, the drawal should be regulated to
bring the account within the sanctioned limit or drawing limit whichever is lower. The excess if
any created in cash credit account due to the debiting of loan instalments, should be recovered
within 10 days
d. The same procedure may be followed for reversing amount in BP returned unpaid accounts and
also in overdue bills account.
13. End-use of Funds:
a. In case of Project Finance, branches should ensure end use of funds inter alia by obtaining
certification from the Chartered Accountants for the purpose. The Head Office/branch should
not depend entirely on the certificates issued by the Chartered Accountants. Branches should
strengthen their internal controls to enhance the quality of their loan portfolio.
b. The following are some of the illustrative measures that could be taken by the branches for
monitoring end-use of funds :
i. Meaningful scrutiny of quarterly progress reports/operating statements/balance sheets
of the borrowers;
ii. Regular inspection of borrowers' assets charged to the lenders as security;
iii. Periodical scrutiny of borrowers' books of accounts and the no-lien accounts maintained
with other banks;
iv. Periodical visits to the assisted units;
v. System of periodical stock audit, in case of working capital finance
vi. Periodical comprehensive audit of the 'Credit' appraisal function of the branches//Head
Offices so as to identify the systemic-weaknesses in the credit administration, if any.
14. Certificate from Chartered accountants (for Project Finance only):
a. With a view to monitor the end-use of funds for project finance, in case the branches/ Head
Offices desire to have a specific certification from the borrowers' auditors regarding
diversion/siphoning of funds by the borrower, the Bank should awarda separate mandate to
the Auditors for the purpose. To facilitate such certification by the Auditors the branches/Head
Offices will also need to ensure that the following clause/covenants is incorporated in
the loan agreements or suitable consent letter is obtained to enable award of such a mandate by
the Bank to the borrower's auditors.
I / We hereby confirm the Bank is entitled to a specific certification

from my / our auditors regarding end use of funds of the facilities
availed from the Bank. I / We have given necessary mandate in
this regard to my / our auditors for this purpose.
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b. The borrowers shall issue a mandate to their auditors under copy to the branch Head Office
to facilitate the certification by the latter.
c. In case any falsification of accounts on the part of the borrowers is observed by branches,
they, with the permission of Head Office should lodge a formal complaint against the
auditors of the borrowers with the Institute of Chartered Accountants of India (ICAI) if it is
observed that the auditors were negligent or deficient in conducting the audit to enable the
ICAI to examine and fix accountability of the Auditors.
d. Inclusion of Consent Clause in the Loan Documents to disclose Defaulters in future:
i. As per RBI direction, branches have to obtain consent clause by an undertaking in

the loan document from the existing/fresh borrowers/Guarantors to disclose their
names in the event of the borrowers committing default in payment of their dues. In
case the said borrower wilfully defaults in repayment of loan, decision shall be taken
to publicise the names of such borrowers.
ii. For this a notice of 10 days is to be given to the borrower communicating our
intention to make public the information, unless the borrower rectifies the default
within such period.
e. Penal measures:
i. In order to prevent the access to the capital markets by the wilful defaulters, a copy of
the list of wilful defaulters would henceforth be forwarded by RBI to SEBI as well.
RBI has also decided that the following measures should be initiated by the banks
and FIs against the wilful defaulters identified as per the definition indicated:
ii. No additional facilities should be granted by any bank/FI to the listed wilful
defaulters. In addition, the entrepreneurs/promoters of companies where banks/FIs
have identified siphoning/diversion of funds, misrepresentation, falsification of
accounts and fraudulent transactions should be debarred from institutional finance
for floating new ventures for a period of 5 years from the date the name of the wilful
defaulter is published in the list of wilful defaulters by the RBI.
119 - III
CHAPTER – 10
RECOVERY OF ADVANCES
1. General:
a. Bank funds lent are to be recycled. Recycling helps to augment lendable resources of the bank by
bringing in more number of needy borrowers to its fold. Better recovery performance boosts the
image of the bank. It reduces/eliminates need for provisioningfor bad debts thereby increasing
the profits of the bank. Quick recycling of funds through timely recovery of advances by least
efforts will reduce unnecessary costs involved, if advances were to be recovered through courts
of law.
b. As per the recommendations of the Narasimham Committee on Financial system, Reserve Bank
of India introduced the prudential norms for income recognition, asset classification and
provisioning for credit portfolio of banks. The implementation of the above norms has brought
unprecedented reforms in the Indian Banking Industry and the NPA Management in banks has
assumed greater importance. Greater emphasis was laid for recovery of the dues and keeping the
NPA level at the lowest possible level, as it will have direct impact on the profitability of the
Bank.
c. In the recent context of Income Recognition and Asset Classification norms, non- recovery of
interest/instalment will have a dual effect of reducing our interest income and also increasing the
provisioning requirement both of which will be having a bearing on our profitability.
d. Steady increase in depositsof a bank is an indicator of growth. The lendable resources of the
bank can also be augmented through timely recovery of advances already made. In fact, the
recovery of funds thereby mobilising resources for further lending has an additional advantage.
That is the entire resources mobilised through recovery can be re-lent without any CRR, SLR
restrictions. Thus, the importance of timely recovery need not be over emphasised.
2. Precautionary measures to avert recovery proceedings:
a. Appraisal: If the appraisal of an advance proposal is properly done and the credit
requirements of the borrower are correctly assessed, we can say that the half of recovery is done.
It is reiterated that the branches should follow the appraisal procedures meticulously without
any deviation.
b. The provisions of the Coop. Societies Act should be strictly adhered to while enrolling the
borrower as a member which will ensure speedy action for recovery in case of default.
Adherence to the relevant provisions of the Respective State Coop. Societies Act will help later
in filing of arbitration proceedings and following it up until coop. decree is obtained and the dues
are recovered.
120 - III
c. Security/Documentation and terms and conditions: Documents/ Documentation should be
strictly adhered to as prescribed by the Bank for various types of credit.
d. The advance should be released only after obtaining all cover documents and securities
prescribed by sanctioning authorities and also ensuring fulfilment of all terms and conditions by
the borrower.
e. Disbursal: Disbursal should be so made that it would facilitate proper end use of funds. The
cost of machinery etc. should be directly sent to supplier of machinery in case of term loans.
The borrower should be allowed to avail working capital limit only after ensuring whether
construction of building, installation of plant and machinery are completed and provision of
other infrastructure facilities are available.
f. Regular Monitoring of Follow-up: Proper utilisation of the credit and the operations/
transactions in the CC A/c, Loan A/c will reduce the risk of default and thereby NPA and
improve the recovery performance and the profitability.
3. Objectives of Recovery:
a. The first and foremost objective of a quality 'Recovery Management' is to minimise the
accretion of Non-Performing Assets by
i. Effective monitoring of the borrowal accounts
ii. Timely Review / Renewal of the Credit limits
iii. Proper classification of accounts and close monitoring thereof
iv. Ensuring recovery of critical amount to avoid slippage
v. Ensuring obtention of stock statements from the borrowers in time and review of D.P.
vi. Ensuring obtention and proper analysis of other financial statements
vii. Restructuring of Standard Advances wherever needed
b. Reduction in the level of NPA could be achieved by adopting the following measures:
i. Frequent contact / follow up with the borrowers for normal recovery,
ii. Filing of suits in appropriate civil courts,
iii. Filing Arbitration will ensure speedy recovery as compared to Legal action proceedings.
iv. Resorting to debt restructuring, wherever applicable,
v. Referring the cases for OTS wherever available.
vi. Settlement through Compromise at the Bank/ Branch level.
vii. Compromise settlement of dues through LokAdalats as per the NABARD guidelines
NB.IDD (COOP)/2143/V-11(mix)/2002-03 dated 24.12.2002.
viii. Enforcement of SARFAESI Act, 2002.
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c. The third objective is close follow-up of the sticky/ irregular accounts including sick units, suit
filed and decreed accounts and the cases referred to ARC for speedy recovery of the dues by:
i. Timely revival / rehabilitation of the potentially sick and viable units and
ii. Execution of decrees within one year of their obtention.
d. Another objective of Recovery Management could be upgradation of the existing NPAs by

improving the quality of assets through,
i. recovery of the overdue amount
ii. restructuring/re-phasement/rehabilitation of accounts wherever possible and
iii. recovery of amount as per approved schemes of OTS, debt restructuring.
e. The last but not the least objective is to prevent deterioration of the quality of the assets by
ensuring
i. Regular inspection of the securities (both movable/immovable) and
ii. Initiation of quick action wherever warranted.
Note: Legal action is the last resort adopted for the recovery of the dues. Before initiating any
legal action, Bank has to exhaust all other avenues of recovery and after considering the
prospects of recovery, the pros and cons of filing of suit have to be thoroughly examined.
4. Persuasive measures:
a. Dialogue with the borrower: Immediately when repayment of an instalment falls dues, the
borrower should be contacted in persons to have a dialogue for repayment and to avoid
overdues.
i. If the overdue continues to the next instalment due, then the borrower and the guarantors
should be approached immediately and necessary steps should be taken for repayment.
ii. Regular demand notice should be sent and the borrower and guarantors should be
repeatedly contacted for repayment.
iii. Timely contacts will ensure speedy recovery and no hesitation should be shown in this
regard.
iv. Further legal/ arbitration proceedings should be initiated.
v. Even part payments should be accepted and credit to the loan account to keep the
documents alive in the eyes of Limitation Act.
vi. All these actions should be in order to ensure enforceability by law.
vii. In case of secured advances, proper actions (as per the by-laws of the Bank and as per the
provisions of Coop. Societies Act/ Law) should be taken to realise the security and clear
the dues/overdues.The Coop. court procedures enshrined in the respective State Coop.
societies Act provide ample and faster mode of recovery of dues from the borrowers from
Coop. Banks/ Coop Societies. For making the borrowers liable/answerable under the
arbitration proceedings – a recovery procedure exclusive to Coop.Banks,-the borrowers
had to be made members or Associate members first, i.e., before loans are sanctioned to
them. Unlike civil suits, the arbitration proceedings provide faster relief to the coop.
Banks.
122 - III
viii. The Bank/Branches should strictly follow the instructions given by RBI / NABARD / HO
while taking up rehabilitation proposals of sick units.
b. Compromise Proposals:When a borrower approaches the bank for reduction in interest

amount/principal amount etc., his request should be considered cautiously. Usually when the
borrower is not in a position to carry on his business, and thereby increase his income and where
repayment of the dues mainly depends on the realisation of securities/other assets, a
compromise proposal can be taken up.
i. Such proposals may be considered, keeping in view the securities/other assets available,
the time/cost that may have to be incurredon filing a suit, initiating action under
SARFAESI ACT, 2002 etc.
ii. Compromise proposals should be taken up by the branches only as a last resort, before
filing a suit where the Branch Manager considers that the cost of filing suit for recovery
will overweigh the benefit.
iii. The main objects of a Compromise/ Negotiated settlement are to,
l reduce the level of NPAs by accelerated recovery of the same
l improve the profitability by reducing NPAs and
l recycle the funds so recovered in good performing assets
l helps the bank to get an early decree and also reduces the cost of suit and other
expenses
iv. Compromise formula has to be worked out with the approval of the Board of Management
and all compromise proposals should be executed only on approval by the Board of
Management.
c. Compromise proposals during pendency of a suit:

i. During the pendency of a suit, the defendants or some of them may seek to settle the matter
either by making the full payment or by submitting a decree. If they make the full payment
- plaint claim, cost of suit, interest up to date etc., the matter stands settled out of court and
on the advice of the lawyer and the Head Office, the suit may be withdrawn in which case
courts refund a portion of the court fees paid at the time of filing the suit. If they intend to
submit a compromise decree the proposed terms of the decree may be got ascertained and
conveyed to Head Office.
ii. If the dues stand recovered within a reasonable time, the branch may agree to a
compromise decree, only after getting sanction of H.O. Legal Department/Circle Office
whether it grants instalments or fixes a period by which all the dues are to be paid.
iii. Normally, compromise decree provide for a default clause enabling us to execute the
decree, if the defendants fail to pay the amount/instalments by the stipulated date. Default
clause always has to be insisted upon.
iv. Care should be taken to see that the terms of the compromise decree are very clear and do
not give rise to any dispute at a later date. Care should be taken to include the guarantors
also when they propose any compromise with a defendant who is the principal debtor (the
other defendant who may be a guarantor will get discharged, in case we compromise with
the principal debtor/defendant alone).
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5. Negotiated/Compromise Settlement for recovery of NPAs:
a. Every Bank may have a policy on Negotiated/compromise settlement for recovery of NPAs the
same may be modified from time to time. The policy shall contain,
i. formula to determine the compromise amount based on the present paying capacity of the
borrower at stipulated rates of return on the dues to the Bank.
ii. methodology for reducing the rate of interest.
iii. flexible norms for early recovery of hard-core NPAs.
iv. provisions to link the recovery to the realisability of securities.
v. simplified norms for compromise settlement offer under the small borrowers category.
vi. shall aim at recovery of the 'Book Balance', Legal Expenses and the maximum feasible
amount of accrued interest through negotiated settlement.
vii. shall aim at a Negotiated settlement only when the recovery of dues to the bank in the
normal course is found difficult or would take unduly longer period depriving the Bank the
immediate benefit of recycling of funds.
viii. shall be to recover maximum amount possible with minimum sacrifice.
b. Definitions of certain Terms used in the Recovery Policy:

i. Total Dues:Total dues shall mean the amount outstanding as on the Reckoning Date
together with unapplied interest (calculated at contracted rate, as applicable from time to
time, compounded, inclusive of penal interest or as per court order, if decreed).i.e. Total
dues = Ledger Outstanding (BOOK BALANCE)+ Accrued Interest + penal Interest +
Law Charges, if any.
ii. Net Worth: Net Worthof the borrower / guarantor is the realisable assets of the borrower/
guarantor minus the borrowings / outstanding from other Banks as on a date very close to
the date of submission of the compromise proposal by the branch.
iii. In the case of a limited company, co-operatives or other institutions, the net worth shall be
the paid up capital + accumulated reserves minus accumulated losses in the Profit and
Loss Account as given in the Balance Sheet as at a recent date.
iv. Compromise Amount:It is the amount which the Bank shall accept as the total amount
towards full settlement of its dues as per the terms of negotiation.
v. Sacrifice:Sacrifice is the quantum of liability of the borrower which the Bank is prepared
to forego or waive or write off on account of a negotiated/compromise settlement between
the borrower and the Bank.
vi. Valuation of Securities: While considering compromise settlements, valuation of
securities should be based on the current realisable value.
vii. Realisable value of securities: For Fixed assets like land and building, plant/machinery
and vehicles under charge to the Bank will be lowest of the following:
124 - III
l government guidelines/ registration valuation to be certified by approved engineer.
l realisable value (given by approved Engineer) taking into account the,
Ø location aspects,
Ø nature of security,
Ø age / size/ volume of security,
Ø possession status like tenancy / freehold / accessibility,
Ø condition of security,
Ø marketability / availability of buyers,
Ø statutory dues to the Government on the security).
Ø assessed market value (by branch manager after making local enquiries
during the visit for inspection of security)
c. Operational Guidelines:
i. While considering compromise proposals, due emphasis is given to the benefits that
accrue to the Bank by way of income, retrieval of provision held, yield and effective rate
of return on the NPA, income accrual by way of recycling, besides impact on the capital
adequacy requirements.
ii. For deciding the quantum of compromise amount or concession, the realisable value of
securities (primary/collateral) charged to the bank and networth of the borrower/guaran-
tor as at the time of compromise settlement, form the basis.
iii. Every compromise proposal should be supported by or substantiated with the need,
reasons or factors as to why the Bank should accept the compromise mode of recovery.
e.g. failure of the unit, Government policies, Court Orders, continuous losses and non-
viability, death of principal promoter, deteriorating securities, etc. Where securities are
adequately available, the reason for entertaining the compromise proposal should be given
specifically.
iv. Under the negotiated settlement, it should be endeavoured to recover as much amount
of non-performing advance, as possible keeping the sacrifice by way of write off or
waiver to the barest minimum.
v. The Book Balance reflected in the accounts together with the amount outstanding under
the Legal Expenses and maximum portion of Interest should be recovered.
vi. As far as possible, 'Writing off' of even a part of the book balance should be avoided.
vii. Emphasis should be made to recover the doubtful and loss assets which cannot otherwise
be upgraded.
viii. NPA accounts where irregularities are committed by the borrowers also can be
considered under compromise settlement, with a view to avoid blocking of Banks' funds in
such accounts.
ix. Accounts categorised as wilful defaulter may also be considered for a Compromise
Settlement.
x. While recommending the compromise proposals to be accepted by the Bank, the
adequacy or otherwise of realisable value of primary/collateral securities, net worth
of borrower/guarantor at the time of compromise settlement shall be taken into account.
125 - III
xi. Age of the borrowal account, amount of provision held, marketability of securities,
documentation defects such as non-creation of charge, time involved in the on-going legal
proceedings, the range of interest rates charged etc. should also be analysed and specified
in the proposal.
xii. The benefits to the Bank, as illustrated hereunder, arising out of sanctioning the
compromise proposal should be highlighted:
l Income that goes to Profit and Loss Account,
l Amount of provisions which could be retrieved back,
l Quantum of NPA reduction and impact on the Capital Adequacy requirement of
theBank,
l Income that accrues to the Bank on account of recycling of funds recovered or
investments in call money/rediscounting operations/alternatives available for
profitable deployment of such funds,
l Yield / Effective rate of interest considering interest income and retrieval of
provision,
l Net Present Value/Discounted Cash Flow for the dues recoverable.
xiii. An up front amount as prescribed by the Bank should be deposited by the Borrower in a No
Lien account with the Bank.
xiv. In staff related accounts, when the accounts are guaranteed by the staff, no compromise
settlement shall be considered. However, OTS can be considered based on the nature of
account with the prior approval of the Board of Management.
xv. Any offer/settlement which involves relaxation from the prescribed norms shall be
referred to Head Office / Board of Management for approval.
xvi. Non-Performing Accounts for which government guarantees are held by the Bank may
also be considered for compromise settlement, subject to the approval of the Board of
Management.
xvii. Negotiated settlements can also be considered in respect of standard assets/ Substandard
Assets under special circumstances where the Bank had to exit by taking a view on
sacrifice on a case to case basis outside the purview of the Recovery policy.
d. The scheme/ proposal for 'One Time Settlement'(OTS) to wilful defaulters,
i. shall be considered at the appropriate time to improve the recovery performance with the
approval of the Board of Management.
ii. senior Executives from Head Office may visit circles / branches where NPAs are
concentrated, for an on the spot negotiation of OTS, wherever feasible with prior
authorisation by the Board of Management.
iii. visiting head office officials can exercise their discretionary powers for on the spot
settlement of OTS. However, the OTS proposal should be submitted in the prescribed
format containing all relevant particulars.
iv. on settlement of OTS, the proposal should be submitted to Head Office/ Recovery
Department, for information.
126 - III
e. Terms of Payment:
i. Efforts should be taken to recover the dues as per the sanctioned / communicate repayment
schedule.
ii. Where funds are raised by disposal of fixed assets, full settlement by way of LumpSum
Payment must be insisted upon.
iii. In case the amount by way of disposal of the assets is not sufficient for full settlement,
proper instalments should be fixed depending on the other sources of the
borrower/guarantor/s for the remaining amount.
iv. It is advisable to fix the number of instalments at not exceeding 12 months for repayment
of the principle and interest/ compromise settlement amount.
v. The sanctioning authorities may grant extension of time for payment, provided the
waiver/sacrifice recalculated upon the date of extended period falls within his powers.
vi. Extension of time beyond 12 months need not be considered. In such cases, the
compromise sanction shall be treated as cancelled, renegotiated and fresh proposal should
be submitted.
vii. No compromise proposal should be rejected at Branch Manager's level. It should be
referred to the next higher authority or to the concerned sanctioning authority for decision.
f. Release of Securities:
i. The authority considering the compromise proposal can authorise release of
security after all the due are cleared and after ensuring that there are no other direct or
indirect liabilities connected to the account/ borrower/ guarantors.
ii. In all cases of sanction, the Board of Management may permit authorised officers of the
Bank/ Branch to release the securities in full or in part depending upon the nature of credit/
dues.
g. Issue of Certificate on closure of account: Wherever after settlement, a certificate on closure of

accounts is requested, such certificate is to be issued only after full and final settlement of the
liability, duly indicating the fact of the compromise having been accepted by the Bank and
adjustment of the account, involving sacrifice by the Bank.
h. Appropriation of Recoveries in NPA Accounts:

i. In case of recovery through compromise method, recovery is first taken to Book Balance
and after fully adjusting, the Balance will be taken to income.
ii. In case of suit-filed accounts, recovery both under normal and compromise modes is
appropriated towards Book Balance first, then to income, recovery of Legal Expenses,
etc.
127 - III
6. Write off of NPA accounts:
a. After critically analysing the chances of recovery in all the NPA accounts, the accounts can be
written off only after exhausting all avenues of recovery through normal course / by legal means/
through OTS etc. The exercise of write off has to be undertaken on merits of each case after
considering various factors like low / nil income generation, capacity of the borrower / guarantor
to pay the dues, availability / state of the securities etc.
b. Write-off exercise shall have to be used only as a last resort, when
i. the account is classified as doubtful or loss asset.
ii. there are no securities available or there is nil / nominal salvage value of securities. Net
worth of the borrower / guarantor is nil or nominal.
iii. the borrower / guarantor are not traceable after reasonable enquiries.
iv. the borrower / guarantor has no source of income.
v. full provision has been made.
vi. it would only add to the costs to the Bank.
vii. there is no use of continuing the suit in case of suit filed accounts and the amount cannot be
recovered even if the suit is decreed.
c. The authority vested with powers for write off, generally the Board of Management, can
exercise such powers for full or partial write off in respect of all NPA accounts requiring write
off, subject to the above and the overall powers delegated to them.
d. Sanctioning authorities at the time of permitting write off shall stipulate a condition in the
sanction letters that recovery efforts shall be pursued in the written off in the following cases.
i. Borrower / guarantor would have revived income generating activity so that the branch
can strive for recovery ;
ii. Borrower / guarantor would have returned to their native place / place of business so that
recovery efforts could be pursued;
iii. Pursuance of recovery through the legal heirs / close relatives of the borrower/guarantor, is
possible on a later date/ stage.
iv. Realization through residual value of assets left if any, which has been charged to the
Bank;
v. Identifying other assets of the borrower/guarantor not charged to the Bank at a later date to
write off;
vi. Pursuing for recovery from Assets acquired / inherited by the borrower / guarantor
subsequent to write off ;
vii. Improvement in the position of Net Worth of the borrower / guarantor;
viii. Identifying / locating the borrower / guarantor and finding their present address with the
help of Village Presidents / Govt. Officials / Previous Managers, staff members etc.,
ix. The authority exercising the powers of write off should not use such discretion in respect
of loans sanctioned by himself / herself earlier and such accounts will have to be referred to
the next higher authority.
128 - III
e. After issue of proper notices for recovery of principal and interest and other charges to the
borrower and guarantors, if there is no recovery of the dues, then legal action/ arbitration
proceeds may be initiated with the approval of the Board of Management. Even after the decree,
if there is no recovery, steps may be taken to realise the assets/ securities offered for the advance
or for attachment of the goods/ assets of the borrower/ guarantors.
7. Board for Industrial and Financial Reconstruction (BIFR):
a. In the wake of sickness in the country's industrial climate prevailing in the

eighties, the Government of India set up in 1981, a Committee of Experts to examine the matter
and recommend suitable remedies. Based on the recommendations of the Committee, the
Government of India enacted a special legislation namely, 'The Sick Industrial Companies
(Special Provisions) Act, 1985' (1 of 1986) commonly known as the 'SICA'.
b. The main objective of SICA is to determine sickness and expedite the revival of potentially
viable units or closure of unviable units (unit here in refers to a Sick Industrial Company). It was
expected that by revival, idle investments in sick units will become productive and by closure,
the locked up investments in unviable units would get released for productive use elsewhere.
c. SICA' was enacted with a view to securing the timely detection of sick and potential sick
companies owning industrial undertakings, the speedy determination by a body of experts of the
preventive, ameliorative, remedial and other measure which need to be taken with respect to
such companies and the expeditious enforcement of the measures so determined and for matters
connected therewith or incidental thereto.
d. The Board of experts named the 'Board for Industrial and Financial Reconstruction' (BIFR) was
set up in January, 1987 and functional with effect from 15th May 1987. The Government of
India have set up BIFR for taking necessary measures for revival of sick industrial companies
under SICA, 1985.
e. BIFR has wide-ranging powers with regard to sick industrial companies including, among other
things, their revival, change or take-over of management; reconstruction including restructuring
of share capital by reduction of the interest or rights of the shareholders; amalgamation with
another company and sale or release of a part or whole of the industrial undertaking, as also their
winding up.
f. The Schemes of rehabilitation as sanctioned under the orders of BIFR shall be binding on all
concerned. The civil courts shall not have jurisdiction in respect of any matter which falls within
the purview of the BIFR or the Appellate Authority. No injunction shall be granted by any court
or other authority in respect of any action taken or to be taken in pursuance of any powers
conferred by or under the SICA, 1985.
g. When a unit becomes sick its Board of Directors should make a reference to the BIFR for
determination of measures to be adopted with respect to that company. Banks should also
independently report to BIFR the cases of sick companies in their portfolios. Where a formal
consortium arrangement exists, the lead bank should make the reference to the BIFR.
129 - III
h. The Appellate Authority for Industrial and Financial Reconstruction (AAIRFR) was constituted
in April 1987. Government companies were brought under the purview of SICA in 1991 when
extensive changes were made in the Act including, inter-alia, changes in the criteria for
determining industrial sickness. SICA applies to companies both in public and private sectors
owning industrial undertakings:
i. pertaining to industries specified in the First Schedule to the 'Industries
(Development and Regulation) Act, 1951' (IDR Act) except the industries relating to ships
and other vessels drawn by power and;
ii. not being "small scale industrial undertakings or ancillary industrial undertakings" as
defined in Section 3(j) of the IDR Act.
iii. the criteria to determine sickness in an industrial company are,
§ the accumulated losses of the company to be equal to or more than its net worth i.e.
its paid up capital plus its free reserves.
§ the company should have completed five years after incorporation under the
Companies Act, 1956.
§ it should have 50 or more workers on any day of the 12 months preceding the end of
the financial year with reference to which sickness is claimed.
§ it should have a factory license.
i. Important provisions of SICA:

i. Procedure of the Board and the Appellate Authority.
ii. Filing of references u/s 15 and criteria of sickness.
iii. Provision of enquiry u/s 16.
iv. Appointment of Special Directors and OAs u/s 16(4) and 17(3).
v. Preparation of sanctioned scheme under section 17(2), 17(3) & 18(4).
vi. Provision for monitoring of schemes u/s 18(12)
vii. Rehabilitation by giving financial assistance u/s 19.
viii. Winding up of sick industrial companies u/s 20.
ix. Protection to safeguard the interests of the sick companies u/s 22(1), 22(2), 22(3).
x. Provisions for dealing with potential sickness u/s 23, 23(a), 23(b
xi. Provision in case of misfeasance u/s 24.
xii. Provision for seeking information and giving information – Central Govt., RBI, FIs State
institutions and sick companies and in case of amalgamation other companies.
xiii. Power to seek assistance of MMs & DMs u/s 29.
xiv. SICA has overriding provisions u/s 32 over other laws except the provisions of FERA,
1973 and the ULCRA,1976.
xv. Penalty u/s 33 for violation of the Act.
130 - III
CHAPTER - 11
THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND

ENFORCEMENT OF SECURITY INTEREST (SARFAESI) ACT, 2002
&
THE ENFORCEMENT OF SECURITY INTEREST AND
RECOVERY OF DEBT LAWS (AMENDMENT) ACT, 2012
1. General:
a. The banking industry has been experiencing delays and difficulties in recovery of Non-
Performing Assets (NPAs) through the legal proceedings of Courts and therefore were seeking
provisions to proceed against the securities without the intervention of Courts. In response to
their requests, the 'Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Ordinance, 2002' was promulgated on 21. 06. 2002 which subsequently
became an Act (SARFESI Act, 2002) replacing the ordinance.
b. This Act empowers Banks including cooperative banks and Financial Institutions as Secured
Creditors to proceed against the securities without the intervention of a Court or Tribunal, after
complying with certain procedural formalities and realise their dues. The applicability of the Act
to Cooperatives as per the Gazette of India issued by the Ministry of finance and Company
th
Affairs(Dept. of Economic Affairs-:Banking Division)28 Jan 2003.:S.O.105(E)-In exercise of
powers conferred under item (V) of clause (C) of subsection (1)of section 2 of the Securitisation
and Reconstruction of financial Assets and Enforcement of Security Interest Act 2002(54 of
2002), the central Government hereby specifies “coop. bank” as defined in clause (CCi) of
section 5 of Banking Regulation Act, 1949,as 'Bank for the purpose of the 'Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002'.
c. The Act mainly consists of three parts viz.,
i. Formation and regulation of Asset Reconstruction Company/Securitisation Company.

ii. Enforcement of Security Interest (under Chapter III of the Act) by Banks and FIs without
the intervention of Courts/Tribunals and
iii. Maintenance of a Central Registry.
d. This Chapter deals only with the salient features of Chapter III of the Act pertaining to
Enforcement of Securities without intervention of Court/Tribunal.
e. The Bank or any of its Authorised Officers shall not be held liable for anything done or omitted
to be done in exercise of their powers under the Act in good faith and no suit, prosecution or other
legal proceedings shall lie against them in this regard.
f. The provisions of the Act can be invoked not-withstanding anything contained in such other
legislations. The provisions of this Act are in addition to and not in derogation of the provisions
of existing legislations like Companies Act, Recovery of Debts due to Banks and FIs Act and any
other law in force.
131 - III
2. Applicability of the Act:
a. Proceedings only against Securities offered: Under the Act, Banks can take possession and sell/
transfer only the properties which were offered as security by way of mortgage, hypothecation
etc., Bank cannot take possession of other assets of the borrower/guarantor which are not
secured for the purpose of enforcement without the intervention of a Court/Tribunal. The Act is
not applicable to,
i. Any security interest created in the agricultural land
ii. Any debt where the amount due is less than 20% of the principal amount and interest
thereon
iii. Any financial asset not exceeding Rs.1.00 lakh.
iv. Pledge of movable assets within the meaning of Section 172 of Indian Contract Act 1872.
v. Any conditional sale, hire purchase or lease or any other contract in which no security
interest has been created.
b. Eligible accounts: Provisions of the Act can be made use of for realisation of assets classified as
NPA (i.e., sub-standard, doubtful or loss asset) as per the guidelines relating to Asset
Classification issued by RBI.
c. Period of Limitation: Claim should be made within the period of limitation prescribed under the
Law of Limitation Act 1963.
d. Consortium Lending: In the case of financing by more than one secured creditors under
consortium arrangement or joint financing, bank is not entitled to exercise the powers under Sec
13 (4) of SARFAESI Act, unless secured creditors representing not less than 75% in value of the
amount outstanding ( the total amount due to be payable) agree for such action. This consent is
required only at the stage of taking possession etc., and not at the stage of issuance of Demand
Notice.
e. Guarantors' Liability and Pledge: By resorting to measures under the Act, the rights of the Bank
as a secured creditor to proceed against the guarantors is not taken away. Similarly, the right to
sell the pledged goods under general law also subsists.
3. Operational Guidelines:
a. Identification of accounts: The Bank has to identify the accounts where borrowers are in default
of repayment of debts and which are classified as NPAs. The balance outstanding including
Memorandum of Interest (MOI), if any, should be more than Rs. 1.00 lakh. The cover
documents should be live and within the Limitation period.
b. Sanction to initiate action under the Act: Branches are required to obtain sanctions from
competent authority to initiate action under the Act.
c. Competent Authority: The Board of Management will nominate the Authorised Officers for
initiation of action. After nominating the AO, the same has to be informed to Recovery and
Legal Departments at Head Office.
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d. Issue of Demand Notice: Under Section 13 (2) of the Act, the branch has to issue a Demand
Notice in writing duly signed by the Authorised Officer seeking the
borrower/guarantor/mortgagor to discharge the liabilities in full within 60 days from the date of
the notice:
i. The notice shall give details of amount payable and secured assets intended to be enforced
by the secured creditor.
ii. The Bank shall send the notice to the borrower/guarantor/mortgagor or his agent by
Registered post AD or Courier or by Speed Post or by any other means of transmission of
documents like fax or electronic mail, etc., to ensure that the notice reaches the addressee
definitely.
iii. When the notice cannot be served in the above manner or it is returned undelivered, the
service shall be effected by affixing the same in a conspicuous part of the house in which
the borrower ordinarily resides or place where he carries on business or works for gain.
The contents of the notice should be published in two leading newspapers, one in English
and one in vernacular language having sufficient circulation in the locality. The 60 days
waiting period starts from the date of severing/ publication of the notice.
iv. Notice intended for body Corporate/ Limited companies could be served on the Registered
Office or at any of its branches.
e. Extension of time: If the amount demanded in the Notice is not paid within the stipulated time,
the Bank is conferred discretion to grant further time extension. Branch has to take up with the
appropriate authorities with due justification in case of such situations.
f. Objections/Representations of the borrower to the Demand Notice: If the branch/AO receives
reply from the borrower/guarantor raising objections or representations to the notice,
branch/AO has to analyse the objections and have to give the Bank's reply on the points raised by
him within one week – statutory requirement. Only after sending a reply to the objection, further
steps like taking possession of the securities etc. can be resorted to.
g. Security Enforcement Committee (SEC): To oversee the process of enforcement of securities
and to ensure effective implementation in accordance with the provisions of the Act, a Security
Enforcement Committee (SEC) with a minimum of three members may be constituted.
However, the Authorised Officer shall not be a member of SEC. The Department Head of
Legal/Recovery Cell shall be the convenor for this Committee who has to ensure maintenance of
all relevant records and submitted to the Board of Management on a quarterly basis. Irrespective
of the claim amount, the SEC shall give its recommendations in all vital issues to the Board of
Management in both suit filed and non-suit filed accounts. The SEC is empowered to
recommend Reserve Price, EMD, norms on Resale, confirmation of sale etc., for being
communicated to the AO.
h. Borrower's failure to comply with the Notice: If the borrower/guarantor/mortgagor, fail to
discharge the liability within the 60 days' time as stipulated in the notice, under Section 13(4) of
the Act, Bank can take recourse to one or more of the following measures to recover the secured
debt:
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i. take possession of the secured assets including the right to transfer by way of lease,
assignment or sale for realising the secured assets
ii. take over the management of the business of the borrower, including the right to transfer
by way of lease, assignment or sale for realising the secured asset
iii. appoint any person ( as Manager) to manage the secured asset
iv. seek any person in writing who acquired secured asset and from whom money is due or
may become due to the borrower/guarantor to pay the Bank to the extent as is sufficient to
pay the secured debt.
i. Taking possession of the Secured assets: The Authorised Officer (AO), in co-ordination with the
branch, should do the necessary ground work as described under within the 60 days waiting
period.
i. He has to collect the details of the account.
ii. He should scrutinize the notice issued, title deeds, EM documents, up-to-date EC
and other relevant documents.
iii. He shall check-up and ensure from the branch records that there are no stay orders
passed by the High Court or other judiciary bodies.
iv. He shall ascertain the location of the property and carry out physical inspection of
the securities.
v. If the asset intended to be taken possession of is a unit engaged in specialised
services, then the AO should take the assistance of experts in that field who will
identify the items correctly at the time of taking inventory of the movables.
vi. The AO shall fix the probable date of taking possession and proceed to do so in
consultation with the Legal / Recovery Cell at Head Office, as the case may be.
vii. Arrangements for taking photos, video on the date of taking possession shall
be made.
viii. Possession of the movable secured assets has to be taken by drawing a Panchnama in
the presence of two witnesses and making an inventory. A copy of the inventory shall
be delivered to the borrower.
ix. Possession of the immovable property has to be taken by delivering a possession
notice to the borrower.
x. While taking possession of mortgaged immovable assets, AO may come across
movables which are charged and not charged to the Bank within the premises. In
such cases, another separate inventory for items not charged to the Bank have to be
prepared and a notice shall be sent to the borrower/owner.
xi. If the items found inside the mortgaged premises are only those not hypothecated to
the bank, an inventory of such movables should be prepared and a notice calling
upon the owner/mortgagor to arrange for removal of those items at the earliest shall
be sent.
xii. Likewise, when the property is in possession of tenants, Bank can only take
symbolic possession. In such cases, AO shall issue a notice and call upon the tenants
to remit further rentals to the Bank.
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xiii. The AO has to keep entire records of expenses / costs incurred and accounts should be
maintained for all the expenses account-wise.
xiv. Bank has to safeguard/preserve the property/securities, after taking possession.
xv. AO should ensure that the assets taken possession of are adequately insured.
j. Seeking assistance of District Magistrate/Chief Metropolitan Magistrate: In case of need where

the Bank finds or apprehends any difficulty in taking possession, the AO/Bank may request the
District Magistrate or Chief Metropolitan Magistrate within whose jurisdiction the assets are
lying to take possession of the assets and hand over the same to the AO drawing their attention to
the specific provision (sec 14) in this regard in the Act. The Magistrate can use as much force as
required.
k. Valuation of assets and fixing of Reserve price and Earnest Money Deposit:
i. After taking possession of the property, AO has to value the assets through an approved
valuer of the Bank and based on the same a Reserve Price has to be fixed.
ii. Care/prudence to be exercised in such a manner that valuation is done on a realistic basis.
iii. Before fixing the Reserve Price, AO has to consult the Legal / Recovery Cell and get their
approval.
iv. The Security Enforcement Committee shall fix the Earnest Money Deposit and
communicate the same to the AO through the Legal / Recovery Cell.
l. Guidelines to SEC for fixing Reserve Price/EMD/ Resale etc.:

i. The SEC may consider the Reserve/upset price even 10 to 25% less than the valuation,
taking into account the realisable price of the assets at the given point of time.
ii. SEC shall fix the EMD of movable assets offered as securities in such a manner that it shall
be 5% of the reserve price subject to a maximum of Rs.50 lakhs and a minimum of
Rs.10,000.
iii. Chairman and Managing Director of the Bank may be empowered to fix/reduce the
maximum limit of EMD on a case to case basis.
m. Sale of Secured Assets: The secured assets (both movable and immovable) can be sold in one or
more lots and/or in whole or in part to realise the maximum price by obtaining quotations, by
inviting tenders from public, by holding a public auction, by a private treaty.
n. Appropriation of sale proceeds: The AO shall apply the money so received by him in the manner
mentioned in Sec 13(7) of the Act i.e. first towards the costs, charges and expenses incurred ,
thereafter towards amount due under the loan transactions and the balance or surplus if any, shall
be paid to the person entitled.
o. Informing Court about payment received: In accounts wherein Suit/Recovery Application has
been filed and thereafter measures under the Act are resorted to, details of recovery effected
should be informed to the Court by filing a suitable memo. If dues are fully satisfied, then also a
suitable memo shall be filed.
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p. Procedure for recovery of shortfall amount: In a non-suit filed account, if the dues of the
Bank are not fully satisfied for the balance amount, Bank can initiate appropriate legal
action provided the claim does not get barred by the law of limitation.
q. Transfer of assets by borrower/guarantor after receipt of notice: As per Sec 13 (13) of the
Act, after receipt of notice, borrower/guarantor / mortgagor who created security interest
shall not transfer (other than in the ordinary course of business) any of the secured assets
without the consent of the Bank in writing.
4. Amendment to Securitisation Act: The Apex Court had struck down the provisions under Section
17(2) of the Act mandating that defaulters have to deposit 75% of the outstanding dues to be able to
seek legal recourse at the time of disposing the case of Mardia Chemicals.
5. The Enforcement of Security Interest Recovery of Debt Laws (Amendment) Act, 2012:
a. The provisions of 'The Securitisation and Reconstruction Financial Assets and Enforcement of
Security Interest Act, 2002' (SARFESI Act, 2002) have been amended by 'The Enforcement of
Security Interest and Recovery of Debt Laws (Amendment) Act, 2012' and the same had come
into effect from 15.01.2013. Following are the amendments in SARFAESI Act, 2002:
i. The definition of bank contained in section 2(1)(c) of has been amended to include 'Multi
State Cooperative Banks'.
ii. Sub section (5) has been added to section 5 which provides for acquisition of financial
assets from various financial institutions by ARCs to substitute the transfer if any
proceedings pending before Debt Recovery Appellate Tribunal or any other court or
authority in the name of ARC on acquisition of assets from the banks/financial
institutions.
iii. Section 9 of Act provides for various measures the ARC can take for the purpose of
reconstruction by any account taken over by such ARCs. Additional measures of
conversion of part of the debt in equity has been incorporated in section 9. ARCs will
therefore be now entitled to convert part of the loan into equity in a scheme of
reconstruction.
iv. In section 13 of the Act, which provides for enforcement of securities by banks provision
has been made for the bank and financial institutions to purchase immovable property if
the auction held for the same of such property fails and no bidder are coming forward to
purchase property. Such purchase of immovable property by banks belonging to borrower
is subject to section 9 of Banking Regulation Act which provides that bank cannot hold
such property, except such as is required for its own use, for any period exceeding seven
years. The restriction of holding period of 7 years us applicable to private sector banks and
not to public sector banks.
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v. Section 14 has been amended to prescribe filing of affidavit by authorized officer of the
bank/Financial Institution before the District Magistrate (DM) or Chief Metropolitan
Magistrate(CMM) for the purpose of taking possession of the secured assets. The object of
this amendment is to standardize the procedure to be followed by the DM for the purpose
of taking possession of securities and handing them over to the bank. Provision has also
been made for delegation of the functions of the DM/CMM to any other officer by
theDM/CMM.
vi. Provision has been made for the lodging a caveat before the Debt recovery tribunal (DRT)
in cases where borrower file an application or appeal against the measures taking
possession by bank/financial institutions under section 13 (4) of the Act.
vii. Section 23 has been amended to make a provision for registration of past transactions of
creation of equitable mortgage prior to the establishment of the Central Registry w.e.f.
31.3.2011. This provision will enable the Government to issue a notification requiring the
banks to register equitable mortgage created prior to 31.3.11.
viii. A new Section 26A has been added to empower the Government to condone any omission
to file particulars of Security interest with the Central Registry and extend time for filing
such registration.
6. Amendment to 'Recovery of Debts due to Banks and Financial Institutions Act, 1993' (RDDB
Act, 1993):
a. The following are the amendment to 'Recovery of Debts due to Banks and Financial Institutions
Act, 1993' (RDDB Act, 1993):
i. The provisions of 'Recovery of Debts due to Banks and Financial Institutions Act, 1993'
(RDDB Act, 1993) have also been extended to 'Multi State Coop. Banks' by amending the
definition of 'Bank' contained in Section 2(d)of the Act.
ii. Section 15 of the Act has been amended empowering the Central Government to suspend
the presiding officer of a DRT during the pendency of any enquiry against such Presiding
Officer.
iii. Provision of section 18 & 19 have been amended to provide for consequential provision
required for continuation of any recovery proceedings filed by Multi State Coop. Banks
for recovery which are pending.
iv. Provision of section 19 have been amended to require DRT to pass order in terms of any
settlement or compromise arrived between the bank and the borrower.
v. Provision of section 19 have been amended for the purpose of refund of fee paid by the
bank if the proceeding before the DRT are withdrawn on account of any settlement with
the borrower.
137 - III
CHAPTER - 12
PRUDENTIAL NORMS ON INCOME RECOGNISTION,

ASSET CLASSIFICATION AND PROVISIONING
1. General:
a. Reserve Bank of India has been issuing number of circulars from time to time containing
instructions/ Guidelines to Banks on matters relating to Prudential Norms on Income
Recognition, Asset Classification and Provisioning. It becomes very difficult for the members
to know the instructions issued by Reserve Bank of India on a given point of time. We have tried
to consolidate the various circulars issued by Reserve Bank of India as of August, 2001 on the
above subject matter. However members are requested to keep themselves abreast of changes
taking place in today's ever changing environment. A consolidation of the Reserve Bank of
India guidelines is as follows:
b. In line with the international practice and as per the recommendations made by the Committee
on the Financial System (Chairman, Shri M. Narasimham), the Reserve Bank of India has
introduced, in a phased manner, Prudential Norms for Income Recognition, Asst. Classification
and Provisioning for the advances portfolio of the banks so as to move towards greater
consistency and transparency in the published accounts.
c. The policy of Income Recognition should be objective and based on record of recovery rather
than on any subjective considerations. Likewise, the Classification of Assets of banks has to be
done on the basis of objective criteria which would ensure a uniform and consistent application
of the norms. Also, the Provisioning should be made on the basis of the Classification of Assets
based on the period for which the asset has remained non-performing and the availability of
security and the realizable value thereof.
d. With the introduction of Prudential Norms, Health Code-Based System for classification of
advances has ceased to be a subject of supervisory interest. As such, all related reporting
requirements, etc. under the Health Code System also cease to be supervisory requirement.
Banks, may, however, continue the system at their discretion as a Management Information
Tool.
2. Definitions:
a. Non-Performing Assets:
i. An asset, including a leased asset, becomes non-performing when it ceases to generate
income for the bank. A 'Non-Performing Asset' (NPA) was defined as credit facility in
respect of which the interest and/or instalment of principal has remained 'past due' for a
specified period of time.
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ii. An amount due under any credit facility is treated as “past-due” when it has not been paid
within 30 days from the due date. Due to the improvements in the payment and settlement
systems, recovery climate, up gradation of technology in the banking system etc. Reserve
Bank of India decided to dispense with 'past due' concept, with effect from March 31,
2001. Accordingly, as from that date, a Non-Performing Asset (NPA) shall be an advance
where,
l interest and/or instalment of principal remain overdue for a period of more than 90
days in respect of a Term Loan.
l the account remain 'out of order' for a period of more than 90 days, in respect of an
Overdraft/Cash Credit (OD/CD),
l the bill remains overdue for a period of more 90 days in the case of bills purchased
and discounted,
l interest and/or instalment of principal remains overdue for two crop seasons for
(w.e.f. 30.9.2004 the word harvest season has been substituted by crop season) short
duration crops and one crop season for long duration crops in the case of an advance
granted for agricultural purposes, and
l and amount to be received remains overdue for a period of more than 90 days in
respect of other accounts.
b. Out of Order' status:
i. An account should be treated as 'out of order' if the outstanding balance remains

continuously in excess of the sanctioned limit/drawing power. In case where the
outstanding balance in the principal operating accounting is less than the sanctioned
limit/drawing power, but there are no credits continuously for 90 days as on the date of
Balance Sheet or credits are not enough to cover the interest debited the same period, these
accounts should be treated as 'out of order'.
c. 'Overdue':
i. Any amount due to the bank under any credit facility is 'overdue 'if it is not paid on the
due date fixed by the bank.
3. Income Recognition -Policy:
a. Income Recognition-Policy:
i. The policy of Income Recognition has to be objective and based on the record of recovery.
Internationally income from Non-Performing Assets (NPA) is not recognized on accrual
basis but is booked as income only when it is actually received. Therefore, the banks
should not charge and take to income account interest on any NPA.
ii. However, interest on advance against term deposit, NSCs, IVPs, KVPs and Life policies
may be taken to income account on the due date, provided adequate margin is available in
the accounts.
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iii. Fees and commissions earned by the banks as a result of renegotiations or rescheduling of
outstanding debts should be recognized on an accrual basis over the period of time
covered by the renegotiated or rescheduled extension of credit.
iv. If Government guaranteed advances become NPA, the interest on such advances should
not be taken to income account unless the interest has been realized.
b. Reversal of Income:
i. If any advance, including Bills Purchased and Discounted, becomes NPA as at the close of
any year, interest accrued and credited to income account in the corresponding previous
year, should be reserved or provided for if the same is not realized. The same will apply to
Government guaranteed accounts also.
ii. In respect of NPAs, commission and similar income that have accrued should cease to
accrue in the current period and should be reversed or provided for with respect to past
periods, if uncollected.
4. Reporting of NPAs:
a. Banks are required to furnish a Report on NPAs as on 31st March each year after completion of
audit. The NPAs would relate to the banks' global portfolio, including the advances at the
foreign branches. The Report should be furnished as per the prescribed format given in the
Annexure-1 to this Chapter.
b. While reporting NPAs figures to RBI, the amount held in 'Interest Suspense Account', should be
shown as a deduction from 'Gross Advances' while arriving at the net NPAs. Banks which do
not maintain 'Interest Suspense Account' for parking interest due on 'Non-Performing Advance
Accounts' may furnish the amount of 'Interest Receivable on NPAs as a foot note to the Report.
c. Whenever NPAs are reported to RBI, the amount of technical write off, if any, should be reduced
from the Outstanding Gross Advances and Gross NPAs to eliminate any distortion in the
quantum of NPAs being reported.
5. Guidelines for Classification of Assets:
a. Broadly speaking, Classification of Assets into above categories should be done taking into
account the degree of well-defined credit weakness and the extent of dependence on collateral
security for realization of dues.
b. Banks should establish appropriate internal systems to eliminate the tendency to delay or
postpone the identification of NPAs, especially in respect of high value accounts. The banks
may fix a minimum cut off point to decide what would constitute a high value account
depending upon their respective business levels. The cut-off point should be valid for the entire
accounting year. Responsibility and validation levels for ensuring proper Asset Classification
may be fixed by the banks. The system should ensure that doubts in Asset Classification due to
any reason are settled through specified internal channels within one month from the date on
which the amount would have been classified as NPA as per extant guidelines.
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c. Accounts with Temporary Deficiencies:
i. The Classification of an Asset as NPA should be based on the record of recovery. Bank
should not classify an advance account as NPA merely due to the existence of some
deficiencies which are temporary in nature such as non-availability of adequate drawing
power based on the latest available stock statement, balance outstanding exceeding the
limit temporarily, non-submission of stock statements and non-renewal of the limits on the
due date, etc. In the matter of classification accounts with such deficiencies, banks may
follow the following guidelines:
l Banks should ensure that drawings in the Working Capital Accounts are covered by
the adequacy of Current Assets, since current Assets are first appropriated in times
of distress. Drawing power is required to be arrived at based on the stock statement
which is current. However, considering the difficulties of large borrowers, stock
statements relied upon by the banks for determining drawing power should not be
older than three months. The outstanding in the account based on drawing power
calculated from stock statements older than three months, would be deemed as
irregular. A Working Capital borrowal account will turn NPA if such irregular
drawings are permitted in the account for a continuous period of 90 days even
though the unit may be working or the borrower's financial position is satisfactory.
l Regular and ad hoc credit limits need to be reviewed/regularized not later than three
months from the due date / date of ad hoc sanction. In case of constraints such as
non-availability of financial statements and other data from the borrowers, the
branch should furnish evidence to show that renewal/review of credit limits is
already on and would be completed soon. In any case, delay beyond six months is
not considered desirable as a general discipline. Hence, an account where the
regular/ad hoc credit limits have not been reviewed/renewed within 90 days from
the due date/date of ad hoc sanction will be treated as NPA.
d. Advances under Consortium Arrangements:
i. Assets Classification of Accounts under consortium should be based on the record of

recovery of the individual member banks and other aspects having a bearing on the
recoverability of the advances. Where the remittances by the borrower under consortium
lending arrangements are pooled with one bank and/or where the bank receiving
remittances is not parting with the share of other member banks, the account will be treated
as not serviced in the books of the other member banks and therefore, be treated as NPA.
The banks participating in the consortium should, therefore, arrange to get their share of
recovery transferred from the lead bank or get an express consent from the lead bank for
the transfer of their share of recovery, to ensure proper Asset Classification in their
respective books.
141 - III
e. Accounts where there is erosion in the Value of Security:
i. A NPA need not go through the various stages of classification in cases of serious credit
impairment and such assets should be straightway classified as Doubtful or Loss Asset as
appropriate. Erosion in the value of security can be reckoned as significant when the
realizable value of the security is less than 50 per cent of the value of the assessed by the
bank or accepted by RBI at the time of last inspection, as the case may be. Such NPAs may
be straightaway classified under Doubtful category and provisioning should be made as
applicable to Doubtful Assets.
ii. If the realizable value of the security, as assessed by the bank/approved valuers/RBI is less
than 10 per cent of the outstanding in the borrowal accounts, the existence of security
should be straightaway classified as loss asset. It may be either written off or fully
provided for by the bank.
f. Advances to PACS/FSS ceded to Commercial Banks:
i. In respect of agricultural advances as well as advances for other purpose granted by banks
to ceded PACS/FSS under the on-leading system, only that particular credit facility
granted to PACS/FSS which is in default for a period of two crops season for short term
crop and one crop season for long term corps., as the case may be after it has become due
will be classified as NPA and not all the credit facilities sanctioned to a PACS/FSS. The
other direct loans & advances, if any, granted by the bank to the member borrower of a
PACS/FSS outside the on-lending arrangement will become NPA even if one of the credit
facilities granted to the same borrower becomes NPA.
g. Advances against Term Deposits, NSCs, KVP/IVP etc.:
i. Advances against Term Deposits, NSCs, IVPs, KVPs and life policies need not be treated
as NPAs, Advances against gold ornaments, government securities and all other securities
are not covered by this exemption.
h. Loans with Moratorium for Payment of Interest:
i. In the case of bank finance given for industrial projects or for agricultural plantations etc.
where moratorium is available for payment of interest, payment of interest becomes 'due'
only after the moratorium or gestation period is over. Therefore, such amounts of interest
do not become overdue and hence NPA with reference to the date of debit of interest. They
become overdue after due date for payment of interest, if uncollected.
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ii. In the case of housing loan or similar advances granted to staff members where interest is
payable after recovery of principal, interest need not be considered as overdue from the
first quarter onwards. Such loans/advances should be classified as NPA only where there
is a default in repayment of instalment of principal or repayment of interest on the respect
due dates.
iii. In respect of advances granted for agricultural purpose where interest and / or instalment of
principal remains unpaid after it has become overdue for two crop seasons, in respect of
short term loan and one crop season for long term loan such an advance should be treated as
NPA. The above norms should be made applicable only in respect of short term
agricultural loans for production and marketing of seasonal agricultural crops such as
paddy, wheat, oilseeds, sugarcane, etc. In respect of other activities like horticulture,
floriculture or allied activities such as animal husbandry, poultry farming etc., assessment
of NPA would be done as in the case of other advances.
iv. Where natural calamities impair the repaying capacity of agricultural borrowers, banks
may decide on their own as a relief measure-conversion of the short-term production loan
into a term loan or re-schedulement of the repayment period; and the sanctioning of fresh
short-term loan, subject to various guidelines issued by Reserve Bank of India, from time
to time.
v. In such cases of conversion or re-schedulement, the terms loan as well as fresh short-term
loan may be treated as current dues and not be classified as NPA. The Asset Classification
of these loans would be thereafter, be governed by the revised terms & conditions and
would be treated as NPA if interest and/or instalment of principal remain unpaid, after it
has become overdue, for two crop seasons.
i. Government Guaranteed Advances:
i. The credit facilities backed by guarantee of the Central Government though overdue may
be treated as NPA only when the Government repudiates its guarantee when invoked. This
exemption from classification of Government guaranteed advances as NPAS is not for the
st
purpose of recognition of income. With effect from 1 April 2000, advances sanctioned
against State Government guarantees should be classified as NPA in the normal course, if
the guarantee is invoked and remains in default for more than 90 days. With effect from
March 31, 2001 the period of default is revised as more than 90 days.
j. Restricting / Rescheduling of Loans:
i. A Standard Asset where the terms of the loan agreement regarding interest and principal
have been renegotiated or rescheduled after commencement of production should be
classified as Sub-Standard and should remain in such category for at least one year of
satisfactory performance under the renegotiated or rescheduled terms. In the case of Sub-
Standard and Doubt Assets also, rescheduling does not entitle a bank to upgrade the quality
143 - III
Standard and Doubt Assets also, rescheduling does not entitle a bank to upgrade the quality
of advance automatically unless there is satisfactory performance under the reschedule/
renegotiated terms. Following representations from banks that the foregoing stipulation
deter the banks from restricting of Standard and Sub-Standard Loan Assets even though
the modification of terms might not jeopardize the assurance of repayment of dues from
the borrower, the norms relating to restricting of Standard and Sub-Standard Loan
Assetseven though the modification of terms might not jeopardize the assurance of
repayment of dues from the borrower, the norms relating to restructuring of Standard and
Sub-Standard Assets were reviewed in March 2001. In the context of restructuring of the
accounts, the following stages at which the restructuring / rescheduling / renegotiation of
the terms of loan agreement could take place, can be identified:
l before commencement of commercial production.

l after commencement of commercial production but before the asset has been
classified as sub-standard.
l after commencement of commercial production and after the asset has been
classified as sub-standard.
k. In each of the foregoing three stages, the rescheduling etc. of principal and/ or of interest could
take place, with or without sacrifice, as part of the restructuring package evolved.
6. Provisioning Norms:
a. The primary responsibility for making adequate provisions for any diminution in the value of
Loan Assets. Investment or Other Assets is that of the bank managements and the statutory
auditors. The assessment made by inspecting officer of the RBI is furnished to the bank to assist
the bank management and the statutory in taking a decision in regard to making adequate and
necessary provisions in terms of prudential guidelines.
b. In conformity with the Prudential Norms, provisions should be made on the non-performing
assets on the basis of Classification of Assets into prescribed categories. Taking into account
the time lag between an accounts becoming doubt of recovery, its recognition as such, the
realization of the security and the erosion over time in the value of security charged to the bank,
the banks should make provision against Sub-Standard Assets, Doubtful Assets and Loss Assets
as below:
i. Loss Assets:
l The entire asset should be written off. If the assets are permitted to remain in the book for
any reason, 100 per cent of the outstanding should be provided for.
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ii. Doubt Assets:
l 100 per cent of the extent to which the advance is not covered by the realizable value
of the security to which the bank has a valid recourse and the realizable value is
estimated on a realistic basis.
l In regard to the secured portion, provision may be made on the following basis, at the
rates ranging from 20 % to 50 % of the secured portion depending upon the period
for which the asset has remained doubtful.
Period for which the Provision

advance has been requirement (%)
considered as doubtful
>3 Years <4 Years 20
>4 Years <6 Years 30
Above 6 Years 50
c. Guidelines for Provision under Special Circumstances:
i. Government Guaranteed Advances:
l With effect from 31 March 2000, in respect of advances sanctioned against State
Government guarantee, if the guarantee is invoked and remains in default for more
than 90 days at present), the banks should make normal provisions as prescribed in
paragraph 5 (i) above.
l As regards advances guaranteed by State Governments, in respect of which

guarantee stood invoked as on 31.03.2000, necessary provision was allowed to be
made, in a phased manner, during the financial years ending 31.03.2000 to
31.03.2003 with a minimum of 25 % each year.
l Advances against term deposits, NSCs, IVPs, KVPs, and life policies are exempted
from provisioning requirements.
Provisioning requirements
Std. Asset. Direct advance to agriculture and SME Sectors
0.40% w.e.f. 01.04.2007
Would attract 0.25 provision hither to
145 - III
ii. Treatment of Interest Suspense Account:
l Amount held in Interest Suspense Account should not be reckoned as part of provisions.
Amounts lying in the Interest Suspense Account should be deducted from the relative advances
and thereafter, provisioning as per the norms, should be made on the balances after such
deduction.
iii. Advances covered by ECGC/DICGC guarantee:
l In the case of advances guaranteed by DICGC/ECGC, provision should be made only for the
balance in excess of the amount guaranteed by these Corporations. Further, while arriving at the
provision required to be made for doubtful assets, realizable value of the securities should first
be deducted from the outstanding balance in respect of the amount guaranteed by these
Corporations and then provision made as illustrated hereunder:
EXAMPLE
Outstanding Balance Rs.4 lakhs
DICGC Cover 50 percent

Period for which the advance has remain More than 3 years remained
doubtful doubtful
Value of security held (excludes worth Rs.1.50 lakhs
of (Rs.)
Provisions required to be made
Outstanding balance Rs.1.50 lakhs

Less: Value of Security held Rs.1.50 lakhs
Unrealised balance Rs.1.25 lakhs
Less: DICGC Cover (50% of Rs.1.25 lakhs
unrealizable balance)
Net unsecured balance Rs.1.25 lakhs
Provision for unsecured portion of advance Rs.1.25 lakhs (@ 100 percent of unsecured
portion)
Provision for secured portion of advance Rs.0.75 lakhs (@ 50 percent of secured
portion)
Total provision required to be made Rs.2.00 lakhs
(Morethan 6 years 50%)
Existing NPA under “D3” category as on 31.3.07
Provision as on 31.3.07 50%
31.3.08 60%
31.3.09 75%
31.3.10 100%
Loan classified as D-3 on or after 01.04.07 provision @ 100/-
146 - III
iv. Advance covered by CGTSI guarantee:
EXAMPLE 1
In case the advance covered by CGTSI guarantee becomes non-performing, no provision need be made
towards the guaranteed portion. The amount of outstanding in excess of the guaranteed portion should be
provided as per the extent guidelines on provisioning for non-performance advances. Two illustrative
examples are given below:
Asset Classification Status Doubtful-more than 8years

CGTSI Cover 75% of the amount
outstanding
or 75% of the unsecured
amount or R.18.75 lakhs,
whichever is the least
Realisable value of Rs.1.50 lakhs
security
Balance outstanding Rs.10.00 lakh
Less Realisable value of Rs.1.50 lakhs
security
Unsecured amount Rs.8.50 lakh
Less CGTSI cover (75%) Rs.6.38 lakh
Net unsecured an Rs.2.12 lakh
uncovered Provision required
portion
Secured portion Rs.1.50 lakh Rs.1.50 lakh (100%)
as on 31.03.2010
Unsecured & uncovered Rs.2.12 lakh Rs.2.12 lakhs (100%)
portion
Total provision required Rs.3.62 lakh
147 - III
EXAMLE II
Asst Classification Status Doubtful-more than 6years

CGTSI Cover 75% of the amount
outstanding or 75% of the
unsecured amount of
Rs.18.75 lakhs, whichever
is the least
Reliable value of security Rs.10.00 lakhs
Balance outstanding Rs.40.00lakhs
Less Realisable value of Rs.10.00 lakhs
security
Unsecured amount Rs.30.00 lakhs
Less CGTSI cover (75%) Rs.18.75 lakhs
Net unsecured an Rs.11.25 lakhs Provision required
uncovered portion
Secured portion Secured portion Rs.10.00 lakhs (100%
as on 31.03.10
Unsecured & uncovered Rs.11.25 lakhs Rs.11.25 lakh (100%)
portion
Total provision required Rs.21.25 lakh
v. Take-out finance:
- The lending institution should make provisions against a 'take-out finance' turning into NPA pending its
take-over by taking-over institution. As and when the asset is taken over by the taking-over institution, the
corresponding provisions could be reversed.
************************
148 - III
Annexure- I to Chapter – 12
PRUDENTIAL NORMS FOR CO-OPERATIVE BANKS

ASSET CLASSIFICATION AND PROVISIONING STTEMENT
st
(FOR THE YEAR ENEDED 31 MARCH 2010)
MODEL WORKING SHEET - ….SCB
(Rs. in lakhs)
(A) LOANS AND ADVANCES
1. Short Term 93780.74

2. Medium Term 18197.00
3. Long Term 7987.86
I. AMOUNT OUTSTANDING 119965.60
II. ASSETS CLASSIFICATION 119650.72

1. Standard
2. Sub-standard (Overduesupto 3 years) Short-term: 4.36
Long-term: 1.20 5.56
3. Doubtful
i) Secured Overdues ---
a) Over 3 years to 4 years ---
b) Over 4 years to 6 years ---
c) Over 6 years
ii) Unsecured Overdues

a) Short term 147.39 147.39
b) Medium term 10.42 10.42
c) Long term 0.08 0.08
Total 157.89
d) Loss Assets- S.T. 0.24
- L.T. 151.20
Total 151.44
III. PROVISION REQUIRED 478.60
1. Standard 0.40% of Item 11 (1) 0.56
2. Sub-standard
(1-% of item II (2))
3. i) Doubtful Assets
ii) 20% of item II (3) (i) (a) ---
iii) 30% of item II (3) (i) (b) ---
iv) 50% of item II (3) (i) (c) ---
v) 50% of item II (3) (ii) (a) (b) © —
149 - III
IV. Loss Assets 157.89
100% of item II (4) 151.44
V. Total of item III 1 to 3 788.49
OTHER ASSETS / LIABILITIES (Outstanding)
Sl. Particulars Provision Provision

No. Required as on Made as on
30.03.2010 31.03.2010
i) Income Recognition
a) Overdue interest taken to P & L Account 320.55 320.55
b) Accrued Interest taken to Income Account

in the previous year but not realised --- ---
c) Fee.Commission and other income taken

to P&L Account in the previous year but
not realised
-- interest margin subsidy due receivable
From Govt./CCB on Weavers' Finance 40.34 40.34
Total of (i) 360.89 360.89
ii) Depreciation in investments
a) Govt.Securities / Bonds, etc. 180.91 180.00
b) Share in other Coop. Institution --- ---
c) Other investments – Shares, etc. --- ---

Total of (ii) 180.91 180.00
iii) Frauds, Embezzlements, etc. --- —

iv) PF, Gratuity, etc. – Gratuity provision --- ---
v) Other liabilities like rent, rates, taxes, etc.-

Income Tax Provision 50.00 50.00
vi) Contingent/Off-balance sheet exposure

(under Sundry Debtors. Audit Objection & others) 615.96 615.96
vii) Interest deposits and borrowing

Outstanding as liability
—
150 - III
1. Spinning Mills 1,45,44,496.74
2. “ to a Coop. Publishing Society 894.73
3. “ a Coop.Town Bank 5,287.34
4. “ Individual (C.A/C., TOD) 1,87,960.93
_____________
1,47,39,179.74
B. UNDER MEDIUM- TERM LOAN

Doubtful – Unsecured 5,66,298.24
1. Loan to Salaried persons 2,01,140.40
2. Consumer Loan 1,98,723.49
3. Loans to Weaker Section – Subsidy 76,387.10
2,75,110.59
____________
10,42,549.23
_____________
b) Long-term : Staff Loans 7,950.00
LOSS ASSETS
UNDER SHORT-TERM LOAN
Jewel loan 23,700.00
UNDER LONG – TERM LOAN
“A” .Coop. Spinning Mills Ltd. 2,26,000.00
(Generator Loan)
“A”Coop.Spinning Mills Ltd

(Marginal Expansion Loan) 90,00,000.00
4. “B” Coop. Spinning Mills (Expansion Loan) 44,00,000.00
5. “C” Coop. Spinning Mills Ltd. (Bridge Loan) 14,31,906.50
6. Staff Housing Loan 44,324.77
7. Staff Loan (Consumer) 17,550.00
_____________
1,51,19,781.00
_____________
UNDER B.VI
Details of Audit Objected Items
1. Reserve for DD Receivable Ex-advice 31,314.50
2. Sundry Debtors (As per list enclosed inVol.II) 6,15,47,403.11
3. Library Books Stock – Deficit 8,601.39
4. Different in Sundry Debtors 8,640.00
5. Reserve for difference in Sundry Creditors 39.00

_____________
6,15,95,998.00
_____________
151 - III
THE 'XYZ' STATE COOP. BANK LTD
PROFORMA FOR N.P.A. STATEMENT AS ON 31.3.2010
Sl Amount of NPA a Provision Amount of

No. Type of Loan on 31.3.2010 Required Provision
In % Made as on
31.3.2000
A. Standard Assets 1196,50,71,548.24 0.40% 478,60,286.16
(Performing assets) (contingent)
B.1 Sub-standard Assets 55,570.00
(Secured and Unsecured) 5,55,678.97 10%
2. Doubtful Assets
(Unsecured)
Unsecured assets
Exceeding 3 years 1,57,89,678.97 100% 1,57,89,679.00
Unsecured Govt.guarantee
(Un-renewed/ withdrawn) — 25%
3. Doubtful (Secured)
D.A. I 3 to 4 years — 20%
D.A. II 4 to 6 years — 30%
D.A. III Above 6 years — 50%
4. Loss Assets 1,51,43,481.00 100% 1,51,43,481.00
Total 3,14,88,853.99 7,88,49,016.16
Total amount of N.P.A.as on 31.3.2010 Rs. P.
(excluding performing assets) 3,14,88,853.99
Total provision made as on 31.3.2000 7,88,49,016.16
Less:Contingent provision for performing assets 4,78,60,286.16 2,99,12,678.87
----------------- ------------------
Net provision for N.P.A. 3,09,88,730.00 3,09,88,730.00
------------------
Percentage OF total amount of Performing Assets to Total Loan Outstanding:
1196,50,71,548
-------------------- x 100 = 99.74%
1199,65,60,402
Percentage of total amount of Non-performing Assets to Total Loan Outstanding:
3,14,88,853
------------------- x 100 = 0.26%
1199,65,60,402
152 - III
CHART ON CHANGES IN NPA NORMS SINCE THEIR INTRODUCTION
i) April 1985 : No provisioning required for 1 year for providing

additional facilities sanctioned to sick companies under BIFR Norms.
ii) March 1996 : Government guaranteed advances exempted from

provisioning even if overdue so long as guarantee is not invoked.
iii) January 1997 : Non provisioning is required for loans with

temporary deficiencies such as non-availability of adequate drawing
power. Permission to different Banks to classify the same loan under
consortium-lending, differently using their own records.
iv) March 1998 : Advances granted for agricultural purposes to be classified as NPA
only if left unpaid for 2 harvests seasons-not-2 quarters.
v) May 1998 : Freedom to reschedule return of loans from units which have become
sick on account of external conditions without provisioning
vi) March 1999 : In cases of conversion or re-schedulement the term

loans as well as short term loans granted to the agriculturists on account
of natural calamities, may be treated as current dues and need not be
classified as N.P.A.
vii) April 1999 : Provisioning should be made on standard assets at

0.25% from the year ending 31st March 2000. When the advances
Guaranteed by state government remained in default for two quarters
Even the guarantee is invoked, such advances should be classified as
NPA with effect from March 31, 2000. The credit facilities backed by
Government guarantee should also be fully provided for by the
Financial year ending March 31, 2003 (from March 31, 2000 to
March 31, 2003 at 2% each year)
viii) June 1999 : When the terms and conditions of principal have been
renegotiated or rescheduled after commencement of production
such asset should be classified as sub-standard and should remain in
that category for atleast one year (instead of 2 years) . Of satisfactory
performance under the negotiated or rescheduled terms.
ix) December1999: Provision of standard assets should not be reckoned for arriving
at Net NPA, dispensing with the earlier procedures of netting at Net
NPA to be shown as such in the Balance Sheet.
153 - III
x) December1999 : The stipulation of percentage for bifurcation of State
Central Coop. Banks investments into permanent and current
Category has been withdrawn.
xi) May 2000 : The provision for standard Assets need not be netted as earlier,
but it should be shown separately as “Contingent Provision against
standard Assets” under “Other Liabilities and Provision – other”.
xii) October 2000 : The “Past Due” concept has been withdrawn with effect from
st
March 31 2001 and such assets should be treated as NPAs as
given under.
(Reference – RBI circulars & RBI Information Review)
Nature of Assets Criteria for N.P.A.
i. Term Loans Interest earned of principal remain overdue

for a period of more than 90 days.
ii. O.D.C.C. Remains out of order for more than 90 days.
iii. Bills purchase and Remains overdue for more than 90 days.
Discounted
iv. Agricultural advance Overdue for two crop seasons but for a period
v. Any other accounts Overdue for a period of more than 90 days.

(any amount to be received)
154 - III
Flow Chart on Prudential Norms as Applicable to SCBs/DCCBs

for the year ending 31.03.2010
I. Norms for Income Recognition:
a. Unrealised income in respect of overdue loans should not be taken to profit and loss
account. If the same is taken to profit and loss account, 100% matching provision is to be
provided for.
b. Accrued interest taken to income account in the previous year should also be provided in
Full in case the same becomes overdue.
c. Fees, commissions and other income debited to loan account may be treated as income only
when the account is classified as standard or performing asset.
d. Fees and commission in respect of renegotiated or rescheduled loan accounts may be

recognised as income on an accrual basis.
e. Overdue interest in respect of credit facilities backed by Govt. Guarantee can be taken to P &
L account only if matching provision is made.
f. Overdue interest in respect of bills purchased / discounted may be treated as income

provided matching provision is made.
g. Relevant provisions of State Coop. Societies Acts/ Rules may be followed if they are More
stringent than guidelines prescribed by RBI.
II. Norms for Determining Non-Performing Asset (NPA) Accounts:
LOAN ACCOUNTS
Advances Bills Project

For Term
OD/CC Purchased/Discounted Loans &
Agriculture Loan
& Other Accounts Staff Loans
Int./Inst. Out of Int./Inst. Int.or Inst.

Remains Order for Overdue Overdue Inst. Due
Overdue for More for More for 2 or Date
Two harvest than than 90 more than
Seasons 90 days days 90 day
(1 yr. Or 2
Half yr.)
155 - III
a. In the case of direct loans and advances granted to a borrower, all loan accounts will become
if one loan a/c becomes NPA. Not applicable in respect of loan accounts Granted under on =
lending system.
b. Advances fully secured by TD, NSC, LIC Policies are not to be classified as NPA.
c. Advances sanctioned against Govt. Guarantee with effect from 1.4.2000 will become NPA
where guarantee has been invoked and has remained in default for more than 90 days
quarters.
d. In respect of consortium advances basis for classification would be bank's own record of
Recovery.
e. Out of order norm for KCC facility be treated as NPA if there are no credits as on the date of
balance sheet for one year from due date . In respect of an OD/CC other than KCC, the a/c.
will become NPA if it is out of order for a period of more than 90 days.
III. Norms for classification of Banks's Assets (Loan Accounts):
LOAN ACCOUNTS
Performing Non-Performing Asset

Asset
Overdue upto Overdue over Loan Considered

Loan A/Cs/. 3 years 3 years As Not recover-
Which Able by Bank /
Are not NPA Auditors/RBI
/NABARD
**** @@@ Inspectors
Standard &&&
Standard Sub-Standard Doubtful Loss
Morethan D1 - >3 years < 4 years

D2 - >4 years < 6 years
D3 - Above 6 years
156 - III
*** - Term loans of all types where installments have remained overdue for a period not exceeding
90 days.
&&& - Rescheduled/Renegotiated loans will continue to be classified as sub- Standard for a period
of one year of satisfactory performance.
@@@ - All types term loans where instalments are overdue for more than 90 days.
1. Loan Accounts which have become NPA and thereafter rescheduled remain as sub-Standard for one
(revised to one year from two years vide RBI circular dated 1.6.1999) year (i.e., four quarters) of
satisfactory performance under the revised terms. However, in cases of conversion or
reschedulement of agricultural loans (ST Production) into Term Loan as well as fresh ST loan
granted to agricultural Borrowers on account of natural calamities may be treated as current dues
and not NPA.
2. Five criteria for identifying loss assets.

a. Decrees or execution petitions have been time-barred or documents are lost or no other legal
proof is available to claim the debit.
b. Where the members and their sureties are declared insolvent or have died Leaving no tangible
assets.
c. Where the members have left the area of operation of the society leaving no Property and their
sureties have also no means to pay the dues.
d. Where the loan is fictitious or when gross misutilisation is notices.
e. Amounts which cannot be recovered in case of liquidated societies.
IV. Provisioning Requirement for NPA Accounts

Type of Asset Provision Required
Standard Nil (31.3.97 to 31.3.99)
0.25% FROM 31.3.2000
0.40 other than Agriculture & SME
Sub-Standard 10% of total outstanding balance under
this category
Period Secured Unsecured
3 to 4 years 20% 100 %
4 to 6 years 30% 100%

Doubt
Above 6
years 50% 100%
Loss
157 - III
50% 06-07
60% 07-08
75% 08-09
100% 09-10
I. All agricultural loans to be treated as secured loans.
II. Advances fully secured by TD, BSC,IVP,KVP & LIC Policies are exempted from Provisioning
However, advances against jewels are not exempted from provisioning.
III. Provisioning requirement for existing and old advances guaranteed by State Govt.
Which stood invoked and classified as NPA as on 3.3.2000 (From March 31, 2000
to March 31,2003-25 per cent each year).
IV. Liabilities towards PF and gratuity should be estimated on Actuarial Basis and fully provided.
V. Provisions towards Standard Assets should be shown separately as contingent provision against
standard Assets.
IV. Investments – Accounting Procedure

Investment Category Depreciation
Valuation
Portfolio
1.Approved Permanent Cost Price Not needed
Securities (Govt.
Securities)
Current Lower of cost price To be fully provided
Of Market price For
II.Other Shares Cooperative Carrying cost price Not needed
Securities Institutions Lower of cost price To be fullyprovided
Or market price for
i. Permanent investments are those which banks intend to hold till maturity.
ii. Current investments are those which banks intend to deal in i.e.buy and sell On a day to day
basis
iii. Banks following a more prudent method of valuation (e.g.showing only realizable Value)
should continue to do so.
iv. In terms of RBI circular dated 3 December 1999, the stipulation of percentage for
bifurcation of investments into Permanent and Current category stands withdrawn.
158 - III
Annexure -4 to Chapter – 12
CHART ON REASONS FOR NPAs
v Appraisal - Defective Appraisal

v End Use - Not Ensured
v Monitoring - Not Done Properly
v Wilful Default -
v Over / Under Finance -
v Repayment Schedule - Not Fixed Properly /
Unrealistic Approach
v Natural Calamities -
Warning Signals of Sickness from CC Ledger
v Persistent irregularities in the conduct of the Account

v Stagnation in sales turnover
v Frequent requests for Over Drawings
v Persistent unadjusted Over Drawings
v A fully Drawn Account indicating the presence of hard coreunhealthy swings in the account
v Downward Trend in Credit Summations
v Sudden shift from Cheque to Cash transactions
v Frequent large Self-Drawings
v Large Drawings in round sums
v Cheques for large amounts made out in favour of parties notconnected with the business
Chart on various steps for reducing NPAs
v Study the problems of NPAs – branch-wise, amount-wise and age-wise

v Prepare a loan recovery policy & strategies for reducingNPAs
v Create Special Recovery Cells at HO / Controlling Office level
v Identify critical branches for recovery
v Fix targets for recovery & draw time-bound action programme
v Select correct technique for solving problems
v Monitor implementation of the time-bound action plan drawn
159 - III
SAMPLE CASES OF NPA AND SOLUTIONS – DCCBS
Case – 1:-
Purpose : Crop Loan

Name of the Borrower : PACS
Limit Sanctioned : Rs.8.00 lakhs
Repayment Period : One year from date of drawal
th st
Interest Due Date : 30 June 31 December
Date Loan No. Debit Credit Balance
29.06.2008 102702 13980 13980
31.07.2008 718 82880 96860
27.09.2008 726 287740 394378
27.09.2008 727 9778 619308
31.10.2008 747 224930 720313
27.02.2009 766 45410
“ 767 51590 821003
“ 768 3690 811255
19.05.2009 727 9778 811255
06.06.2009 13980 797245
26.09.2009 853 130040
“ 854 14736 942021
06.10.2009 718 10000 932021
31.10.2009 863 181660
“ 864 28462
“ 865 82660
“ 866 51840 1263643
01.12.2009 102718 16700 1246943
08.12.2009 102718 16700 1230343
CB 1243343
08.12.2009 102718 10000 1233343
31.01.2010 102718 4605
23.02.2010 718 8000 1228738
04.03.2010 718 16975 1220738
04.03.2010 726 13025
09.03.2010 726 10000 1196738
10.03.2010 726 17000 1180738
16.03.2010 726 22600 1163738
18.03.2010 726 19000 1141138
20.03.2010 726 30000 1122138
31.03.2010 726 25074 1092138
CB 1067064
160 - III
Note:- Interest recovered in full upto 31.03.2010
Solution for Case Exercise – 1:-
1. Limit Sanctioned Rs.8.00 lakhs.

2. The Account exceeds limit sanctioned on 03.12.2008 and remains so till 31.03.2010, hence this
is out of order account.
Date of Balance Sheet - 31.03.2010

Out of order since - 03.12.2008
Period for which the Account has remained out of order 1 year, 3 months, 28 days.
Hence this account comes under sub-standard for which the provision required is 10%. The outstanding as
on 31.03.2010 is Rs.10,67,064/-. Hence Provision required is 10% on Rs.10,67,064/- i.e. Rs.1,06,706/-.
1. Under KCC, limit is valid for 5 years.
2. Review to be conducted every year and limit has to be refixed every year based on cropping
pattern and land holdings.
3. In this exercise even if it is presumed that Rs.8.00 lakhs has been renewed every year, drawals
may not be allowed over and above limit fixed – limit exceeded on 3.12.2008. Therefore the
question of further drawal may not arise.
4. Eligibility for renewal every year – credit summation should be equal to highest outstanding in
that year.
Case:-2
Purpose : Cash Credit for Provision Store

Limit : Rs.91,000/-
Operative Period : One year from 12.07.2009
Interest Due : Quarterly
Rate of Interest : 20% p.a.
Security : Hypothecation of stock & Mortgage of 15 Cents
of Land
Realisable value of Security as on 31.03.2010 : Rs.2.50 lakhs

13.07.2009 To Cheque 25000 25000
15.07.2009 “ 10000 35000
18.07.2009 “ 10000 45000
20.07.2009 “ 10000 55000
22.07.2009 “ 15000 70000
23.07.2009 “ 5000 75000
24.07.2009 “ 10000 85000
30.07.2009 “ 5000 90000
161 - III
01.08.2009 By Cash 1000 89000
“ To Cheque 1360 90360
03.08.2009 By Cash 16000 74360
“ To Cheque 1476.70
06.08.2009 “ 15000 90836.70
28.08.2009 By Cash 25000 65836.70
“ To Cheque 964 66800.70
31.08.2009 “ 15000 81800.70
02.09.2009 “ 8000 89800.70
23.09.2009 By Cash 2000 87800.70
24.09.2009 To Cheque 1993 89793.70
28.09.2009 “ 702.80 90496.50
“ By Cash 700 89793.70
30.09.2009 To Interest 3596 93392.50
14.10.2009 By Cash 2000 91392.50
05.11.2009 To Cheque 2472.80 3000 88796.50
“ By Cash 2200 88665.30
“ To Cheque 2124.70 90790.00
03.01.2010 To Interest 4603
31.03.2010 “ 4707 100100.00
Solution for Case Exercise-2:-
1) The last remittance is on 5.11.2009 for Rs.2200/- i.e, as on date of Balance Sheet (i.e., 31.03.2010-25-11-
2009) there is no remittance for 4 months and 25 days i.e, exceeding 90 days. Hence this is out of order
account and falls under Sub-Standard category, which attracts 10% provision.
The provision required therefore is Rs.100100 x 10% = 10010/-.
Int. to be charged on monthly basis
1. Exceeded the limit of Rs.91000/- on 5.11.2009.

2. Last remittance was made on 5.11.2009.
3. There is no remittances for 4 months and 25 days continuously.
31.03.2010
162 - III
Case – 3
Purpose : CC for Oil Mill business

Limit : Rs.10.00 lakhs
Period : Last renewed for the period.
1.4.2006 to 31.03.2007
Rate of Interest : 18% p.a.
Security : Mortgage of land & Building
Realisable Value as on 31.3.2010 : Rs.20.00 lakhs

March 2006 597473
18.04.2006 By Cash 7000 590473
19.04.2006 To Cheque 7076 597549
I
02.05.2006 To Interest 8836 606385
03.05.2006 By Cash 9000 597385
II
31.05.2006 To Interest 9137 606522
30.06.2006 “ 8973 615495
III
21.07.2006 By Cash 16000 599495
01.08.2006 To Interest 9323 608818
30.092006 “ 18315 627133
31.12.2006 “ 28453 655586
03.01.2007 To Fees 15 655601
31.03.2007 To Interest 33948 689549
31.03.2010 Balance 1318298
Solution for Case-3:-
This is an non-agricultural cash credit advance.

1. Interest for the period 01.04.2006 to 30.06.2006 is Rs.8836 + Rs.9137 + Rs.8973 i.e. Rs.26946
corresponding credit for that period is only Rs.7000 + Rs.9000 i.e. Rs.16000/- which is not sufficient to
cover interest debited.
Interest - only quarterly basis for non-agri.

Date of Balance Sheet - 31.03.2010
Out of order since - 30.06.2006
01.09.03
163 - III
Period remained out of order for 3 years 9 months 1 day below 4 years which comes under secured.
Doubtful Asset I which attracts 20% Provision
Therefore Provision required is Rs.1318298 X 20% = Rs.2,63,659.60

(if the balance is changed the provision will get changed)
1. As per prudential norms, in the event, account has been classified as NPA, Int. should not be charged
to the account i.e., as on 31.3.2010 the account exceeded the limit of Rs.10.00 lakhs.
2. Income to be booked on record of recovery basis.
Case – 4:-
Purpose : Overdraft Limit

Limit : Rs.25000
Expiry : 24.07.2010
Interest due on : Quarterly
Security : Personal Guarantee
Realisable Value : Nil

24.07.2009 To Cheque 20000 20000
02.08.2009 “ 4000 24000
02.08.2009 “ 500 24500
30.09.2009 “ 818 25318
31.12.2009 “ 1153 26471
02.01.2010 By Cash 1000 25471
31.03.2010 To Interest 1500 26971
Solution for Case-4:-
This is non-agricultural cash credit.
Limit - Rs.25000/-
Security - Nil
Outstanding exceed limit on 30.09.2009 - 31.03.2010
Date of Balance Sheet - 31.03.2010 - 30.09.2009
This CC account is out of order since 30.09.2009
(Because the outstanding exceeds limit)
i.e. for 6 months and one day
Hence it comes under Sub-Standard Category which requires 10% Provision

Hence Provision required is 26971 x 10% = i.e. Rs.2697/-
164 - III
Case Exercise – 5:-
Purpose : Jewel Loan

Limit : Rs.20000/-
Repayment period : one year
Due date : 28-11-09
Rate of Interest : 17.5%
Security : 24 gms of gold
Realisable value : Rs.25000/-

28-11-08 To Loan 20000 20000
31-03-10 Balance 20000
Solution for Case No.5:-
Date of loan : 28-11-08

Interest due on : 27-12-08
Interest O.D. on : 28-12-08
Balance Sheet Date : 31-03-10
INTERST O .D since : 28-12-08
03-03-01
Principal O/D : 28.11.09
Over due for 1 year 3 months and 3 days, hence it is a Sub Standard Asset requiring 10% provisioning.
Provision required is Rs.20000 x 10% i.eRs. 2000/-.
Int. O/D on 28.12.08

Principal O/D on 28.11.09
st
1 O/D date alone should be taken for arriving and making provision for NPA.
Case Exercise No.6:-
PURPOSE : LOAN AGAINST DEPOSIT AMOUNT

AMOUNT : Rs.30000/-.
MATURITY VALUE : RS. 50370/-
MATURITY DATE : 30-05-10
LOAN AMOUNT : 20000/-
29-07-08 To Loan 20000 20000
31-03-10 Balance 28930
165 - III
Solution for Case Exercise No.6:-
This has to be classified under standard asset, since loan against deposits/NSC/KVP/IVP/LIC policies
do not come under NPA norms.
Provision for standard will be at 0.40% of Rs.28930 i.e. Rs.116/-.
Purpose : Manufacture of Phenyl

Limit : Rs.20000/-.
Repayment Period : 5 years.
Issue Date : 06.12.2004
Moratorium : 6 months
Instalments : 60 Monthly Instalments of Rs.370/- from 06-06-05 onwards.
Rate of int. : 12%P.A.
Security : PERSONAL GUTANTEE
Realisable Value : NIL
B/S : 31.03.2010

06.12.2004 To Loan 10000 10000
12.12.2004 “ 10000 20000
31-03-10 Balance 14450
Loan Amount : Rs.20000/-

C.B.31-03-10 : Rs.14,450/-.
Amount repaid : Rs.5,550/-
Monthly instalment paid : Rs.370/-.
No. of. Instalments paid 5550/370=15months.
Due Date : 06-06-05
During 2005 : 7 instalments
During 2006 : 8 ”
Total instalments paid : 15 months
That is upto August 2006 paid.
Over Due from : 06-09-06
Date of B/S. : 31-03-10
Age of Over Due : 25-06-03 i.e. above 3 years below 4 years.
i.e., D1 unsecured category
Provision to be made 100%
Therefore Provision required is Rs.14,450/-.
166 - III
Case – 8:-
Purpose : Purchase of New Autorickshaw

Limit Sanctioned : Rs.3.00 lakhs
Repayment Period : 4 years
Loan Disbursed : 29.04.2007
Instalments : 48 monthly instalment of Rs.6520 from 29.10.2007
Security : Hypothecation of Vehicle & Two Guarantors
Realisable Value as on 31.03.2010 : Rs.2,00,000/-

29.04.2007 To Loan 3,00,000/- 3,00,000/-
31.03.2010 Balance 1,23,960/-

Loan Amount : Rs.300000/-
BAL. DUE ON.31-03-10 : Rs.123960/-
Amount repaid : Rs.176040/-
Instalment Amount : Rs.6520/-.
Instalment Payable from : 29.10.2007
No. of. Instalments paid : Rs.176040
Rs.6520 = 27
During 2007 : 3
During 2008 : 12
During 2009 : 12
Total : 27
Over Due from : 29.01.10
Date of B/S. : 31-03-10
Age of Over Due : 02.02.00 (2 days & 2 months)
Classification : Standard Asset
Provision Required : 0.40% an outstanding of Rs.123960/-
: i.e., Rs.496/-.
167 - III
Purpose : PACS (AGRICULTURAL LOAN)
DEVELOPMENT OF ARECA GARDEN.
Loan Amount : Rs.1,35,090/-
Repayment Period : 6 YEARS
Due Date : 6 Annual Instalments of Rs.22,515
From 04-03-08
Rate of Int. : 9%
B/S : 31.03.2010
04.03.2007 To Loan 1,35,090/- 1,35,090/-
31.03.2010 Balance 1,12,575/-
Solution for Case Exercise 9:-

Purpose of Loan : Development of areca garden i.e. Agri. purpose
Loan amount : Rs.1,35,090/-
Balance : Rs.1,12,575/-
Amount repaid : Rs.22,515/-.
Instalment amount : Rs.22,515/-.
No. of instalment paid : one
Due date of subsequent instalment : 04-03-09
Over due since : 04-03-09
B/s. Date : 31-03-10
Age of over due : 27- 0-01
i.e. One year and 27 days
Hence classification of asset : sub-std.
Provision required : 10%
Actual provision required : 1,12,575 x 10% = 11,258/-.

Name : PACS
Purpose : Digging Of Well
Limit : Rs.45,840/-.
Loan Issue : 09.03.2005
Repayment period : 9 years.
Gestation period : one year.
Instalments : 16 half yearly instalments of Rs.2865/-
from 09-03-06.
B/S : 31.03.2010

09.03.2005 To Loan 45,840/- Rs.45,840/-
31.03.2010 Closing Balance Rs.34,380/-
168 - III
Loan amount : Rs.45,840/-
Repayment : Half Yearly Instalment since 09.03.2006
Loan Amount : Rs.45,840
Closing Balance : Rs.34,380
Loan Amount repaid : Rs.11,460/-.
Instalment amount : Rs.2,865/-.
No. of instalments paid : Rs.11460/Rs.2865 i.e., 4 Half Year Instalment
i.e., I – instalment : 09.03.2006
II – “ : 09.09.2006
III – “ : 09.03.2007
IV – “ : 09.09.2007
Over Due from : 09-03-2008
B/s. Date : 31-03-10
Age of over due : 22-00-02 (2 years and 22 days)
Classification : Sub-Standard Asset
Provision to be made : 10%
Provision required : Rs.34,380 x 10% = i.e, Rs.3,438/-.

Name : Housing Loan
Limit : Rs.2,00,000/-.
Instalments : E.M.I. of Rs.2600/- from 10-08-04
Security : Mortgage of 34 Cents of Land
Realisable Value : Rs.3,40,000/-
B/S : 31.03.2010

10.02.04 To Loan 80,000/- 80,000/-
30-04-04 TO LOAN 80,000/- 1,60,000/-
27-05-04 TO LOAN 40,000/- 2,00,000/-
31-03-10 BALANCE 1,54,000/-
169 - III

Balance due as on 31.3.2010 : Rs.1,54,000/-
Amount Repaid : Rs.46,000/-
Instalment Amount : Rs.2,600
No. of instalments remitted : Rs.46000/Rs.2600 i.e., 17 instalments
Instalment Due from date : 10.08.2004
2004 : 5 months
2005 : 12 “
Loan Overdue from : 10.01.2006
B/s. Date : 31-03-10
Age of over due : 21-02-04 (4 years 2 months and 21 days)
i.e., Doubtful Category II Secured
Provision required is 30%
Actual Provision required : Rs.1,54,000 x 30%
= i.e, Rs.46,200/-.
Name : Housing Loan

Limit : Rs.2,00,000/-.
Loan Issue : 10.09.2003
Gestation : 6 months
Due date : E.M.I. of Rs.202/- (102+100) from 10-03-04
Security : Mortgage of 34 Cents of Land
Realisable Value : Rs.3,60,000/-
B/S : 31.03.2010
10.09.03 To Loan 80,000/- 80,000/-
30-09-03 TO LOAN 80,000/- 1,60,000/-
31-03-10 BALANCE 1,60,000/-

Outstanding : Rs.1,60,000/-
No Repayment
Due date : 10.03.2004
Overdue since : 10.03.2004
B/s. Date : 31-03-10
Age of overdue : 21-Nil-06 (Above 6 Years)
Classification : Doubtful Asset III
Provision required is 100% = i.e. Rs.1,60,000/-.
170 - III
CHAPTER – 13
THIRD PARTY GUARANTEE FOR ADVANCES
1. General:
a. Definition of “Guarantee”:
i. Section 126 of the Contract Act defines “Guarantee” as 'A contract of guarantee is a
contract to perform the promise, or discharge liability, of a third person in case of his
default'.
ii. Three parties are involved in a contract of guarantee:

· the bank making the advance
· Principal Debtor or the Borrower and
· Guarantor
iii. In such cases, there are two contracts:
· Principal contract between the Principal Debtor and the Bank and
· Secondary contract of Guarantee between the Bank and the Guarantor.
iv. The Guarantor is the potential Debtor to the Bank. His liability crystallizes on the
default of the Principal Debtor.
2. Consideration for a Guarantee:
a. Consideration accruing from the Bank to the Principal Debtor is a good consideration for the
Contract of Guarantee.
b. Section 127 of the Contract Act reads, 'Anything done, or any promise made, for the benefit
of the Principal Debtor, may be a sufficient consideration to the surety for giving the
guarantee.'
3. Capacity to give a Guarantee:While accepting the guarantee, the capacity of the Guarantor to
contract should be taken into account. Special care should be taken while accepting guarantee from
the following persons.
a. Minor: Since a minor has no capacity to contract, the Guarantee given by a minor is invalid
and hence not acceptable.
b. Married Woman:Even though a woman is equally capable of understanding the business

transaction as such, it is desirable that when the guarantee of a woman is taken, she is
advised by independent solicitors. This is essential particularly when she is guaranteeing
advances granted to her husband or son,etc. Where it is not practicable to get guarantee
executed under the guidance of an independent Solicitor, it is customary to obtain the
woman guarantor's signature on a declaration written on the agreement itself to the effect
that she understood its implications and signed it on her own free will and accord.
171 - III
c. Partnership Firm: Unless it clearly appears from the partnership Deed or Partnership Agreement
that the giving of guarantee is part of the ordinary business of the firm, a Bank should either have the
guarantee signed by all the partners on behalf of the firm or alternatively, have it executed by one
partner with a written authority of others.
d. Limited company: A Trading Company has the implied power to borrow and give securities for the
purpose of its business. But a power to execute guarantee cannot ordinarily be implied. If therefore,
a Bank is offered a guarantee by a Limited Company, it should be examined whether the Company's
Memorandum contains an express power to this effect. In this connection, no reliance should be
placed upon the concluding words usually found in the Objects clause to the effect that the company
shall have power “to do all such other things, as are incidental or conductive to the attainment of the
above objects or any of them” for it seems very doubtful whether they really add anything to what
the law itself implies as incidental to the specifically enumerated objects. There are certain statutory
restrictions under sections 295, 369, 372A etc. of the companies Act 1956 on guarantees to be given
by a Limited Company. It would, therefore, be advisable to seek a legal advice, before accepting the
guarantee of a Company. A Certified copy of the Resolution of the Board authorising the giving of
the guarantee should include the specimen format of proposed guarantee and the terms of the
specimen guarantee. The Resolution should inter-alia state the names of persons authorised to sign
the guarantee on behalf of the company.
e. Hindu Undivided Family: Guarantee given by a Hindu Undivided Family should not be accepted
because, normally, they do not engage in the business of issuing guarantees.
f. Guarantees by two or more persons: While taking a guarantee jointly and severally from two or
more persons, it is important to obtain the signatures of all the persons, before advancing money on
the strength of the guarantee. Otherwise, if one of the guarantors does not sign the guarantee
agreement for any reason whatsoever, the others whose signatures are already taken shall be
absolved from their liability under the guarantee.
4. Bank's Standard Format:
a. A guarantee should be drafted leaving no loopholes so that the guarantor is not left in
possession of all his legal rights. Accordingly Bank forms should have been specially
drafted to give us the utmost freedom of action and to take away from the guarantor all those
rights and remedies that are likely to conflict with the Bank's interests. The guarantee
should, therefore, be taken in the prescribed standard form.
b. At times a guarantor acting under a legal advice may object to some of the clauses in the
standard form. Deletion of/variation in clauses can be done only after approval from the HO,
Legal Department. The printed guarantee agreement is the product of expert legal minds;
every sentence has a definite significance and the deletion or addition of a word or two may
rob us of some remedy, if and when we have to enforce our rights under the guarantee.
172 - III
5. Banker's Duty of Disclosure:
a. Unlike a contract behind a life insurance policy, a 'contract of guarantee' is not a contract of
utmost good faith and the Bank is not normally expected to volunteer any information. But
relevant questions raised by the guarantor have to be answered truthfully. Before doing so,
the permission of the Principal Debtor should be obtained to avoid any suggestion of breach
of the Bank's duty of secrecy. Alternatively, a tripartite conference is a good strategy.
b. If it is apparent that the guarantor is under any wrong impression or has any
misapprehension concerning the relative facts, the matter should be clarified. The guarantor
is presumed to know the contents of the guarantee agreement, when he has signed it and
failure to read it is no excuse for avoidance of his liability. Therefore, it is sufficient to
describe to the guarantor the general nature of the liability under the guarantee. However, of
questions concerning specific clauses call for complete answers by the Branch Manager so
that the substance of the guarantor's liability can be known and understood by him.
c. It should be borne in mind that during the currency of the guarantee, the guarantor may seek
to know the extent of his liability under the guarantee. If, at the time of the enquiry, the
borrower's debt is less than the amount up to which the guarantee is covered, the guarantor
should be only informed that his liability is within the limits. If the debt exceeds the amount
of his guarantee, the guarantor should be only informed that the Bank is relying fully on his
guarantee, the excess not being disclosed without the prior consent of the principal debtor.
d. The guarantor is not entitled, nor it is proper for the Branch Manager to give, without the
consent of the Principal Debtor, any information regarding the conduct of the account by the
principal debtor, such as, whether the account is being run satisfactorily or whether cheques
are returned unpaid or whether there are any outside borrowings.
e. The guarantor has no right to inspect the books of account, or demand a copy of the
guaranteed account. The Bank is under no obligation to advise the guarantor of any change
in the financial position of the principal debtor.
f. On paying the amount guaranteed, the Guarantor is entitled to know what securities are held.
6. Liability of the Guarantor:
a. Section 128 of the Contract Act reads “the liability of the surety is coextensive with what
that of the Principal Debtor, unless it is otherwise provided by the contract”. The liability of
the guarantor would strictly depend on the terms of the contract .The liability of the
guarantor under a continuing guarantee is not affected, even if the account is brought to
credit or nil balance.
173 - III
b. The liability of the guarantor continues as long as the debt continues to be enforceable by
obtaining renewal documents from the principal debtor before the expiry of the limitation
period. However, branches are instructed to obtain acknowledgement of debt-cum-
confirmation of securities once in a year signed by both the principal debtor and the
guarantor.
c. If the principal debtor, whose account is guaranteed, pays all the dues and close, his account,
the guarantor is discharged and is not liable, if the account is reopened later and a fresh
advance is granted.
d. Once the principal debtor is called upon to pay the entire advance, no further advance shall
be granted to the Debtor on the strength of the guarantee taken earlier. The best course for the
Branch Manager is to break the account once the demand is made, so as to avoid the
operation of the rule in Clayton's Case. The borrower may be allowed to open and operate a
separate current account but no overdrawing should be allowed on that current account.
7. Rights of the Guarantor:
a. Before the Demand for Payment: The guarantor can be called upon to repay the advance,
only after the default of the principal debtor and due notice is served on him. The Bank is not
bound to exhaust all the legal remedies against the principal debtor, before proceeding
against the guarantor.
b. On demand for payment: The guarantor is entitled to claim a set-off which the principal
debtor may be possessing against the Bank.
c. Banker's right of set-off against the Guarantor'sAccount: In instances where the

guarantor maintains accounts in the Bank, right of set-off can be exercised, only if the
demand for payment has been made against the guarantor.
d. Rights of Lien: Bank has got a right to exercise its lien over the securities lodged by the
guarantor, only in case of default by the principal debtor. Before exercising lien, a notice
demanding the entire dues should be sent to the borrower/guarantor.
e. After payment by the Guarantor: Upon payment, the guarantor is entitled not only to
proceed against the principal debtor, but also to claim the benefit of any of the debtor's
securities that are in the Bank's hands for the purpose of securing the debt. The guarantor is
not entitled to any part of the debtor's securities, until the whole debt is satisfied.
8. Determination of guarantee by Guarantor:
a. Section 130 of the Contract Act reads: “A continuing guarantee may at any time be
revoked by the surety, as to future transaction, by notice to the creditor”.
174 - III
The guarantee agreement has to provide for 3 months' written notice by the guarantor to the
Bank before the guarantee can be determined. Immediate stoppage of facility, on receipt of
notice would upset the outstanding business commitments of the principal debtor.
Continuing of the facility till the expiry of the notice period may appear inequitable, because
at the time of receipt of notice, the debt may be inconsiderable, while by the time the notice
period has expired, it may have mounted to a peak figure.
b. To get out of this embarrassing situation, the Branch Manager should take an early
opportunity of conferring with both the guarantor and the principal debtor and coming to
some mutually satisfactory arrangement, keeping in mind, the interest of the Bank. The
Branch Manager has to exercise his discretion judiciously depending upon the
circumstances of each case and he should be able to justify the course of his action to the
sanctioning authority.
9. Death of the Guarantor:
a. Section 131 of the Contract Act reads: “The death of the surety operates, in the absence of
any contract to the contrary as a revocation of a continuing guarantee, so far as regards
future transactions”. The guarantee agreement has to contain clause calling for the bank's
notice of determination from the personal representative of the deceased guarantor as to the
account of the principal debtor can be continued unbroken, until the expiry of such notice at
the sole discretion of the bank.
b. Continuance of the facility after receiving the notice of death of guarantor / notice of
determination from legal representatives shall be a matter of very rare exception that too
with the prior approval of the sanctioning authority.
10. Insolvency of the Guarantor:
a. A notice to the Bank of the guarantor's insolvency determines the guarantee. The Bank
thereupon can prove before the Official Receiver for the debts incurred by the principal
debtor till that date together with interest upto the date of receiving the order but any
subsequent advance will not be covered under the guarantee. In the preparation of the proof
of the debt, no account need be taken of the securities lodged by the principal debtor. Only
securities lodged by the Guarantor himself should be shown, as it is with his estate that the
Official Receiver or the Assignee is concerned.
b. If a guarantee has been signed by two persons jointly where one is an adjudged insolvent, the
Bank can seek remedy against the solvent signatory as well as the estate of insolvent.
175 - III
c. The insanity of the Guarantor determines the operation of the continuing guarantee as from
the date when the branch receives the notice of insanity. The account must be stopped and
further transactions of the Debtor should be placed in a new account subject to report to the
sanctioning authority. The account should not be allowed to be overdrawn. The guarantor
being no longer capable of managing his own affairs cannot be held liable for any
obligations incurred after the notice of insanity.
11. Death of the Principal Debtor:
a. Upon the notice of death of the Principal Debtor, his account will be stopped and the liability
of the guarantor will be determined as to the future transactions. Any cheque paid after the
death, but before receipt of notice will be covered by the guarantee.
b. It will be prudent to advise the guarantor in a tactful manner that consequent upon the death
of the Principal Debtor, his liability has been determined and he is liable to pay the balance
as on the date of determination along with interest.
c. All monies received from the guarantor must be placed in 'Sundry Deposit' account and
should not be credited to the loan/overdraft account. This will enable the bank to preserve its
full claim against the estate of the deceased.
d. By the terms of the guarantee, the guarantor cannot make any attempt to recover from the
estate, until the Bank has recovered its entire debt.
12. Insolvency of the Principal Debtor:
a. In the event of the insolvency of the principal debtor, the Bank will advise the Official
Receiver or the Assignee the full amount due from the insolvent debtor and give full details
of the securities lodged by the Principal Debtor. The guarantee need not be disclosed. A
proof can be lodged for the whole debt less the value or proceeds of any direct securities.
After receiving the final dividend from the Official Receiver/Assignee, the collateral
proceeds received from the guarantor kept in Sundry Deposit/Sundry debtor account may be
transferred to the advance account so as to wipe off the liability in full and the balance, if any,
in Sundry Deposit account may be paid to the guarantor.
b. If the guarantor wishes to prove his claim on the insolvent's estate, he must first repay the
entire debt and he can, then, step into the shoes of the Bank and collect what he can from any
direct security and by way of dividend. There cannot be two proofs for the same debt and the
guarantor cannot attempt to intervene in the insolvency proceedings unless he first repays
the whole debt.
176 - III
c. From the practical angle, there are two points to be watched. The collateral position has to
be preserved throughout, by placing the guarantor's money in Sundry Deposit/Sundry
debtor account and the guarantee should remain intact to retain the covenants of the
guarantor.
13. Payment by the Guarantor:
a. If the guarantor pays the whole debt in response to the Bank's demand, on the principal
debtor's account, the advance should be deemed as repaid and the guarantee duly receipted
and returned to the guarantor. Once the guarantor pays the entire debt, he steps into the shoes
of the creditor (Bank) and becomes legally entitled to take over all direct and collateral
securities already held by the Bank. However, permission must be taken from the
sanctioning authority, before the securities are delivered to the guarantor.
b. If the debt is greater than the amount of guarantee, the Bank can accept any payment made
by the guarantor and place it in Sundry Deposit account to preserve its collateral position, in
the event of insolvency of the principal debtor. It is usual to retain the guarantee as evidence
of the Guarantor's contract not to claim against the Principal Debtor or to prove in his
insolvency proceedings, as long as any liability remains unsatisfied.
c. If the debt is less than the amount of guarantee, the Bank will accept the payment and credit
Sundry Deposit account on the condition that the guarantor has to give notice of
determination in accordance with the Guarantee Agreement. Receipt given for such money
should show clearly that this is only to be regarded as part payment, until the liability of the
guarantor can be established on the date of determination.
14. Payment by Principal Debtor:
a. The guarantor will be discharged by the payment made by the Principal Debtor. Payment
must be valid payment and must not amount to a fraudulent preference. A 'fraudulent
preference' means a preference given to some of the creditors in the matter of payment or
transfer of property to the exclusion of others. It would be a fraudulent preference, if the
principal debtor on the date of payment was unable to pay his debts as they became due and
he is adjudged insolvent on a petition presented within three months after the date.
b. It is immaterial whether payment has been made voluntarily or under compulsion. The
Guarantee agreement should protect the Bank's interest, in the event of fraudulent
preference being established. According to the clause, the guarantor's liability to the Bank
on the basis of the guarantee shall revive to the same extent and in the manner as if such
payment had never been made.
177 - III
15. Change in the Constitution of the Borrower:
a. A guarantee is not affected by any change in the name or the constitution of the corporation,
unincorporated body or firm.
b. Absence, infirmity or irregularity of borrowing powers on the part of the principal debtor or any
irregularity in the exercise thereof, will not affect the guarantee.
c. However as a matter of precaution, we should get the consent of the consent of the guarantor for
continuing a credit facility in favour of a reconstituted firm/corporate body.
16. Renunciation of Common Law Rights of the Guarantor:
a. According to a Guarantee agreement, the guarantor contracts out rights conferred on him by
sections 133,134,135,139 and 141 of the Contract Act.
i. Section 133: Any variance, made without the surety's consent in the terms of the contract
between the principal debtor and the creditor, discharges the surety as to transactions
subsequent to the variation.
ii. Section 134:The surety is discharged by any contract between the creditor and the principal
debtor, by which the principal debtor is released or by any act or omission of the creditor, the
legal consequence of which is the discharge of the principal debtor.
iii. Section 135: A contract between the creditor and the principal debtor, by which the creditor
makes a composition with or promises to give time to or not to sue the principal debtor
discharges the surety, unless the surety assents to such contract.
iv. Section 139: If the creditor does any act which is inconsistent with the right of the surety or
omits to do any act which his duty to the surety requires him to do so and the eventual
remedy of the surety himself against the principal debtor is thereby impaired, the surety is
discharged.
v. Section 141: A surety is entitled to the benefit of every security which the creditor has
against the principal debtor at the time when the contract of suretyship is entered into,
whether the surety knows of the existence of such security or not and if the creditor loses or
without the consent of the surety parts with such security, the surety is discharged to the
extent of the value of the security.
178 - III
17. Release of the Guarantor:
a. The Branch Manager does not have any discretion to release the guarantor without getting the
permission of the sanctioning authority. The release of guarantor and acceptance of a new
guarantor in his place requires the consent of sanctioning authority.
b. As a matter of fact, the reason for revocation of the guarantee has to be ascertained. If the reason
for the revocation of the guarantee is due to deteriorating financial position of the principal
debtor, a definite view has to be taken as to whether the limit has to be continued or curtailed or
recalled.
c. The recommendation of the Branch Manager will depend upon the facts and circumstances of
each case, reason for the revocation of the guarantee / release of guarantor, credit worthiness of
the principal debtor, securities given by the principal debtor, credit worthiness of the guarantor
who has given notice of revocation and who may have to be released, securities given by the
guarantor, the financial position of the principal debtor as on the date of receipt of notice of
revocation, finished transactions and business commitments of the principal debtor at the time
of receipt of notice of revocation of the guarantee, ability of the principal debtor to bring
securities/new guarantor in substitution of the guarantee and if so the value of the security/net
worth of the new guarantor, the turnover in the account, the financial results of the business of
the business of the principal debtor, etc.
18. Consent of the borrowers/guarantors for disclosure of information to CIBIL:
a. As per RBI directives, banks are required to furnish credit information of all their borrowal
accounts in the prescribed formats to CIBIL. As a prudential requirement consent of
borrowers/guarantors is necessary for such disclosure.
b. It is, therefore, necessary that a consent clause is included in any one of the agreement or
documents signed by the borrower and guarantor. In case the consent clause is not included in
the existing documents, the same can be obtained from the borrower and the
guarantors/directors etc.
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CHAPTER - 14
CREDIT RATING AND RISK MANAGEMENT
1. General:
a. The Banking Scenario in our country has been undergoing transformation, especially from the
nineties. The process is marked by the opening up of economy to global forces as a result of
liberalization. The competition has intensified causing the stress on spread of profit of banks
besides making the vulnerable to greater risks.
b. In recent times, the financial sector has undergone far-reaching changes in the operational arena
of Banking both in respect of such approach and procedure. One important dimension is Credit
Risk Management.
c. In terms of the guidelines of RBI on Credit Risk Management it is the responsibility of Head
Office to formulate annual Credit Risk Policy focusing on improving the quality of the assets
and healthy credit growth for overall business development of the Bank. The Policy document
covers elaborately on the architecture, entire process of Credit Risk Management like risk
identification, risk measurement, risk control and mitigation. Branches shall plan their Credit
portfolio in tune with the annual Loan Policy and Credit Risk Management Policy of the Bank.
d. Taking a lending decision is choosing between an affordable risk and non-affordable risk and
need, therefore, arises to design a yardstick to accurately measure risks. Risk needs to be
i. Accurately measured (Identification)
ii. Carefully Selected (Assessment for decision making)
iii. Adequately priced (Risk based loan pricing) and
iv. Effectively monitored (Risk Control)
e. Banks are thus subject to various kinds of financial and non-financial risks on
i. Credit
ii. Interest Rate
iii. Exchange Rate
iv. Liquidity
v. Commodities
vi. Legal, Regulatory and Operational aspects
f. These risks are highly interdependent and events that affect one area will have ramifications for
a range of risks in other areas. For example, Credit Risk will affect the position of overall
liquidity of the bank, should there be default in repayment.
g. While liquidity and interest rate risks are broadly in the purview of overall Assets and Liability
Management of the Bank, specific risks related to Credit are:
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i. Transaction or Default Risk and
ii. Portfolio Risk that consists of
l Intrinsic Risk: Intrinsic Risk is one which is inherent to the type of industry (e.g.
pollution in Tanning/Processing of Leather)

l Concentration Risk: Concentration Risk is the risk incurred by the extent of exposure to
a particular trade/industry in comparison with other industries/trade and total exposure

of the bank as a whole.
h. The Credit Risk depends on both external and internal factors.
i. A few of the internal factors are:

l Deficiencies in Loan Policy / Administration
l Absence of prudential credit concentration limit
l Deficiency in Loan Appraisal
l Absence of Loan review mechanism
ii. Some of the external factors are:

l State of economy
l Wide swings in commodity/Equity price
l Exchange/Interest Rates
l Trade restrictions/Economic sanctions
2. Aspects of Credit Risk:
a. Even at the loan appraisal stage, it is important to have clear perceptions of risks involved. In
fact, risk analysis is a new facet of traditional Credit Appraisal in the area of say, Economic,
Technical, Financial, Managerial aspects but with a futuristic approach. While the approach is
essentially long term for a Term Loan proposal, short-term view is predominant for Working
Capital limits. A proper understanding of various risks is vital for improving our credit appraisal
skill. Any inadequate focus on credit risk assessment may adversely affect the quality of the
credit portfolio.
b. Precisely, for example, Working Capital Assessment is more centered around financial and on
the arithmetic of Net Working Capital. To have a refined appraisal system, the assessment
should take into account the risk perspectives of the borrower concerned. The ultimate aim of
risk assessment is to ensure that the borrowing Company's prospect of earning profit
continuously is so evaluated as to keep the account under 'Standard Asset' category. With this in
view, important components of risk particular to the area of Credit are enumerated below:
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3. Competition/Market Risk: This comprises the following factors:
a. Status/Trends in the economy
b. Status/Trends in the industry
c. Competitive factors in the industry:

i. barriers to entry/exit
ii. intensity of competition both in price front and service front
iii. pressure from substitutes
iv. bargaining power of buyers
v. bargaining power of suppliers.
d. Thus, for example, a venture into Fast Moving Consumer Goods(FMCG) implies lot of
competition, money power to spend on advertisements and developing brand name at
considerable cost. As such, for a project in that particular line/ industry, huge capital investment
shall be a high barrier.
4. Technology Risk:
a. This is intricately linked to Management Risk. A poor choice of technology has, more often
landed projects in serious troubles. This shall arise from poor quality of output, mismatch in
capacity, prohibitive cost under Indian conditions, etc. Moreover, in highly technology-oriented
fields like consumer electronics, computer hardware, etc., new innovations undergo fast
changes and the rate of obsolescence is very high. Cassette Player eliminating Record Players
and now, CD players posing threat to cassette players are examples of fast changing technology.
b. Unless a company gears up with good Research and Development, the products run the risk of
going stale and losing the market share very fast. Further, the process technologies in chemical
industries, emissions of fumes / gas, etc. shall even result in plants being shut down.
c. There are instances of projects that have not even taken off due to incompatibility of foreign
technologies under Indian conditions.
5. Financial Risk:
a. Financial Risk is linked to the operational performance and arises from:

i. Sales growth
ii. Gross margins
iii. Operating expenses (%)
iv. Accounts receivable (days)
v. Inventory (days)
vi. Accounts payable (days)
vii. Investment in Fixed Assets
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b. While seeking to assess this risk, it is essential to judge the reasonableness of presumptions on
various aspects e.g. price of raw material, sale price, etc.
c. Sometimes risks hall emanate from factors peculiar to specific industry. Present day difficult
situation for Textile Industry is a case in point, with no parity between increasing cotton prices
and price realization for yarn in the midst of stagnant demand.
6. Exchange Risk:
a. In the course of business, borrower enters into monetary transactions involving currencies of
other countries. Thus, for example, imports/exports involve foreign exchange and the risk of
fluctuation in value (in Rupee Terms) associated with various currencies. So also, while availing
a Foreign currency loan with fixed repayment schedule, the borrower has to evaluate the risk of
depreciation of rupee against foreign currency to save on cost of funds.
b. The bank, as a lender, shall have to be cautious about un-hedged exchange risks of the borrower.
It is necessary for the borrower to protect against these risks by forward cover/hedging with
export receipts for any outflow of foreign exchange.
c. Buy back arrangement and advance remittances from overseas could mitigate these risks to
some extent.
d. Import substitutes and outsourcing are also other ways to explore for an entrepreneur to get
around foreign exchange risk.
7. Economic/Political Risk:
a. Hostile/unfavourable conditions inside a country may affect tourist traffic and may affect
tourism-related industry like Hotels. Likewise, breakout of a particular disease may go to
eliminate an entire poultry farm.
b. Financial risk factors are closely interrelated with external environment in which the business
functions. If the user industries are not doing well, the product manufacturer concerned will also
be facing quite a risk.
8. Change of Government Regulations:
a. Change of government regulations is also a source of risk. To illustrate, a reduction in import

duty on PSF has affected off-take of products from local manufacturers. Cheaper imported
second hand textile machinery reduced the demand for new indigenous textile machinery.
b. In these days of growing ecological concern, it is not surprising to see leading car models getting
affected by stringent emission norms. Such developments cause sudden and adverse impact by
way of loss of Sales and Profit generation.
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9. Management Risk:
a. The prime factors of management are skill and integrity of promoters of the project. Some
elements of good management are:
i. Aggressive and growth-oriented approach;
ii. Well-developed and adequate facilities for Research and Development;
iii. Dynamism and flexibility in approach to problems.
b. It requires constant vigilance to watch for management errors. It is difficult to enumerate all
management risks.
c. The Business Risks arise out of managerial inefficiency. The indicative factors are,
i. Location
ii. Shortage of Raw material
iii. Labour problem
iv. Power cuts
v. Pollution related issues
vi. Failure of Technology
vii. Quality of Technology
viii. Chronic shortage of funds
ix. Difficulty in marketing
d. When factories remain closed due t high incidence of labour unrest, there is risk of loss of
production with harmful consequences on profitability and quality of Bank Credit.
e. Perception of the risk: This involves basic understanding of the element of risk in each industry/activity
for which lending is undertaken.
f. Identification of various types of risks: The process which is being assessed out of operations of
normal Banking.
10. Mitigation of Credit Risk:
a. As risk is inherent in every form of lending, the management of risk involves scientific
management of the risk aimed at mitigating adverse effects. The Credit Risk Management
would encompass:
i. Measurement of risk through credit rating/scoring
ii. Risk pricing (based on past experience, by quantifying the risk through estimation by
expected and unexpected loan losses)
iii. Control of Risk through effective Loan review mechanism and Portfolio management.
iv. Zero Error Documentation
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b. It is part of Risk Management concerned with monitoring various borrowal accounts on an
ongoing basis. This will enable timely preventive action in managing the risk elements.
Additionally, it also refers to a strategy to assess the risk potential, for example, of various
industries and bank's conscious decision to increase (or not) loans for select industries.
c. While risk is inherent in every type of active, success of the Bank lies in the art of managing the
risk assumed by it, by stipulating suitable covenants in the sanction for risk mitigation and by
proper monitoring. Such an approach will enable the Bank to minimise the level of risk and
optimize profitability of lending.
d. Every loan appraisal has to identify the risk elements involved and find out to what extent the
risks are acceptable. In the process, it needs to be ascertained from the borrower as to how the
risks faced by the borrower are proposed to be mitigated.
e. After carefully weighing the strengths and weakness of the proposal, ultimately, it will be
possible to arrive at a balanced credit decision.
f. Thus Risk Assessment has an important role to play in credit appraisals. Besides financially
assessing borrower's needs, we have to perceive the risk elements and present a balanced
perspective while recommending credit facilities. Such an analysis of risk and its impact on the
borrower would go a long way in ensuring the quality of loan and prevent slippages and reduce
the incidence of NPAs and ultimately strengthen the Bank by preservation and growth of
Profitability.
11. Tools of Credit Risk Management:
a. Credit Approving Authority: This essentially means that no credit proposal should be
approved or recommended to higher authorities if majority of the members of the 'Approval
Committee' do not agree on creditworthiness of the borrowers. There will also be a suitable
framework for reporting and evaluating the quality of credit decision taken by various financial
groups.
b. Prudential Limits: This will cover various aspects of credit like financial parameters,
borrower/group-wise exposure limits, maximum exposure limit to industries.
c. Risk Rating: Banks will have comprehensive risk scoring/rating system as a single point
indicator of diverse risk factor. The rating exercise would also facilitate the credit granting
authorities some comfort in its knowledge of loan quality at any moment of time. The risk
assessment would be say, at half-yearly intervals and possibly at quarterly intervals for low
quality loans.
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d. Risk Pricing
e. Loans Portfolio Management
f. Loan Review Mechanism: This is a tool available to the Bankers to identify loans which
develop credit weaknesses, to evaluate portfolio quality and isolate potential problem areas etc.,
g. Off Balance Sheet exposures: The types of exposure are standby letters of credit, Money
guarantees, bonds, letters of credit, indemnities etc. The current and potential credit exposure is
measured on a daily basis to evaluate the impact of potential changes in market conditions, on
the bank's exposure.
12. Credit Rating System & Sanction of Finer Rate of Interest:
a. Credit Risk Rating is one of the important tools put in place by the Bank for assessment /
measurement of risk in respect of exposures to counter party i.e., borrowers. Assessment of risk
in the exposure also is utilized as a tool for appraisal, decision making and also pricing the
facilities by adding risk premium as enunciated in the Loan Policy of the Bank.
b. With deregulation of interest rate structure of advances and articulation of different financial
instruments such as Certificate of Deposits, Commercial Papers, etc., the market has been
opened up for Corporates instead of solely looking to Banks for financing their needs. Further,
Corporates in their quest to be cost efficient are demanding finer rates of interest leaving the
Banks to determine their comfort level on advances and the spread over base rate taking into
account the quality of asset portfolio. With the reserve strength of expertise and network of
branches, Credit Marketing thus has become imperative.
c. For this purpose, a Credit Risk Assessment- Rating system has to be in place in the Bank, which
will serve as a single point indicator of diverse risk factors and for taking credit decisions in a
consistent manner.
d. The features of the system are:

i. All accounts with a sanctioned facility of Rs. 2 lakhs and above are subject to the rating
system.
ii. The Board of Management is empowered to consider finer rate of interest as per delegated
powers.
iii. On receipt of Audited Balance Sheet, an interim Review of the account has to be made and
applicable rate of interest (concessions) shall be decided by the Sanctioning Authority
iv. In respect of large volume accounts of Rs.10 Crore and above, a half yearly review shall be
made based on provisional results.
v. Negative marks shall be allotted for deterioration under Track Record in Financial
Parameters and wherever Group accounts are in Sub-standard/Doubtful category.
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e. The qualitative aspects should also be taken into consideration along with quantitative aspects.
Branch Managers have to record in the proposal, the merits of the account and the need for
considering finer rate of interest while recommending the proposal to higher authorities.
f. Credit Rating in respect of the following categories of Advances need not be done:
i. Sick accounts under rehabilitation.
ii. Loans against deposit/NSCs/Shares/ Mutual fund units/IVPs/LIC Policies etc.
g. Applicability: Irrespective of whether any concession in interest rate is sought/recommended or

not, all borrowal accounts with credit limits of Rs.2.00 lakhs and above should be rated every
year based on audited balance sheet in accordance with the revised parameters.
h. The very purpose of the exercise is to,

i. ascertain the quality of advances in our fold,
ii. ensure proper monitoring of advances that show a tendency of slippage and
iii. manage the advances portfolio on the lines specified earlier in the note apart from pricing
of advances (finer rate of interest).
i. Bank will also view with caution any adverse remarks pointed out by the auditors in the Balance
Sheet of the borrower which will have a bearing on the conduct of the account. The matter
should be taken up with the borrowers for necessary rectification.
13. Consortium Accounts:

a. Where we are leaders: The discretion to sanction / consider finer rate of interest will rest with the
delegated authority. Branch will arrive at the risk rating parameters based on Audited Balance
Sheet and recommend the eligible finer rate taking into consideration the value of accounts,
other benefits that will be available to the bank, threat of losing borrowers, etc.
b. Where we are members: While the branch assess the rating and also the applicable finer rate of
interest, sanction of the same shall be based on other parameters as detailed above besides the
rate of interest charged by other member banks. Rate of interest for our share of limits will not be
lower than the rate charged by the leader/any other member in the consortium.
14. Rate of Interest for Adhoc Sanctions / Penal Interest:
a. In respect of accounts where finer rate of interest has been sanctioned, the applicable rate of
interest for Adhoc facility shall be finer rate to +2%.
b. The finer rate of interest, if approved, will be valid for a period of one year from the date of
sanction. In case where renewal of limits could not be taken up for various reasons, specific
permission from the Sanctioning Authority (who has allowed finer rate) should be obtained.
c. The norms for considering finer rate of interest to borrowers not conforming to the stipulated
rating may be relaxed based on business consideration and value of connection and powers (that
would be beneficial to the Bank).
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d. Interim Review: While the sanction of finer rate of interest will be based on available Audited
Balance Sheet, at the time of renewal, an interim review has to be made if subsequent Audited
Balance Sheet is received irrespective of completion of 6 months from the date of renewal.
Based on the Audited Balance Sheet, the respective sanctioning authority will review the
account and applicable finer rate of interest will be sanctioned / withdrawn based on merits of
the account.
15. Loan Review Mechanism (LRM):
a. LRM is an effective tool for constantly evaluating the quality of loan book and to bring about
qualitative improvements in credit administration. Banks should, therefore, put in place proper
LRM for large value accounts with responsibilities assigned in various areas, such as,
i. evaluating the effectiveness of loan administration;
ii. maintaining the integrity of credit grading process;
iii. assessing loan loss provision;
iv. Portfolio quality.
b. The main objective of LRM concept are,

i. To identify promptly loans which develop credit weakness and initiate timely corrective
action;
ii. To evaluate portfolio quality and isolate potential problem credits;
iii. provide information for determining adequacy of loan loss provision;
iv. To assess the adequacy of adherence to, loan policies and procedures and to monitor
compliance with relevant laws and regulations.
v. To provide top management with information on credit administration including credit
sanction process, risk evaluation and post sanction follow up.
vi. Review of credit risk independently.
vii. Picking up warning signals and suggest remedial measures.
c. Loan Review Policy: Salient Features of Loan Review Policy relating to LRM are:
i. Extent of coverage: Atleast 30% to 40% of the standard borrowal accounts exposure are to
be brought under Loan Review Mechanism.
ii. Reviewing Authority:The accounts have to be reviewed under Loan Review Mechanism
by a committee.
iii. Format for Review under LRM:The exercise is considered as a tool to evaluate the default
risk probability. It is to be carried out with risk perception and comments are to be made on
the possible migration of the rating of the unit based on the performance of the industry /
financial position / Government policy etc. Further it is also expected that suitable
corrective measures be prescribed. Branches have to submit the reports.
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CHAPTER – 15
CREDIT INFORMATION - INDIAN CONTEXT

1. General:
a. Current Indian Scenario:
i. Rapid industrialisation. An expanding economy. Growing aspirations. Increased incomes.
Improved lifestyles. Availability of high quality products and services. An expanding market.
ii. These factors have created an atmosphere conducive to rapid credit off take. While the demand
for credit has risen exponentially, there has been a parallel increase in competition, and credit
delinquencies. In such an environment, risk assessment is of critical importance. Not only, in
deciding on what business to book and the speed at which a credit grantor does so, but also in
determining the appropriate pricing.
iii. Comprehensive credit information, which provides details pertaining to credit facilities already
availed of by a borrower as well as his payment track record, has become the need of the hour.
iv. As per Reserve Bank of India circular RPCD.CO.RF.BC.No.44/07.40.06/2009-10 dated
1.12.2009, the cooperative banks are required to take membership of at least one credit
information company and provide credit data (positive as well as negative) to the credit
information company in the format prescribed by the credit information company. A copy of the
said circular is reproduced in Annexure – 1 to this Chapter. Further, the RBI circular dated
September 6, 2010intimating the panel of credit information companies registered with RBI is
reproduced in Annexure – 2 to this Chapter.
v. A brief about one of the three registered Credit Information Companies with RBI is given
hereunder to help understand the roles played by credit information companies to the advantage
of banking and non-banking financial institutions.
2. Credit Information Bureau (India) Limited (CIBIL):
a. The Credit Information Bureau (India) Limited (CIBIL) was incorporated in 2000. CIBIL's aim
is to fulfil the need of credit granting institutions for comprehensive credit information by
collecting, collating and disseminating credit information pertaining to both commercial and
consumer borrowers, to a closed user group of Members. Banks, Financial Institutions, Non-
Banking Financial Companies, Housing Finance Companies and Credit Card Companies use
CIBIL's services. Data sharing is based on the Principle of Reciprocity, which means that only
Members who have submitted all their credit data, may access Credit Information Reports from
CIBIL. The relationship between CIBIL and its Members is that of close interdependence.
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b. Integral Solution:The establishment of CIBIL is an effort made by the Government of India and
the Reserve Bank of India to improve the functionality and stability of the Indian financial
system by containing NPAs while improving credit grantors' portfolio quality. CIBIL provides a
vital service, which allows its Members to make informed, objective and faster credit decisions.
c. "CIBIL would be a the Catalyst in informed credit decisions, thus enabling growth in credit at
better terms through,
i. being a trusted partner to credit granters by offering innovative solutions,
ii. empowering employees to be responsive towards changing customer needs, and
iii. adopting international standards of technology, security and availability of up to date
information"
d. “CIBIL has pioneered the Credit Information Bureau concept in India, which enables informed
credit decisions by lenders at better terms. As pioneers in this field, they introduce innovative
products & services that are useful to their members and help them make valuable credit
decisions. In order to perform their role effectively, they apply the best available technology and
processes in our operations.
e. CIBIL's Consumer Bureau banks upon its vast and dynamic information repository of the India
market to provide its members with comprehensive risk management tools pertaining to
individual borrowers. The objective is to minimise defaults and maximise credit penetration and
portfolio quality. The software for the Consumer Credit Bureau is developed and licensed by
TransUnion, one of the largest consumer credit bureaus in the world and CIBIL's equity and
technical partner.
f. CIBIL's risk management offerings assist and empower its members to make objective
decisions at every stage of the customer lifecycle- Acquisition, Portfolio management,
Collections etc.
3. Consumer Credit Information Report (CIR):

a. This is CIBIL's core offering based on the vast information database pertaining to individual
borrowers. Consumer Credit Information Report (CIR) is a vital tool used by credit grantors at
the time of new customer acquisitions. CIRs provide factual information on credit histories of
borrowers enabling institutions to make objective lending decisions. With CIBIL Consumer
CIRs credit grantors are equipped to identify risk areas, disburse credit faster and with greater
efficiency and grow business profitability.
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4 Portfolio Review Report:
a. Portfolio Review Report is an extremely effective tool for credit grantors to review the risk
associated with their existing portfolio of customers. The report provides the credit grantor with
a comprehensive view of their borrower's credit relationships across multiple lenders. Lenders
can enhance their portfolio returns through effective risk monitoring and management and
through identification of loyal relationships - thus turning their customer base into profit
engines.
b. CIBIL TransUnion Score: The CIBIL TransUnion Score is India's first generic score and has
become the most trusted indicator for prudent decision making by credit grantors.With the
CIBIL TransUnion Score, the credit grantor can effectively predict the likelihood of an applicant
becoming more than 91 days delinquent on one or more tradelines over the subsequent 12
months.
c. CIBIL TransUnion Personal Loan Score: The CIBIL TransUnion Personal Loan Score is the
first and only score for the Indian market to predict the likelihood of an applicant or customer
becoming more than 91 days delinquent on a personal or consumer loan over the next 12 months.
This score is the result of collaboration between Credit Information Bureau (India) Limited
(CIBIL) and TransUnion, a trusted global leader in analytic and decision services.
d. Bureau Credit Characteristics (BCC): Bureau Credit Characteristics is a list of predefined

characteristics that summarize various aspects of a customer's credit information. The set
comprises 258 credit characteristics which can be used for model development, data analysis,
customer profiling, migration analysis and a variety of other account management analyses.
e. CIBIL Market Insights: These reports are designed to provide an overview of the credit market
basis geographic, demographic and behavioural borrowing trends. By profiling their customer
base across various dimensions, benchmarking their performance with the market and
identifying their strengths and weaknesses organizations can take proactive corrective decisions
and enhance business growth.
f. CIBIL Locate Plus:One of the challenges lenders may face is keeping updated and accurate
contact details on all of their customers. CIBIL Locate Plus leverages CIBIL's vast and
comprehensive information repository to provide Financial Institutions with comprehensive
contact information on their customers in a faster and more cost effective fashion. CIBIL, being
your partners in risk management, constantly endeavour to bring new solutions to cater to the
market need and customize existing offerings to suit your requirements.
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5. CIBIL Information Scheme:
a. CIBIL's Commercial Bureau banks on a vast information database of credit histories of
commercial borrowers. CIBIL's Commercial Credit Bureau benefits the industry and the
economy overall, by helping minimize instances of concurrent and serial defaults through
providing credit information pertaining to non-individual borrowers such as public limited
companies, private limited companies, partnership firms' proprietorships, and others. CIBIL
maintains a central database of information as received from its Members. CIBIL then collates
and disseminates this information on demand to Members, in the form of Commercial Credit
Information Reports (CIR) to assist them in their loan appraisal process.
b. In its initiative to improve Credit flow to SMEs, CIBIL is being supported under SME Financing
and Development Project implemented by Project Management Division, SIDBI, with an aim
to facilitate flow of credit to the under penetrated SME sector while increasing banks'
profitability and market penetration (via sound credit decisions) and reducing non-performing
loans (via credit information tools). The software for the Commercial Credit Bureau is
developed and licensed by Dun & Bradstreet, a world leader in commercial credit information
and one of CIBIL's equity and technical partners.
6. Commercial Credit Information Report (CIR):

a. The information in the Commercial Credit Information Report broadly covers information
about the borrowing entity and the credit/ loan account details like:
i. Borrower information:
l Name and Address
l Other Identification numbers; e.g. PAN, Registration No.
l Legal constitution
l Relationship details; e. g. major shareholders, directors and their addresses and
®
D-U-N-S Number
l Number of inquiries made on the borrower
ii. Account Details:

l Number of credit facilities
l Credit type
l Loan amount
l Outstanding amount
l Asset classification
l Wilful defaulter and suit-filed status
l Guarantor details
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iii. Suit-Filed cases: The information contained in this section relates to the suit filed accounts
against defaulters of various banks, all India notified Financial Institutions (FIs) and State
Financial Corporations (SFCs). The contents of this Information have been provided by
various banks, FIs and SFCs, pursuant to the directions of the Reserve Bank of India dated
the 4th of June, 2002, bearing reference number DBOD No.DL.BC. 111/20.16.001/2001-
02. In the event of any person seeking clarifications with respect to the information or being
aggrieved in any manner, such person may directly contact the bank or FI or SFC concerned
for clarifications and/or actions.
7. Benefits of CIBIL:
a. Increased Credit Volumes: Credit Bureaus facilitate increased lending opportunities for
credit grantors while allowing easier access to credit for borrowers. The existence of credit
bureaus in developed countries has facilitated increased market penetration of credit (to more
than 66% as a percentage of GDP as compared to 3% for India) while keeping non-performing
loans in check (approximately 1% of outstanding credit).
b. Operating Efficiencies:
i. Credit Portfolio Quality: The use of CIRs accessed from a credit bureau will enable credit
grantors' loan officers to accurately evaluate borrower risk by making comprehensive
credit histories available to decision makers. The CIRs will facilitate an objective and
transparent assessment of credit applications. Concurrent borrowers and serial defaulters
will be identified and minimized early in the approval process - consequently reducing
associated recovery and write-off costs. Similarly, premium borrowers will be identified
and serviced faster. Ultimately, CIRs will enable Members to judiciously mix
relationship-based lending and information-based lending. CIRs will serve as the first
level of due diligence in the appraisal of a credit application.
ii. Speed and Cost: The use of CIRs will make processing loan applications easier, faster and
cheaper by sometimes eliminating the need to additionally research and verify borrower
details. The average loan in India is sanctioned in 2-3 days. A credit grantor using CIRs
will be able to significantly reduce this turn round time and thus have a competitive edge
in the marketplace.
c. Differential Pricing:
i. Owing to the lack of comprehensive credit information, all borrowers are charged an
interest rate with an assumed level of default risk. This means that all borrowers are
charged identical risk premiums regardless of their payment history and thus pay a
premium that in developed countries is only applied to previously defaulting borrowers.
As credit grantors begin to use comprehensive credit information they will be able to
differentiate between good borrowers and defaulters. In an increasingly commoditized
credit market, credit grantors will be able to use price in order to differentiate their loan
products.
ii. In addition, borrowers who have diligently serviced their loans in the past will be able to
demand cheaper loans in the future. Past defaulters will also have an opportunity to
improve their credit histories by servicing their debt obligations in a timely fashion and
thus earn access to lower interest rates.
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iii. The Indian credit industry has only recently begun to offer differential pricing to their
customers. As the credit environment becomes increasingly competitive, CIRs will play a
pivotal role in the speed and confidence with which credit grantors will be able to increase
their business volume.
d. Hence, the use of CIRs will prove beneficial to both credit grantors and borrowers;
i. Credit grantors: The use of CIRs will enable loan officers to make objective and informed
credit decisions quickly, competitively and cost-effectively. The use of CIRs will enable
them to increase their lending volumes and improve the quality of their credit portfolios
while reducing their delinquencies and loan processing costs. This will translate into
improved profit margins.
ii. Borrowers: The widespread use of credit data will provide consumers with fast and easy
access to the lending resources they need while reducing operating and risk costs for credit
grantors. These reduce costs will be passed on to an extent to consumers with
demonstrated credit performance in the form of lower interest rates. This easy availability
of reasonably price credit will provide borrowers with the means to a higher standard of
living.
8. Frequently Asked Questions (FAQs):
a. What is CIBIL? - CIBIL - India's first credit information bureau- is a repository of information,
which contains the credit history of commercial and consumer borrowers. CIBIL provides this
information to its Members in the form of credit information reports.
b. Who owns CIBIL? - CIBIL's equity was held by State Bank of India, Housing Development
Finance Corporation Limited, Dun & Bradstreet Information Services India Private Limited and
Trans Union International Inc. The shareholding pattern was in the proportion of 40:40:10:10
respectively.
c. On which segments does CIBIL provide credit reports? - CIBIL is a composite Credit
Bureau, which caters to both commercial and consumer segments. The Consumer Credit Bureau
covers credit availed by individuals while the Commercial Credit Bureau covers credit availed
by non-individuals such as partnership firms, proprietary concerns, private and public limited
companies, etc.
d. Who are Members of CIBIL? - Banks, Financial Institutions, State Financial Corporations,
Non-Banking Financial Companies, Housing Finance Companies and Credit Card Companies
are Members of CIBIL.
e. How does CIBIL function? - For credit grantors to gain a complete picture of the payment
history of a credit applicant, they must be able to gain access to the applicant's complete credit
record that may be spread over different institutions. CIBIL collects commercial and consumer
credit-related data and collates such data to create and distribute credit reports to Members.
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f. Where does CIBIL get the information from? - CIBIL primarily gets information from its
Members only and at a subsequent stage will supplement it with public domain information in
order to create a truly comprehensive snapshot of an entity's financial track record.
g. What is a Credit Information Report? -A Credit Information Report (CIR) is a factual record
of a borrower's credit payment history compiled from information received from different credit
grantors. Its purpose is to help credit grantors make informed lending decisions - quickly and
objectively.
h. What are the measures taken by CIBIL to ensure the security of Member's data? -The
security of the Members' data is of paramount importance to CIBIL. CIBIL's security measures
are aligned with global 'best practices', stringent risk management standards and are subject to
regular audits by independent auditors. CIBIL has adopted state-of-the-art technology to
provide information security. The important aspects are detailed below:
i. Information in our database is accessed only on a strictly 'Need to Know' basis. For
example, the access to the Data Centre is available only to authorized personnel engaged
in regular systems and database administration.
ii. Access control devices, surveillance cameras installed at strategic locations and biometric
access system at the Data Centre with the highest levels of security.
iii. Comprehensive perimeter security solution consisting of a Firewall, Intrusion Detection
and Vulnerability Assessment System to secure the network infrastructure from external
security risk.
iv. Installation of the following devices to deal with fire hazards:
l State-of-the-art (VESDA) smoke detection system to provide early warning and
isolation of potential fire hazards.
l FM200 based Fire Suppression System to extinguish fire with minimal damage to
the IT systems.
v. Anti -Virus software installed on all servers in the Data Centre. Security patches and
necessary configurations are continuously applied to the Servers and Network appliances.
vi. Another vital area in which security is of the utmost importance is the two-way
transmission of information between CIBIL and its Members. In this regard, CIBIL uses:
l 128-bit SSL encryption for all Web-based transactions including FTP.
l Cryptographic solutions for all information sent or received through any physical
media i.e. CD, DAT and DLT.
i. What is encryption? - Encryption is technique used to mask proprietary information in order to

prevent it from being accessed by unauthorized individuals. Only authorized individuals who
have been provided with the appropriate decoding software can unscramble the information.
Thus, encrypted information that our Members provide us with is extremely secure.
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j. What type of information on a borrower is available in the CIR? -The CIR includes the
following information:
i. Name
ii. Address
iii. Identification numbers
iv. Passport ID
v. Voters ID
vi. Date of birth
vii. D-U-N-S® Number (for non -individuals)
viii. Registration Number (for non -individuals)
ix. Legal Constitution (for non -individuals)
x. Records of all the credit facilities availed by the borrower
xi. Past payment history
xii. Amount overdue
xiii. Number of inquiries made on that borrower, by different Members
xiv. Suit-filed status.
k. What type of information is NOT included in the CIR? - The CIR does not contain:
i. Income / Revenue details
ii. Amount(s) deposited with the bank
iii. Details of borrowers' assets
iv. Value of asset(s) mortgaged
v. Details of investment(s)
l. When is a credit facility classified as 'default'? - CIBIL does not classify any accounts as
default accounts. It merely reflects this information after the Member has classified it as such.
The Number of Days Past Due and / or Asset Classification as per RBI definition as submitted by
Members is reflected in the CIR.
m. How do I ensure that a CIR drawn on me as an individual / organisation does not contain
negative information? - The best preventive measure is to exercise good money management
practices and make repayments on time. Please see 'How to improve your credit' section for
more details.
n. If I am a first-time borrower, will I be at a disadvantage as there will be no information on

me? - As a new borrower, there will be a new file created for you. It will then be in your interest
to build up a favourable repayment track record for future credit applications.
o. Who can access CIBIL Credit Reports? - CIBIL Members, which include leading Banks and
Financial Institutions, can access information from CIBIL on the principle of reciprocity i.e.
only those Members who have provided all their data to CIBIL are permitted to access CIBIL
Credit Reports. Members can do so only to take valid credit decisions. Disclosure to any other
person or entity is prohibited.Individuals can also request access to their Credit Reports directly
from CIBIL. Please refer to the section on 'Access Your CIBIL Credit Report'
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p. Can the borrower obtain his own CIR from CIBIL?- Yes. As informed above borrowers
/individuals can also access their own credit reports. Please refer to the section on 'Access Your
CIBIL Credit Report'.
q. Can CIBIL provide CIRs to credit providers in other countries? -No. CIBIL will provide
credit information reports only to its Members in India.
r. Whether Right to Information Act, 2005 is applicable to CIBIL? - No. The reason being that
the CIBIL is not a “Public Authority” as defined under Sec 2(h) of the Right to Information Act,
2005.
s. Does the CIR indicate if credit should or should not be given? -The CIR only provides
available factual credit information and does not provide any opinion, indication or comment
pertaining to whether credit should or should not be granted. The credit grantors who have
received an application for credit will make the credit decision. CIBIL does not grant or deny
credit.
t. If my credit application has been rejected, will this fact appear in my credit record? -The
Members do not provide this information to CIBIL and hence it will not be in the CIR.
u. If a credit grantor has denied me credit, could others reject my application? -Not
necessarily. Different credit grantors may use a CIR differently, or take into account other
factors when they assess your application. Although one bank may deny you credit, another
bank could take a different view and accept your application.
v. What benefits does a borrower get from CIBIL? -CIBIL's CIRs are aimed at helping credit
grantors make fast and objective lending decisions. This will contribute to a more competitive
credit marketplace among Credit Grantors. With a Bureau in place, responsible customers can
expect faster and more competitive services at better terms from the Credit Grantors.
w. How do I rectify information in a credit report drawn on me? -Please contact the credit
grantor from whom you have availed the loan and request the necessary changes. The credit
grantor will then report the change to CIBIL and we will subsequently make the necessary
updates in our records.
x. What is the CIBIL Credit Report? - CIBIL Credit Report is a factual record of your credit
payment history compiled from information received from different credit grantors. Credit
grantors are leading Banks, Financial Institutions, State Financial Corporations, Non-Banking
Financial Companies, Housing Finance Companies, Credit Card Companies, who are Members
of CIBIL. The purpose is to help credit grantors make informed lending decisions - quickly and
objectively, and enable faster processing of your credit applications to provide you speedier
access to credit at better terms.
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y. Where does CIBIL get the information from? -All leading banks and financial institutions
are members of CIBIL. CIBIL collects information from these Members, collates and
disseminates it in order to create a truly comprehensive snapshot of a borrower's credit history.
z. What type of information on a borrower is available in the CIR? -The CIBIL Credit
Report includes the following information:
i. Name
ii. Address
iii. Identification numbers
l PAN number
l Passport number
l Voters number
l Telephone number
l Date of Birth
l Records of all the credit facilities availed by the borrower
l Past payment history
l Amount overdue
l Number of inquiries made on that borrower, by different Members
l Suit-filed status.
aa. What type of information is NOT included in the CIBIL Credit Report? -The CIR does
not contain:
i. Income / Revenue details
ii. Amount(s) deposited with the bank
iii. Details of borrowers' assets
iv. Details of investment(s)
bb. When is a credit facility classified as 'default'? - CIBIL does not classify any accounts as
default accounts or any borrowers as defaulters. It merely reflects this information after the
Member has classified it as such. The Number of Days Past Due and / or Asset Classification
as per RBI definition as submitted by Members is reflected in the CIBIL Credit Report.
cc. Does the CIBIL Credit Report indicate if credit should or should not be given? -The
CIBIL Credit Report only provides available factual credit information as submitted by CIBIL
members and does not provide any opinion, indication or comment pertaining to whether
credit should or should not be granted. The credit grantors who have received an application
for credit will make their own credit decision depending on their risk management policies.
CIBIL does not grant or deny credit.
dd. How do I ensure that a CIR drawn on me as an individual / organization does not contain
negative information? -The best preventive measure is to exercise good money management
practices and make repayments on time. Please see 'Manage credit' section for more details.
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ee. If I am a first-time borrower, will I be at a disadvantage as there will be no information on
me? - As a new borrower, there will be a new file created for you. It will then be in your interest
to build up a favourable repayment track record for future credit applications.
ff. Who can access CIBIL Credit Reports? -CIBIL Members, which include leading Banks and
Financial Institutions, can access information from CIBIL on the principle of reciprocity i.e.
only those Members who have provided all their data to CIBIL are permitted to access CIBIL
Credit Reports. Members can do so only to take valid credit decisions. Disclosure to any other
person or entity is prohibited. Individuals can also request access to their Credit Reports
directly from CIBIL. Please refer to the section on 'Access Your CIBIL Credit Report'.
gg. Can the borrower obtain his own CIBIL Credit Report from CIBIL? -Yes a borrower
can now obtain his/her CIBIL Credit Report from CIBIL. Please refer to the section on
'Access Your CIBIL Credit Report'.
hh. How can I access my CIBIL Credit Report from CIBIL? -Please refer to the section on
'Access Your CIBIL Credit Report'.
ii. Can CIBIL provide Credit Reports to credit providers in other countries? -No. CIBIL
will provide credit information reports only to its Members and consumers in India.
jj. Whether Right to Information Act, 2005 is applicable to CIBIL? -No. CIBIL is not a
"Public Authority" as defined under Sec 2(h) of the Right to Information Act, 2005.
kk. How does an individual rectify information in his/her CIBIL Credit Report? – The
followingsteps should be followed for rectification of credit information report:
i. Access your Credit Report from CIBIL. Link to the section- 'Access Your CIBIL Credit
Report' Please refer to the section on 'Access Your CIBIL Credit Report'
ii. Identify the error in your report and write to consumerqueries@cibil.com with your queries.
iii. Contact the related credit grantor(s) immediately and inform them of the error by providing
them with the necessary proof of having cleared your dues.
iv. Once the credit grantor validates the error/s, the updated information to will be resubmitted to
CIBIL.
Note: CIBIL does not make changes to any information on its own. It is only a custodian of
information received from credit institutions. CIBIL is permitted to make changes to your
credit information only when it is confirmed by the credit institution(s).
ll. If my credit application has been rejected; will this fact appear in my credit record?-
Members do not provide this information to CIBIL and hence it will not be in the CIBIL Credit
Report.
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mm. If a credit grantor has denied me credit, could others reject my application? -Not
necessarily. Different credit grantors may use a CIBIL Credit Report differently, or take into
account other factors when they assess your application. Although one bank may deny you
credit, another bank could take a different view and accept your application. Every credit
institution has its own level of risk appetite related to granting credit, which is based on their
credit and risk management policies.
nn. Who decides if I get my loan? - Loan officers decide if you get your loan. CIBIL Credit
Reports are tools the loan officer uses to help make the credit granting decision. Lenders vary
in how they interpret the information on the CIBIL Credit Report and credit score. Variations
might also include how they weigh the importance of income, length of employment, and
value of assets and collateral.
oo. Why was I denied credit? - CIBIL does not grant or deny credit. Each lender/insurer has
its own formula for evaluating an application, and only the lender can tell you why the
decision was made. CIBIL's role is to supply the lender with the CIBIL Credit Report,
which assists them in making informed credit decisions. Apart from the CIBIL Credit
Report banks can also evaluate other criteria like your income, length of residence, or
employment details etc.
pp. What are the benefits of having a good credit history? What benefits does a consumer get
from CIBIL? - Speedier access to Credit Information Reports facilitate faster and more
objective lending decisions. A good credit history therefore implies cost efficiencies for Credit
institutions and faster access to credit for consumers at better terms.CIBIL Credit Reports are
aimed at helping credit grantors make fast and objective lending decisions.
qq. What are the macro benefits of Credit Information Bureaus? - Credit Information Bureaus
are set up with the core purpose of creating a sound lending environment to increase credit
penetration thereby aiding economic prosperity and growth. World Bank reports indicate that
countries having Credit Information Bureaus have shown improved lending performance and
increased credit penetrations. The broad and consistent conclusions across many studies are
that: Credit Information Bureaus allow borrowers to have,
i. Greater access to credit, in the form of a greater acceptance rate for a given default level;
ii. Fairer access to credit, in the form of a greater proportion of those traditionally
underserved (women, and lower-income group) being accepted; and
iii. Improved lending performance, in the sense of lower default rates.
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rr. RBI notifications to furnish information to CIBIL:
i. Dated May 12, 2001, on Credit Card Business of Banks
ii. Dated June 4, 2002, on Submission of Credit Information to Credit Information Bureau
(CIB).
iii. Dated November 6, 2004, Banks/FIs advised to ensure submission of borrowal accounts
data to CIBIL.
iv. Dated November 12, 2003, on prudential guidelines on banks' investment in non-SLR
securities.
9. Annexure/s:
a. Following annexures are appended to this chapter:
i. RBI Circular dated December 1, 2009 on 'Credit Information Companies (Regulation)
Act, 2005'.
ii. RBI Circular dated September 6, 2010 on ‘Submission of data to Credit Information
Companies'.
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Annexure -1 to Chapter-15
RESERVE BANK OF INDIA
RPCD.CO.RF.BC.No.44/07.40.06/2009-10 December 1, 2009
All State and Central Co-operative Banks
Dear Sir,
Credit Information Companies (Regulation) Act, 2005
1. As you are aware, the Credit Information Companies (Regulation) Act, 2005 has been
operationalised with effect from December 14, 2006. In terms of Section 15(1) of the Act, every
credit institution has to become member of at least one credit information company within a period
of three months from commencement of the Act or any extended time allowed by the Reserve Bank
on application.
2. As Co-operative Banks fall under credit institutions as defined in sub-section (f) of Section 2 of the
Act, they would be required to take membership of at least one credit information company and
provide credit data (positive as well as negative) to the credit information company in the format
prescribed by the credit information company. The success of credit information collection and
dissemination system depends on the data supplied by banks to the credit information companies.
Therefore, it is desirable that all State and Central Co-operative Banks should be in readiness to
supply data to credit information companies as and when they become operational. In view of this,
they are advised to urgently initiate steps to build up database and be in readiness for effective
exchange of credit information without any loss of time.
3. In this connection we also invite your attention to the provisions of sub section (1) of Section 21 of
the Credit Information Companies (Regulation) Act, 2005, which provides "any person, who
applies for grant or sanction of credit facility, from any credit institution, may request to such
institution to furnish him a copy of the credit information obtained by such institution from the
credit information company".
Further, sub-section (2) of the said Section also specifies that every credit institution shall on receipt
of request, as indicated in sub-section (1), furnish to such person a copy of the credit information
subject to payment of charges specified by the Reserve Bank under the Regulations.
4. You might be aware that Reserve Bank, in Credit Information Companies Regulations, 2006,
framed under the Act, has already prescribed in Regulation 12(3) a maximum fee of Rs. 50/-
(Rupees fifty only) for the purpose.
5. State and Central Co-operative Banks are, therefore, advised to ensure strict compliance with the
provisions of the Credit Information Companies (Regulation) Act, 2005 as well as the rules and
regulations framed thereunder.
Yours faithfully,
(R.C.Sarangi)
Chief General Manager
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______________________ RESERVE BANK OF INDIA____________________
RPCD.CO.RF.BC.No.17/07.40.06/2010-11 September 6, 2010
All State and Central Co-operative Banks
Dear Sir,
Submission of data to Credit Information Companies
Please refer to our circular RPCD.CO.RF.BC.No.44/07.40.06/2009-10 dated December 1, 2009 on the
captioned subject.
2. We advise that apart from Credit Information Bureau of India Ltd., (existing credit information
company in operation since January 2001), the Reserve Bank of India has issued certificate of
registration to Experian Credit Information Company of India Pvt. Ltd. and Equifax Credit
Information Services Pvt. Ltd. on February 17, 2010 and March 26, 2010 respectively to commence
the business of credit information. The addresses and other details of the companies are given
below:
(i) Credit Information Bureau (India) Ltd. Hoechst House, 6th floor, 193, Backbay
Reclamation,Nariman Point, Mumbai – 400 021 Tel.No. 022-66384600 Fax No.022-
66384666
(ii) M/s Experian Credit Information Company of India Private Ltd. Platina, 9th Floor, C-59, G
Block BandraKurla Complex, Bandra East, Mumbai 400051 Tel. No. 022-39530851 Fax No.
022-39530605
(iii) Equifax Credit Information Services Pvt. Ltd. 2nd Floor, Centre Point Junction of S. V. Road
and Juhu Road Santacruz West Mumbai 400 054 Tel. No. 022-42375600 Fax No. 022-
42375601
3. In terms of sub-sections (1) and (2) of Section 17 of the Credit Information Companies (Regulation)
Act, 2005, a credit information company may require its members to furnish credit information as it
may deem necessary in accordance with the provisions of the Act and every such credit institution
has to provide the required information to that credit information company. Further, in terms of
Regulation 10(a) (ii) of the Credit Information Companies Regulations, 2006, every credit
institution shall: (a) keep the credit information maintained by it, updated regularly on a monthly
basis or at such shorter intervals as may be mutually agreed upon between the credit institution and
the credit information company; and (b) take all such steps which may be necessary to ensure that
the credit information furnished by it, is up-to-date, accurate and complete.
4. It is, therefore, advised that banks which have become members of the above credit information
companies may provide them the current data in the format prescribed by the Credit Information
Company. Such banks may also provide historical data in order to enable the credit information
companies to validate their software and develop a robust database.
5. Please acknowledge receipt to our regional office concerned.
Yours faithfully,
(B.P.Vijayendra)
203 - III
CHAPTER – 16
LAW OF LIMITATION
1. General:
a. Limitation Period is the time limit within which action can be taken in a Court of Law to
enforce any legal right. A suit filed after the limitation period will be dismissed by the Court,
even in cases where limitation has not been set up as a defense [Sec. 3 (i)].
b. The limitation period bars the remedy of filing a suit. It does not take away the right of
recovering the debt. There is no limitation period for recovering the debt by exercising the
right of lien, setoff or selling the goods pledged to bank (which does not involve filing suits).
c. ‘The limitation Act, 1963’ provides period of limitation for different types of suits, appeals and
applications. This act is applicable throughout India except Jammu and Kashmir. It has 32
Sections and 137 articles.
2. Limitation periods as per the Act: Some Transactions:

Description Period of Limitation
a. For money payable for money lent (viz., 3 years from date of loan
Temporary overdraft without DPN,
Jewel loan without DPN)
b. For money payable for money lent when the 3 years from the date of payment
of cheque
lender has given a cheque for money
c. For money lent under an agreement that it shall be 3 years from the date of loan
payable on demand (Demand Loan)
d. For money deposited to be payable on demand 3 years from the date of demand
(viz., S.B. account, Current Account)
e. On a promissory note payable on demand 3 years from the date of DPN
f. On a bill of exchange payable on demand 3 years from the date of bill.
g. On a usance bill of exchange or promissory note 3 years from the date of bill / note.
h. Mortgage 12 years from the due date of the loan (money
sued for became due).
For personal decree limitation is 3 years.
i. Right of foreclosure by the Mortgagee 30 years from the date when money secured
became due
j. Any suit by State / Central Government 30 years (from the date when the period of
limitation would begin to run, in case of like
suit by a private party).
k. Fixed deposits with bank 3 years from the date of demand
by / on behalf of depositor.
l. Money paid by oversight in excess (in SB account 3 years from the date of discovery
discovered later) of the mistake
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m. Appeal to be filed in High Court against the 90 days from the date of decree.
judgment of Lower Court
n. Appeal to be filed in other Courts against the 30 days from the date of decree.
decree at Lower Courts
o. Execution of Decree 12 years from the date of Decree.
p. Recovery of loss caused by fraud 3 years from the date of detection of
fraud.
q. Recovery of goods given on bailment 3 years from the date of refusal by the
bailee.
r. Any other suit where the limitation is not provided 3 years from the date when the right to
for in the Act sue accrues.
3. Period of Limitation against Guarantors:
a. What is the period of limitation for taking legal action against guarantors? There is no
specific answer to this question in as much as different High Courts have given different
views on this subject. Kerala High Court has held that the surety is bound by the
acknowledgement of the principal debt or and there is no separate limitation period for
guarantors. Madras High Court has held in SBI Vs Sampooranand & others (1983 MLJ3)
that the acknowledgement by the principal debtor will not save limitation against guarantor.
The Supreme Court in Margaret Lalitha Samuel Vs. Indo Commercial Bank Ltd. is of the
opinion that the limitation against the guarantor does not start unless a demand is made on
him to pay the debt. Though the predominant view is that limitation period against the
guarantor starts from the date of demand (to guarantor) it is better to obtain Revival Letter
within 3 years from the date of execution of guarantee.
4. Periods Excluded while computing Limitation:
a. First Day of Cause of Action as per Sec.12 of the Act, First day of the cause of action can be
excluded in computing period of limitation. Thus, a suit based on a DPN dated 5.3.2007 can
be filed latest by 5.3.2010.
b. Closure of Court: Where the limitation period expires on a day when the Court is closed, the
suit can be filed on the day when the court re-opens.
c. Absence from India: In computing limitation period for any suit, the period for which
defendant has been absent from India shall be excluded.
d. Suit in wrong court: When a suit is filed in a wrong court due to in advertence but in good
faith, the time spent in such proceeding can be excluded, for computing limitation.
e. Injunction: When cause of action is restrained by injunction from court such period of
injunction is to be excluded for the purpose of computing limitation.
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5. Extension of Limitation Period:
a. Limitation period can be extended either by,

i. acknowledgement of the debt as stated in Sec. 18 or
ii. part payment as mentioned in Sec. 19 of the Act.
b. Acknowledgement: Acknowledgement or part payment after the expiry of limitation period

does not extend Period of Limitation. It means admission by the borrower of the subsisting
liability. It can be through Revival Letter (RL), Certificate of Balance (COB) and even by
Ordinary Letter where liability to the bank is admitted. Even such a letter addressed to any
other person, than the Balance Sheet passed in Annual General Meeting and singed by an
authorized person will extend limitation as against a company.
c. Part Payment: When borrower makes payment on account of debt either by himself or by his
authorized agent before the expiry of the limitation period a fresh period of limitation starts
from the date of such payment.
6. Procedure for obtaining Revival Letter (RL)/ Certificate of Balance (COB):
a. Cash Credit A/c.:In case of Cash Credit Account, Certificate Of Balance (COB) is to be
obtained both from the borrower and guarantor. For a Term Loan, confirmation of balance
need to be obtained from the guarantor alone.
b. Partnership: Incase of a Partnership Firm which has become defunct, RL should be obtained
from all partners, (Sec.20). Where partners have signed acknowledgement in different dates,
the limitation period so far as the firm is concerned is to be calculated from the date on which
one of the partners signed the revival letter.
c. Company: For a company COB is to be obtained from persons authorized to operate the
account. However RL is to be obtained from directors/persons who were authorized by Board
Resolution to execute the documents including RL in case the same persons are not available,
then RL can be signed by persons who are authorized by a fresh Board Resolution to do so.
d. Joint Debts : Where a debt is taken in joint names, revival letter is to be obtained from all the
joint borrowers. In case some of the joint borrowers have not signed the RL, no action can be
taken against them after the limitation period.
e. HUF : Incase of HUF, the Karta will sign the RL. But after the disruption of HUF his
acknowledgement will not suffice.
f. Power of Attorney Holder : The agent who was authorized to sign documents does not get
automatic authority to sign RL. Express Authority to sign RL should be given. Thus in case
specific authority is given by the principal to sign RL the agent can sign RL or otherwise the
RL has to be signed by the Principal.
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g. Deceased Persons:RL is to be signed by legal heirs.
7. Regularising Time Barred Debts:
a. A debt which is time barred can be given life by obtaining an Express Agreement to pay the
time barred debt. This is to be stamped as an agreement. The legal basis for obtaining this
agreement is Sec.25(3) of the Contract Act which states that a time barred debt is a valid
consideration for a fresh promise to pay. Banks can file suit within three years from the date of
fresh promise or can extend its limitation by obtaining revival letters.
b. Filing Suit in case of Dishonour of Cheques:

i. For filing a civil suit limitation period is 3 years from the date of dishonour of cheque.
ii. For filing a Criminal proceeding in case of dishonour of cheques limitation period as
given in section 142 of 'Negotiable Instruments Act' is one month from the date of the
Cause of action.
8. Number of RLs that can be obtained /taken. :
a. Acknowledgement / RL can be obtained any number of times. Each acknowledgement is to be

obtained within 3 years from the date of its previous acknowledgement/ Revival letter.
9. Miscellaneous:
a. Change in Limitation Period by mutual consent: Parties to a contract cannot contract out
(waive) the limitation period. They cannot provide for a longer or shorter period of limitation
by mutual agreement (Sec. 28 of Indian Contract Act).
b. Limitation Period for Certificate Proceedings: Limitation period is equally applicable for
initiating proceeding with Revenue Authorities under Public Debt Recovery Acts,
Agricultural Dept. Recovery Acts framed by State Govts.
c. Standing Instruction: Part payments in to the loan account made on the basis of standing
instruction does not extend limitation.
207 - III
CHAPTER – 17
STAMPING OF DOCUMENTS
1. General:
a. The members of the coop society (Coop. Banks) are exempted from paying stamp duty on
the instruments executed by them. However when any instructions are required to be
stamped, the following procedure has to be followed by the Co-op Banks.
b. The law of stamps in India is governed by the Stamps Act, 1899, as amended in its
application to various states by local amendment Acts. The Stamp Act, 1899 extends to the
whole of India. The main object of the Stamp Act is to raise revenue by means of stamp duty
on certain documents. If an instrument requiring stamping is not properly and adequately
stamped, it will not be entertained by the court in any legal proceedings.
2. Instruments Chargeable with Stamp Duty:
a. The instruments chargeable with Stamp Duty are listed in Sec.3 of the Stamp Act.
3. Stamp Duty: Stamp duty in respect of some documents is imposed by the State Government and
others by the Central Government.
a. Central List:
i. Stamps duty on demand promissory notes, bills of exchange payable otherwise than on
demand (i.e. usance bills), money receipts, proxies and transfer of shares comes under the
Central list and is therefore the same for all the States in India.
ii. DPN: Stamp duty on demand promissory notes will be in the form of revenue stamps affixed
on them.
iii. The value of stamp for Receipt of money or property if the amount is Rs.500 and above is
Re.1.00. No stamp duty is required for value below Rs. 500.
iv. For usance D.P.Note and usance Bills of Exchange, the stamp duty depends on period and
amount of the bill.
S. No. Amount (Rs.) Period not exceeding More than
three months one year
1. Upto Rs.500 Rs.1.25 Rs.10
2. above Rs.500 but not exceeding Rs.1000/- Rs.2.50 Rs.20
3. For every additional Rs.1000/-
or part thereof Rs.2.50 Rs.20
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Note : It usance period is more than 3 months / quarter or part thereof, multiply the above stamp duty with
number of quarters upto one year.
a) Money Receipts Rs. 0.20
b) Share Transfers Rs. 0.50 for every Rs.100 or part thereof
c) Proxies Rs. 0.30
d) Letters of Credit Rs.2.00
b. State List:
i. In respect of other documents requiring stamp duty the value of the stamp duty varies from
State to State. Branches should therefore consult the Bank's Legal Advisers in this regard,
wherever necessary.
4. Types of Stamps - How Stamped:
a. Revenue Stamps: Documents like demand promissory notes, cash receipts,

acknowledgement of debt should be stamped with adhesive revenue stamps of appropriate
value before execution.
b. Special adhesive stamps: Printed agreements/ Xerox copies of printed blank documents
should be affixed with special adhesive stamps of requisite value at the right hand top corner
of the documents by the Stamp Office / Collector's Office / Treasury, after remitting the
value of the stamp to be affixed and making a request to that effect producing blank copies of
the document.
c. The provisions of the Stamp Act requires that the adhesive stamp when affixed to the
instrument chargeable with duty, which has been executed by any person, should be
cancelled by the Stamp Office/Collector's Office/Treasury. If the stamps are not cancelled
then the instrument is deemed to be unstamped.
d. Embossed/Engraved Stamps: The stamps can also be embossed or engraved by the stamp
authorities on bank's standard forms. The printed forms of the bank, along with requisite
amount of stamp duty, should be sent to the stamp authorities. The forms are impressed or
engraved with stamps according to the stamp duty prevailing at the time.
e. Non-Judicial Stamp Paper: Non-judicial stamp paper carries the stamp duty embossed on
the paper itself and as such stamped papers of requisite value may be purchased from local
stamp vendors and the text of the documents, as approved, typed/written thereon and
executed by the parties concerned, whenever it is not possible to get printed agreements and
have them affixed with the special adhesive stamps.
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f. Where a single sheet of paper is insufficient to write the whole document, Rule 7 of the
Stamp Rules 1925, provides as follows:
i. Where two or more sheets of paper on which stamps are engraved or embossed are
used to make up the amount of duty chargeable in respect of any instrument, a
portion of such instrument shall be written on each sheet so used.
ii. Where a single sheet of paper not being paper bearing an impressed hundi stamp, is
insufficient to admit the entire instrument being written on the side of the paper
which bear the stamps, so much plain paper may be subjoined thereto as may be
necessary to the complete writing of such instrument: Provided that in every such
case a substantial part of the instrument shall be written on the sheet which bears the
stamp before any part is written on the plain paper subjoined.
5. Time of Stamping:
a. Instruments executed in India are required to be stamped before or at the time of execution.
b. Any bill of exchange payable otherwise than on demand or promissory note drawn or made
out of India must be stamped by the first holder in India before he presents the same for
acceptance or payment, or endorses, transfers, or otherwise negotiates, the same in India. It
will be quite in order if the stamp is affixed at a time when any of these events happens. He
must affix the proper stamp and cancel the same. The special adhesive stamp affixed on such
an instrument must bear the words "Foreign Bill". It should be noted, however, that these
provisions do not apply when the first holder of a foreign bill or note does not present it for
acceptance or payment, or does not endorse, transfer or otherwise negotiate the same in
India.
c. If a promissory note executed out of India and stamped at the time of execution with the
proper Indian stamps is subsequently brought to India, it will have to be stamped again by
the first holder within three months of its arrival in India. It was held that the Act commences
to operate on foreign bills and notes when they are brought into India, and subsequently
sought to be acted upon; it was irrelevant, therefore, that the note had already been stamped
with an Indian stamp outside India.
d. Instruments other than bills of exchange and promissory notes executed out of India may be
stamped within three months after being first received in India. The time has to be computed
from the date on which the document was first received in India and where there is doubt
about the date of receipt, the person presenting the instrument for stamping may be called
upon to produce evidence of the date when it was received in India.
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6. Stamp Duty on Documents executed in more than one State:
a. When a document is required to be executed by two persons in different States in India, it

must bear the stamp duty of that state where it is signed first. It is then to be sent to the second
State for the signature of the other person. If in that State, the duty on the document is higher
than in the first State, the excess amount will have to be paid before the person in the second
state signs it. The document should be sent to the stamp office along with the amount of
deficit stamp duty and then the stamp office certifies the document.
b. If the document is signed in one State and is to be acted upon in another State where the duty
is higher than the duty in the former State, the deficit amount of stamp duty is to be paid in
the State where it is to be acted upon within three months of its receipt in the latter State.
c. If documents are to be executed by a party who is residing at a place other than the place of
the advancing branch and he cannot call at the branch to execute them, the documents
should be sent to the branch nearest to the place of availability of the executant. The branch
receiving the documents should get the documents executed in the presence of the
Manager/Officer of the branch. If the executant is not known to the branch, proper
identification must be insisted upon before execution of documents. Record of execution
should be made in the Documents Execution Register. If the branch from which the
documents were received is in another state, arrangement should be made to pay additional
stamp duty, if so required, before the documents are got executed.
7. Unstamped /Under Stamped:
a. As to the effect of not stamping a document or inadequately stamping it, there are two
categories. The first category consists of the following documents which, if unstamped or
inadequately stamped, are not at all admissible in evidence and for all practical purposes
nullities:
i. Demand Promissory Notes
ii. Usance bills of exchange and
iii. Acknowledgement of debt.
b. Therefore, these documents, if unstamped or insufficiently stamped, will not be admitted in

evidence of the debt/due payable. A suit based or such unstamped or insufficiently stamped
promissory notes, or usance bills of exchange or acknowledgements of debt would therefore
fail in law.
c. Except these documents all others fall in the second category, i.e. they are admissible in
evidence even if they are unstamped or inadequately stamped, on payment of penalty which
may be at the maximum ten times the duty chargeable.
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8. Adjudication:
a. Sometimes, it is difficult to determine the requisite stamp duty to be affixed on the

document. At that time it is advisable to present it to the collector of stamps for adjudication.
The collector is empowered to certify the adequacy of stamps on the documents. On
presentation of the document for adjudication to him, he will verify and certify the stamp
duty (Sec.31).
9. Refund or Allowance for the amount of Stamps:
a. Sec. 49 to 55 deals with refund or allowance on the following grounds. The refund or
allowance may be made for the amount of stamps:
i. Spoiled Stamps
ii. Printed forms, no longer required for use.
iii. Stamps not required for use.
iv. Renewals of certain debentures.
10. Stamping of Documents:
a. In order to render a valid and legal document, it should be properly stamped as required
under the India Stamp Act, 1899 (a central legislation). The States are empowered to vary
the stamp duty payable on, certain documents.
b. However the stamp duty payable on documents such as a Promissory Note, Bill of Exchange
and receipt is governed by the India Stamp Act and the State are not competent to vary the
same.
c. According to law, certain documents such as Promissory Notes, Bills of Exchange or

acknowledgement are to be compulsorily stamped with the appropriate stamp duty at the
time of execution and failure to do so would render them inadmissible in evidence before a
court.
d. Except these documents, all other documents fall in another category, which are admissible
in evidence, even if they are unstamped or inadequately stamped, on payment of penalty
which may be at the maximum of ten times the duty chargeable.
e. There are two methods of stamping, one is by affixing revenue stamp/adhesive stamps of the
requisite value on the documents and the other is by having the document prepared on non-
judicial stamp paper.
f. Promissory Notes, cash receipts and acknowledgement of debts should be stamped with
adhesive revenue stamps of appropriate value.
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g. Printed agreements/Xerox copies of printed blank documents should be affixed with special
adhesive stamps of requisite value at the right hand top corner of the documents by the
Stamp Officer/Collector's office.
h. As per provisions of the Stamp Act, the adhesive stamp when affixed to the instrument
should be cancelled by the Stamp Officer/ Collector's office. If the Stamps are not so
cancelled, the instrument will be deemed to be unstamped.
i. Non-judicial stamp paper carries the stamp duty embossed on the paper itself. Stamp
paper of the requisite value may be purchased from the stamp vendor and the text of the
document may be types or written thereon and executed by the parties.
j. The date of the document should be subsequent to the date of purchase of the stamp pages.
11. Rule 7 of the Stamp Rules 1926 provides that;
a. Where two or more sheets of paper on which stamps are engraved or embossed are used to
make up the amount of duty chargeable in respect of any instrument, a portion of such
instrument shall be written on each sheet so used,
b. When a single sheet of paper bearing an impressed hundi stamp, is insufficient to admit the
entire instrument being written on the side of the paper which bear the stamps, so much plain
paper may be subjoined thereto as may be necessary for the complete writing of such
instrument, provided that in every such case, a substantial part of the instrument should be
written on the sheet which bears the stamp before any part is written on the plain paper
subjoined.
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CHAPTER – 18
FAIR PRACTICES CODE ON LENDERS' LIABILITY

1. General:
a. As per RBI guidelines, every Bank has to set out Fair Lending Practices in a transparent
manner.The Lender's Fair Practices Code aims at achieving excellence in the services
offered by the Bank on the following:
i. Applications for Loans
ii. Processing
iii. Loan Appraisal and Terms & Conditions
iv. Loan Disbursement and Supervision
v. Charges prescribed
vi. Grievance Redressal Mechanism
2. Declarations:
a. We, the _______Cooperative Bank Ltd., hereinafter called 'the Bank', declares and
undertake to:
i. provide a professional, efficient, courteous, diligent and speedy services in the

matter of lending.
ii. affirm no discrimination whatsoever on the basis of Religion, Caste, Sex, Descent or
any of them.
iii. be Fair and Honest in advertising and marketing of Loan products.
iv. provide our customers, accurate and timely disclosure of terms, costs, rights and
liabilities as regards to loan transactions.
v. provide such assistance as and when sought for or advise to customers in contracting
loans
vi. attempt in good faith to resolve any disputes or differences with customers by setting
up complaint redressal mechanism within the organization.
vii. comply with all the regulatory requirements in good faith.
viii. spread general awareness about potential risks in contacting loans and encourage
customers to take independent financial advice and not to act and rely only on
representation from Bank.
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3. Fair Practices:
a. Product Information :
i. A Prospective customer would be given all the necessary information adequately explaining
the range of loan products available with the Bank to suit his needs.
ii. On exercise of choice, the customer would be given the relevant information about the loan
product of his choice, available with the Bank.
iii. The Customer would be explained the processes involved till sanction and disbursement of
loan and would be notified of time frame within which all the processes will be completed in
general course of the Bank.
iv. The Customer would be informed of the names and phone numbers of branches and the
persons whom he can contact for the purpose of loan to suit his needs.
v. The Customer would be informed the procedure involved in servicing and closure of the
loan taken.
b. Interest Rates:
i. Interest Rates for different loan products would be made available through and in any one or
all of the following media, namely:
l On the Bank's Web site.
l Over phone, (if Telebanking services is availed).
l Through prominent display (on notice board) in the branches and at other delivery
points.
l Through other public media (News Paper, TV, Radio Advertisement) from time to
time.
ii. Customer is entitled to receive periodic updates on the interest rates applicable to the
respective loan product.
iii. On demand, Customer can have full details of application of interest.
c. Revision in Interest Rates:
i. The Bank would notify immediately or as soon as possible any revision in existing interest
rates and make them available to customers in the media listed under 3b. above.
ii. Interest Rate revision to the existing customers would be notified to them within a
reasonable period of time from the date of change.
d. Default Interest/ Penal Interest:
i. The Bank would notify clearly about the default interest / penal interest rates as applicable to
the particular product, to the customers.
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e. Charges:
i. The Bank would notify details of all charges payable by the customers in relation to their
loan account.
ii. The Bank would make available for the benefit of prospective customers all the details
relating to charges generally in respect of their retail products, in the media listed under 3b.
above
iii. Any revision in charges would be notified in advance and would also be made available in
the media as listed under 3b. above
iv. The Bank would clearly specify the charge account for interest and charges, wherever
necessary and get a mandate for debiting the said charge account along with the
documentation.
f. Terms and Conditions for Lending:

i. At the time of applying for the loan, the Bank will provide information about the interest rate
applicable, processing charges, pre-payment charges, documentation charges, etc. with
regard to the loan applied.
ii. On receipt of the completed application the Bank would generally give an
acknowledgement (Proposal Number in case of loan application) of receipt of loan. On
sanction, terms & conditions governing the advance would be communicated to customer
for acknowledgement and acceptance.
iii. The time frame for disposal of applications for all loans shall be within 4 weeks from the
date of receipt of loan application completed in all respects (or) as may be fixed by the Bank.
iv. Immediately after acceptance of terms and conditions by the customer, the Bank would
show draft of the documents that the customer is required to execute and would explain, if
demanded by the customer the relevant terms and conditions of sanction and disbursement
of loan.
v. Loan Application forms, Draft documents or such other papers to be signed by a customer
would comprehensively contain all the terms and conditions relating to the product or
service of his choice.
vi. The Bank reserves the right to either sanction or reject the loan application. In case of
rejections, the reason(s) for rejection of loan application would be conveyed to the
applicant in writing.
vii. The loan application will be considered based on the merits of the request and in accordance
with the bank's prescribed appraisal norms.
viii. Before disbursement of loan and on execution of the loan documents, copy of the duly
executed documents may be delivered to the customers, if so requested by them.
g. Account Practices:
i. The Bank would provide regular statement of accounts, unless not required by the
customers.
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ii. The Bank would notify relevant due dates for application of agreed interest, penal
interest, default interest, and charges if they are not mentioned in the Loan
applications, documents or correspondence.
iii. The Bank would notify in advance any change in the implementation of accounting
practices, which would affect the customer.
h. Information Secrecy:
i. The Bank undertakes that all personal information of the customer would be
confidential and would not be disclosed to any third party unless agreed to by the
customer. The term “Third party” excludes all Law enforcement agencies (including
court of Law), Credit Information Bureau, Reserve Bank of India, other banks and
financial institutions.
ii. Subject to above Para, customer information would be revealed only under the
following circumstances:
l If the Bank is compelled by Law.
l If it is in the Public interest to reveal the information.
l If the interest of the Bank requires disclosure.
i. Grievance Redressal Mechanism:

i. The Bank would have a Grievance Redressal Mechanism within the Bank.
ii. The Bank would make available the following details to the customers individually
on demand and through the media listed under 3b. above
l Where a complaint can be made
l How a complaint should be made
l When to expect a reply
l Whom to approach for redressal of grievance etc.
iii. The complaint/ grievance would be resolved as per the Bank's norms/ guidelines
within a period of 45 days.
j. Financial Discipline:
i. Each Bank shall frame its own Lending Policies including nature of credit, rate of
interest, period of repayment, time discipline for scrutiny of applications, sanction
of credit limit, disbursement of credit, inspection of credit, redressal, etc. and make
them available for the customers on demand.
ii. This code of Fair Lending Practices would be reviewed from time to time to enhance
the value and relevance to the borrowers.
217 - III
CHAPTER - 19
BASE RATE
1. General:
a. Till June 30, 2010 the floating rate products were priced with reference to their Benchmark
Prime Lending Rate (BPLR). Clearly the BPLR system was not functioning in a transparent
manner.
b. After setting up a committee to examine the issue and a draft note inviting public
suggestions, the guidelines relating to the new Base Rate System have been made effective
for all loans issued or renewed on or after July 1, 2010. So this new system is expected to be
effective, considering the transparency it is supposed to offer.
2. Computation of Base Rate:
a. The 'Base Rate' is to be computed taking into consideration:

i. cost of funds;
ii. operational expenses and
iii. a minimum margin to cover regulatory requirements of provisioning, capital charge
and profit margin
b. If one sees the non-binding “illustrative methodology” for the computation of the Base Rate
in the guidelines, it also more or less lays out the same set of parameters, but in greater detail.
3. Significance of 'Base Rate':

a. While each bank can choose its own benchmark for the cost of funds, they will have to
document the detailed formula for the calculation of the Base Rate and follow it consistently.
This formula will need to be disclosed to RBI, which can also scrutinise that it is being
followed consistently. This is unlike the BPLR regime, where BPLR was supposed to take
into account the same set of parameters but no documentation was required and it was not
open to RBI scrutiny.This is a significant difference as it forces banks to follow a consistent
method of calculating the Base Rate.
b. The second big difference is that unlike BPLR, banks are not allowed to lend below the Base
Rate (there are a few exceptions, but they are not very relevant for this purpose).
c. It is a fact that blue chip corporates are always able to get good rates from banks. They are
likely to be borrowing at interest rates very close to the banks' Base Rates. When market
interest rates fall, they will naturally expect to get better rates and naturally, the banks will be
forced to drop their Base Rate if they still want to maintain their market share. This will exert
downward pressure on the banks' Base Rates when market interest rates fall.
218 - III
d. From July 1, 2010 banks were directed to move to this new and more transparent regime of
loan pricing. They have to jettison the Benchmark Prime Lending Rate (BPLR) and price
loans off a 'Base Rate'.
e. Unlike the BPLR that was set somewhat arbitrarily by banks, the Base Rate will follow an
explicit formula that factors in a bank's cost of deposits, operating costs (expenses of
running its branches, for instance), the cost of statutory drafts on bank funds imposed by the
Reserve Bank of India (the Cash Reserve Ratio and Statutory Liquidity Ratio) and the profit
margin. The Base Rate will help borrowers to compare interest rates offered by various
banks and make the process of how banks arrive at interest rates for loans more transparent.
f. RBI has stipulated that banks cannot charge below the Base Rate for most loans. (There are a
couple of exceptions like agricultural loans and export credit.) While the new model will
ensure greater transparency, it need not mean lower lending rates for borrowers.
g. In fact, banks' blue-chip corporate borrowers could see some increase in their cost of
borrowing. The reason is somewhat simple. RBI allowed banks to lend below their prime
lending rates and the majority of banks did the bulk of their corporate lending at 'sub-PLR
rates'.
h. The best 'credits' for a bank could drive the hardest bargains. This led to peculiar situations
in which a bank whose official BPLR was in the range of 14-16 per cent was found lending
to its best customers way below its costs at 5-6 per cent. The incentive for this 'irrational'
pricing was to keep the ratio of non-performing assets low, particularly in the wake of the
global financial crisis when banks' risk appetite waned and safety got precedence over
margins. The Base Rate regime does away with this.
i. Previously, banks used to price the loans they offered you on a complicated system called
benchmark prime lending rate (BPLR). Each bank has its own BPLR methodology which
made it difficult for borrowers to compare rates across banks. Now, with the Base Rate in
place, it will be easier for all bankers to compare across banks and to get a more transparent
sense of how the interest rate for the loan is being arrived at.
j. Banks are required to review the Base Rate at least once in a quarter, with the approval of the
Board. The Base Rate is the sum of the following four factors;
i. cost of deposits/funds
ii. negative carry on CRR/SLR
iii. un-allocatable overhead cost
iv. average return on net worth
k. RBI's Illustration for calculation of Base Rate is given as Annexure-I to this Chapter.
219 - III
Annexure – 1 to Chapter-19
ILLUSTRATIVE METHODOLOGY FOR THE COMPUTATION OF THE BASE RATE

Base rate = a+b+c+d
a. cost of deposits/funds = D
(benchmark)
[[{d cost –( SLR * Tr)} ] *100]- D cost

Type equation here
b. Negative carry on CRR and SLR = {1-(CRR+SLR)}
c. Unallocatable Overhead Cost =

d. average return on Net Worth=
Where:
D cost: Cost of Deposits /funds
D : Total Deposits = Time Deposits + Currents Deposits + Saving Deposits
D Ply : Deployable Deposits
=Total deposits less share of deposits locked as CRR and SLR balances, i.e.
=D * [1 - (CRR + SLR)]
CRR : Cash Reserve Ratio
SLR : Statutory Liquidity Ratio
Tr: 364 T – Bill Rate
Uc : Unallocatable Overhead Cost
NP: Net Profit
NW: Net Worth =capital + Free Reserves
Negative Carry on CRR and SLR = Negative carry on CRR and SLR balances arises because the return
on CRR balances is nil, while the return on SLR balances (proxied using the 364 – day Treasury Bill rate ) is
lower than the cost of deposits .Negative carry on CRR and SLR is arrived at in three steps. In the first step,
return on SLR investment was calculated using 364 – day Treasury Bills. In the second step, effective cost
was calculated by taking the ratio (expressed as a percentage) of cost of deposits (adjusted for return on SLR
investment) and deployable deposits (total deposits less the deposits locked as CRR and SLR balances). In
the third step, negative carry cost on SLR and CRR was arrived at by taking the difference between the
effective cost and the cost of deposits.
Unallocatable Overhead Cost = Unallocatable Overhead Cost is calculated by taking the ratio( expressed
as a percentage) of unallocated overhead cost and deployable deposits.
Average Return on Net Worth = Average Return on Net Worth is computed as the product of net worth
ratio and net worth to deployable deposits ratio expressed as a percentage.
220 - III
CHAPTER – 20
ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS
1. General:
a. Financial Statements can be analysed in the following manner:
i. Analysis of Balance Sheet
ii. Analysis of Profit and Loss Account
iii. Ratio Analysis
iv. Cash Flow Analysis
v. Contribution Analysis
vi. Break-Even Analysis
2. Analysis of Balance Sheet:

a. Classification of Current Liabilities
i. Short term borrowings (including bills purchased and discounted) from Banks and
Others
ii. Unsecured Loans
iii. Public Deposits maturing within one year
iv. Sundry Creditors (trade) for raw material sand consumable stores and spares and
Bills Payable.
v. Interest and other charges accrued but not due for payment.
vi. Advance / progress payments from customers
vii. Deposits from dealers, selling agents etc.
viii. Instalments of term loans, deferred payment credits, debentures, redeemable

preference shares and long termed posits payable with in one year. (However, term
loan instalments falling due for payment within one year need not bereck one
dasitem of Current Liability for the purpose of arriving at Maximum permissible
Bank Finance asper RBI'sCredit Policy dated 11.10.1993).
ix. Sundry Liabilities:

l Provident Fund dues
l Provision for Taxation
l Sales Tax / Excise Duty etc.
l Obligations towards workers considered as statutory
l Others (to be specified)
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l Miscellaneous Current Liabilities:
l Dividends (unpaid)
l Liabilities for Expenses
l Gratuity Payable within one year
l Other Provisions
l Any other payments due within 12 months
x. The concept of the Current Liabilities would include estimated or accrued amount
which are anticipated to cover expenditure within they ear for known obligations
viz. the amount of which can be determined only approximately, such as, provisions
for accrued bonus payments, taxes, etc.
xi. Incases where specific provisions have not been made for these liabilities and the
liabilities will be eventually paid out of general reserves, estimated amounts should
be shown as Current Liabilities.
b. Classification of Current Assets:

i. Cash and Bank Balances:
l Investments such as Government and other Trustee Securities (other than for
long term purposes e.g. sinking fund, gratuity fund etc.) and Fixed deposits
with banks.
l Sundry Debtors or Receivable arising out of sales other than deferred.
receivables, (including bills purchased and discounted by bankers).Duty
benefit arising out of unutilised advance licenses should not be treated as an
item of “Current Assets”.
l Instalments of deferred receivable due within one year.
l Raw materials and components used in the process of manufacture including
those in transit.
l Stock – in – process including semi – finished goods.
l Finished goods including goods in transit.
l Other consumables pares.
l Advance for purchase of raw materials, components and consumable stores.
222 - III
l Advance for purchase of raw materials, components and consumable stores.
l Advance payment for tax.
l Prepaid expenses.
l Deposits kept with public bodies, etc.,forthe normal business operation
gearset de posits kept by construction companies etc., maturing within the
normal operating cycle.
l Monies receivable from contracted sale of Fixed Asset during the next 12
months.
c. Points for Classification:

i. Investment in shares and advances to other firms/companies, not connected with the
business of the borrowing firm, should be excluded from Current Assets.
ii. Dead inventory i.e. slow moving or obsolete it ems should not be classified as
Current Assets
iii. Amount representing inter–connected company transactions should be treated a s

current only after examining the nature of transaction sand merits of the case. For
example, advance paid for supplies for a period for more than then or mal trade
practice in spite of any other considerations such as regular and assured supply
should not be considered as current.
iv. While computing Working Capital finance, the classification of Current Assets and
Current Liabilities should be as per RBI guidelines in this behalf so brought out
above according to the companies Act, 1956.
d. Bifurcation of Current Liabilities:

i. Bank borrowings including bills purchased / discounted.
ii. Other Current Liabilities (OCL) excluding bank borrowings.
iii. Workings Capital Gap–the difference between Current Assets (CA) and the Current
Liabilities (WCG = CA – OCL).
iv. It is very important to note that according to the recommendations of the Study
Groups. (Tandon and Chore Committee), the banks are required to finance only a
part of the Working Capital Gap of a borrowing unit.
223 - III
e. Provisions for Taxation:
i. Netting of tax provision and advance tax paid (vide item 1.2.9. of Current Assets)
maybe effected for all the years uniformly and, as such, for the current year also the
advance tax paid can be set off against the provision, if any, made for that year.
3. Analysis of Profit and Loss Account:
a. Objectives of Profitability Analysis is to know:

i. Whether there is adequate return on capital employed.
ii. Whether there is adequate cash generation to service the debts and/or to set right
liquidity imbalances.
iii. As to what fact or shave caused set back in profit and whether they are temporary in
nature or otherwise and what sort of corrective steps are required.
iv. Whether there is siphoning of profit by way of heavy salary to Directors/Partners,
high interest on its funds etc. making the residual surplus inadequate to service the
long-term debts or to strengthen the liquidity imbalance.
v. Whether every item of income and expenditure as given in the Trading and Profit
and Loss Account of the borrower should be analysed and compared with that of
earlier years to arrive at certain conclusions.
vi. Whether any meaningful analysed is of profit invariably in all proposals is necessary
and the heads of income and expenditure in the Trading and Profit & Loss accounts
have to be condensed into the broad headings.
vii. Whether individual items of expenses and income in the Trading and Profit & Loss
account must be consolidated and grouped under these broad headings and be given
for the past three years in the Credit Appraisal as done in the case of Balance Sheet.
viii. Whether branch has to furnish the detailed analysis of Profit & Loss Account for
Credit Limits of Rs.1 Crore and above (both fund and non-fund based).
ix. Whether, for others, although data in the analytical form need not be furnished,
Branch/Regional Office must explain in their report the reasons for any major ups
and down in the profit and about its implications, as indicated above.
224 - III
ii. In cases where the borrower could not get adequate price, it should be found out
whether it is because of competition or deterioration in quality of products/goods
sold by him. If latter is there as on, due caution should be exercised unless immediate
corrective steps are taken.
iii. Whether the manufacturing/procuring expenses have increased disproportionate to
the increase in selling price.
iv. Whether any improvement has been made in the current year.
c. When there is high variation in Net Profit, it should be verified as to:

i. Whether it is purely because of increase / decrease in Gross Profit.
ii. Whether there is any unusual fall / increase in other Non-Operative Income.
iii. Whether the income earned during the current year/yesteryear is unusual and
windfall in nature and whether the unit can sustain even without this extra/windfall
income in the current year.
iv. Whether it is due to increase or decrease in any head of expenses. (Such expenses
and amount should be identified and reported).
v. Whether corrective steps could be taken to sustain the profitability, if the increase in
any expense is high and permanent in nature.
vi. Whether the decrease in Profit is on account of interest paid on outside borrowing
and ; if so, whether such borrowing limit is with in the tolerable level and not too
high so that there will not be extra pressure on the unit and consequent default of
such borrowing would not result in the bank's securities (stock, machineries etc.)
vanishing at one stage and the unit coming to a standstill.
vii. Whether the fall in profit is on account of increase in interest paid to borrowings
made from their own family members/close relatives. In such case, the capacity of
the borrower to service the Term Loan/D.P.G. liabilities with the residual profit must
be ensured, otherwise, such lenders will not be allowed to withdraw the interest, but
reinvested in the unit. The same exercise should be made when the Liquidity/Net
Working Capital of the unit is below the required level.
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viii. Whether the fall in profit is on account of increase in salary to partners, remuneration
to Directors and the like or because of interest paid to partners' capital/loan, and if so,
it should be ensured that there area dequate funds/Net Working Capital and the
residual profit to take care of repayment commitments in Term Loan/D.P.G. and
others and any payment for Royalty/Patent right to the Promoters / Directors/
Partners in their personal capacity.
ix. Whether there are any other relevant points requiring the analysis and reporting on
credit decision should also be analysed and reported.
4. Ratio Analysis:
a. Liquidity Ratios
i Current Ratios : (Current Assets ÷ Current Liabilities)

l A very high ratio is not desirable, as it shall mean less efficient use of funds. Usually
Long-Term Liabilities are costlier than Current Liabilities as the for mercury higher
burden of interest or dividend while the latter are usually free or available at nominal
cost.
l A high ratio may mean excessive dependence on long-term sources thus reducing
the profitability of the unit.
l A low Current Ratio may mean too much strain on the Working Capital sources.
l A part from the numerical figure, the composition of the Current Assets is also
important to decide about liquidity. Greater the liquidity of the Current Assets the
lesser is the marg in needed above the Current Liabilities. Receivables also form an
important component of the Current Assets. The liquidity of receivables, is
estimated by the following ratios:
Ø Receivables Turnover
Ø Average collection period
l A ratio less than lindicates that the unit is bound to have cash flow problems
during the year. A ratio reasonably higher than 1 indicates that cash flow
problems may not arise.
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ii. Quick Ratio: (Current Assets (Current Assets – Inventories & prepaid expenses):
Current Liabilities – Bank borrowings
l A high quick ratio indicates that the concern would not default in a crisis situation.
Lower ratio would indicate that major composition of Current Assets is stock. Under
such circumstances the necessity of keeping more stock should be examined. It is also
to be ascertained that the stock do not include obsolete stocks.
iii. Working Capital Turnover Ratio: (Net Sales ÷Net working Capital)
l Clarifications
Ø Gross Working Capital = Total current Assets
Ø Net Working Capital (Liquid Surplus) = Current Assets
Current Liabilities
Ø The Working Capital Turnover Ratio as such will not give any indication
whether it is too high or too low.
Ø If Liquid Surplus or Net Working Capital is too high, it may indicate less
effective utilisation of funds and vice versa.
b. Solvency (Leverage) Ratios:
i. Debt Equity Ratio :(Term Liabilities÷Tangible Net Worth)

l Clarifications
Ø Tangible Net Worth = Net Worth Intangible Assets
Ø Debt = Long Term Liabilities
Ø Equity = Tangible Net Worth
l This ratio compares the owner's stake in business with the outside liabilities.
l The units, where outside liabilities are very large as compared to owned funds,
are said to be trading on a thin equity and this may affect profit since the Long
Term Loans carry the obligation of payment of interest. In the reverse case,
where equity is too high as compared to Long Term Liabilities, the unit is said to
be trading on a thick equity and normally a good sign, unless there is evidence to
believe that the owner of the unit is dishonest and enjoys poor credit worthiness
in the market.
l It indicates:
Ø Borrower's stake
Ø The extent of reliance on term borrowings
Ø Cushion available for withstanding future losses, if any, by the promoters.
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ii. Leverage Ratio (Total Indebtedness Ratio): (Total Outside Liabilities (Term+
Current Liabilities) ÷ Tangible Net Worth):
This ratio differs slightly from the Debt–Equity Ratio, as instead of term liabilities
only, we take the total outside liabilities. This may reflect the solvency position in a
better way. In this case too, the lower the ratio the better it shall be, as it indicates the
adequacy of the unit's equity in making payment of outside liabilities.
iii. Fixed Assets Coverage Ratio: (Net Fixed Assets (i.e. after depreciation) ÷Long Term
Debts secured by Fixed Assets):
l This ratio indicates whether the value of Fixed Assets is sufficient to cover the
amount of the loan granted against them. The Fixed Assets figure should
always be high because of them agin stipulations in loans. Usually this ratio
improves with the passage of time (if there is no addition to Fixed Assets) as
the instalment of debts very year is usually higher than the reduction in value
by the amount of depreciation provided.
l The unsecured term loan should be excluded, as they do not have direct charge
over Fixed Assets.
iv. Proprietary Ratio: (Capital or Share Holder's funds÷Total Tangible Asset x 100):
l This ratio indicates the percentage of tangible assets financed by the proprietor/
partners/shareholders. This ratio would be100, if there are no outside liabilities
and the units as been financed by owners only. It is useful for creditors/bankers
as it indicates the margin of safety for them. Higher the ratio the stronger is the
financial position of the unit and higher its capability to bear financial stress.
v. Coverage Ratios:
l Coverage Ratios shows the relationship between debt servicing
commitments and the sources for meeting these burdens. The two important
coverage ratios are:
l Interest Coverage Ratio: However, as the source for interest payments is'
Earnings Before Interest and Tax' (EBIT) and not 'Earnings After Interest
and Tax' (EAIT), this ratio is greatly improved, if we add depreciation to the
numerator thus: EBIT (Earnings Before Interest and Tax) ÷ Debt Interest
l Debt Service Coverage Ratio (DSCR) : Net profit after
tax+Depreciation+Int. on Term Loan ÷Annual Repayments + Int. on Term
Loan. DSCR is a measure of there payment capacity of the borrower in
respect of a Term Loan and the ratio can be from1.5 to 2. A lower ratio will
indicate inability to service the Term Loan and a higher ratio will indicate
ability to repay earlier than the scheduled time.
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c. Profitability Ratios:
i. Gross Profit Ratio: Gross Profit ÷Sales
l Gross Profit =Sales –Cost of sales
l This ratio shows the relation ship between Gross Profit and Sales. It is there
fore, in deceptive of the efficiency of the production operations and the
relation between production costs and selling price. To analyse the factors
under lying the Gross Profit Margin the proportion of various elements of
cost (labour, materials, direct expenses) to Sales may be studied.
l This ratio is useful as an indicator of cost control and as such the ratio
indicates the margin available to a firm to meet the other costs. If this ratio
indicates an increasing tendency during the last year, it indicates that the
proportion of cost of goods to the sale price has come down. This may be due
to:
Ø Costs and sales price have gone up but costs have increased at a
lower rate.
Ø Costs have remained constant but the sale price has gone up
Ø Costs have gone down while the sale price has gone up
Ø Costs have gone down while the sale price has remained the same
Ø Costs and sale price have gone down but costs have fallen at a faster
rate.
Ø Manipulation in valuation of stocks. e.g. The closing stock being
valued at a higher price (This is to be treated as unhealthy practice)
l A fall in ratio will indicate that the proportion of cost of goods sold to
the sale price is increasing, which may be because of maladjustments
between these two factors in the reverse of the above described
manner.
l Fall in ratio may also be due to over investment in Fixed Assets and /
or unsound purchase policies
l An increasing ratio is welcome as it shall provide a bigger cushion
for administrative and selling expenses.
l In a downward trend of the ratio, Branch must have a dialogue with
the borrower to identify the precise reason responsible for such a
change.
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ii. Operating Profit Ratio: Operating Profit (Earnings Before Interest and Tax) ÷
Net Sales:
l EBIT is arrived at after reckoning all expenses : Production, administration,
selling that have gone into making the product except interest and tax.
l This ratio is, therefore, indicative of the overall operational efficiency of the
firm. The ratio should be seen in relation to the industry as a whole. It should
also be studied over a period of time because the trend could very significant. If
in the past years, the trend has been of a falling ratio, it reflects the deficiency of
the firm in controlling the expenses properly.
l The profit margin ratio is also indicative of the ability of the firm to with
standard diverse conditions, which may arise from several sources such as the
following:
Ø Falling Prices
Ø Rising costs
Ø Declining sales
l A high ratio shall indicate that the competitive strength of the unit is quite high.
While a low ratio indicates that the competitors can force the exit of the unit by
the reduction of their sales price to the extent of this ratio.
iii. Assets Turnover Ratio: (Sales ÷ Total Assets) or (Sales ÷ Operating Assets):
l The assets should include all actual operating assets i.e. we eliminate assets that
are not used to produce the reported profit before interest and tax but includes
assets taken on lease / hire purchase which are not reflected in the Balance
Sheet.
l This ratio highlights the amount of assets the firm used to produce its total sales.
The ability to produce a large volume of sales on a small asset base is an
important part of the firm's profit picture;
l Idle or improperly used assets increase the firm's need for costly financing and
the expenses for maintenance and upkeep.
l By achieving a high Asset Turnover, a firm reduces costs and increases the
eventual profit to its owners.
iv. Return on Investment:

l PBIT ÷ Investment x 100
l Investment = Networth + Term liabilities
l Interest = Interest on Term loan and Debentures
l It reflects the earning power of the funds secured on long term or permanent
basis and indicates whether adequate return is being earned as compared to the
risks undertaken.
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d. Activity Ratios:
i. Inventory Turnover Ratios: (Cost of goods sold ÷ Average Inventory):
l Cost of goods sold = Sales - Gross profit
l Two points are to be noted in calculating this ratio: -
Ø Cost of goods sold is taken and not sales because the sales figure includes profit.
Ø For inventory it is preferable to use an average figure.
l Having stated this, in actual practice, the ratio more commonly used is Sales ÷
Inventory as figure of sales is readily available from the financial statements. This ratio
indicates as to how quickly the goods are sold in the business or how many times the
inventory turns over during a year.
l A high ratio means that the inventory is being turned over a larger number of times
during the year or in other words goods are being sold promptly and inventory
management and control is good and, non–accumulation of inventory and lesser
chance of the stock containing obsolete or un-saleable items.
l Low ratio indicates lockup of larger sums in inventory and/or slow moving stocks. A
declining trend in the ratio means that either the sales are falling or the inventory
holdings are increasing.
l An increasing trend in the ratio means a larger turn over of inventory and less block age
of money in to it, resulting in high profits, rapid turnover of inventory indicates sound
controls and good financial management.
l Regarding level of inventory to be held, there are basically two risks involved:
Ø Too little inventory entails the possibility of running out of goods to sell, and
or/raw materials for production.
Ø Too much inventory entailstying up of funds and additional expenses for
storage, protection, insurance etc.
ii. Account Receivables (Debtors) Turnover Ratio: (Credit Sales ÷ Account

Receivables or Sundry Debtors):
l A lower ratio shows a strict credit policy and aggressive collection procedures.
l A higher ratio indicates a larger quantity of receivables and probably the firm is
experiencing difficulties in collecting its unpaid bills.
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l Collection Period: Receivables (Bills receivables+sundry debtors)÷ Sales (or
annual credit sales) x365. This ratio indicates the average time taken to realize
the accounts receivables. i.e. the number of days the credit remains outstanding
at a time.
l An increasing trend means more credit is being extended which may be due to
Poor realization, Competitive forces compelling a liberal policy of credit,
mounting of bad and doubtful debts.
l A decreasing trend would mean less likelihood of doubtful debts.
l To further analyse the significance of the Receivable Turnover and Average
Collection Period Ratios, the following points may be noted. Comparison with
similar firms in the industry must be made as the terms of trade and selling
practices are usually common in the particular trade.
l The average collection period has to be seen in the context of the terms of trade
of the individual firm as well.
l For the figure of sales we may substitute credit sales as these alone become
receivables. This would give a more accurate turnover ratio as well as average
collection period.
l For receivables, an average figure should be used. e.g. the average of beginning
and end in receivable balances. This is especially important where the ending
receivable balance is not a 'normal' or representative figure.
l Where a firm's business is cyclical in nature two separate ratios should be
worked out for the peak and quiet seasons. Average of figures under such
circumstances would give us quite meaningless results.
iii. Account Payable (Creditors) Turnover Ratio: (Account Payable (Bills

payable+Sundry creditors)÷Purchases or annual credit purchases x 365):
l Instead of the purchase figures the sales figures may be used as the
denominator.
l This ratio indicates the period for which credit is enjoyed by the unit.
l An increasing trend shall mean an increasing credit worthiness of the party
resulting in lesser dependence on banks.
l A declining trend may mean that the unit is promptly paying its creditors.
l A good concern not only collects its debts in time but also pays its creditors in
time.
l If for a particular unit, the trend indicates that the creditors are being paid with
greater delay than the period allowed to debtors every year, it may indicate
shortage of funds with the unit.
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5. Funds Flow and Cash Flow Analysis:
a. A Funds Flow Statement is quite simply a movement of funds to and from the company's
cash box. Thus, sources of funds include in crease in owner's equity, increase in debt and sale
of assets. Uses of funds include purchase of assets, liquidation of loans and other liabilities
and reduction in owner's equity. The Fund Flow Statement discloses the sources and uses of
funds. It is quite essential for the management to have an idea of the cash flow without which
cash management will be rendered an unplanned exercise leading to defaults in payments.
b. Funds Flow Analysis:

i. Thus Funds Flow analysis depicts the movement in the relative positions of various
items of assets and liabilities between two dates. Based on this concept, we may
outline the following steps in casting a Funds Flow statement:
l Step1: To find the cash generation from the operations–add to the net profit
after tax, all non–cash outlays or expenses like provisions for depreciation and
bad debts, provisions for wasting assets, write off of miscellaneaous / deferred
revenue expenditure and goodwill / other intangible amortisation of leases,
rights, etc.
l Step 2: To identify all sources of funds – these will be:

Ø Issue of capital stock in cash
Ø Objection of term loans
Ø Receipts under schemes of debentures and public deposits
Ø Increase in other liabilities (current and deferred)
Ø Sale of Fixed Assets and investments
Ø Reduction in other assets (current and non-current)
l Step 3: To recognise and list all uses of funds – these are as under:
Ø Cash loss i.e., a loss before providing for all non - cash expenses.
Ø Capital expenditure (Increase in Fixed Assets)
Ø Investments in other companies etc.
Ø Dividends paid / payable
Ø Redemption of term loans and repayments of other term liabilities.
Ø Liquidation of other liabilities (current and deferred)
Ø Acquisition of other assets (current and non-current)
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c. Basically the credit analysts should be interested in the following aspects of the financial
position of the units financed:
i. End use of profits

ii. Declaration of dividend in spite of decrease in profit / loss.
iii. Increase in Net Current Assets despite loss.
iv. Sources to meet capital expenditure
v. Need for external finance while depreciation provision available within.
vi. Use of sale proceeds of Fixed Assets
vii. Sources for repayment of debts
viii. The method of raising additional capital
ix. Use of the proceeds of the debenture issue or fixed deposits raised from the public.
d. Significant and important facets of management functioning like dividend policy, plough
back policy, growth objectives (expansion or diversification), optimum use of Fixed Assets
through timely capital expenditure programmes for renovation/modernisation or plant and
machinery etc., are revealed by the Funds Flow Analysis.
6. Contribution Analysis:
a. Types of Costs:
i. Broadly speaking costs could be divided into two categories : Fixed and Variable
Costs, though some analysts classify certain Costs as Semi–Fixed or Semi–Variable
also.
b. Fixed Costs:
i. Fixed costs are those which tend to remain the same irrespective of the volume of
output. In other words, they do not vary when output changes. Factory rent, Director's
salary, expenses on Research and Development, General Administration, Interest on
Capital, Depreciation etc. are all examples of Fixed Costs.
ii. Fixed costs are, however not truly fixed for all-time but only over a comparatively
shorter time period a quarter or over year. Over very long period, Fixed Costs also
undergo changes.
iii. Further more, Fixed Costs remain the same within a well-defined range of output, but
once a new range is reached which is adequate for one shift, but once the organization
decides to operate two shifts one more foreman may have to be employed and the
Fixed Cost representing the salary of foreman would double. Fixed costs are,
therefore, referred to as stepped costs also in such cases.
234 - III
c. Variable Costs:
i. Variable costs are those costs, which vary directly in relation to the output. As a
result when output is increased variable costs group proportionately. Raw
materials consumed, packaging, fuel and power consumption for factory, stores
and spares consumed, power, direct labour expenses etc. are examples of
variable costs. If on some occasion the factory is shut down temporarily due to
any reason the variable cost should be nil.
d. Semi – Variable Costs:

i. There are some costs, which are called Semi–Variable Costs or Semi–Fixed
Costs. These are hybrid costs made up of some fixed elements and some
variable elements. There is a tendency for the costs to vary with output but the
variation is irregular. It is however possible to segregate fixed and variable
component after detailed examination of the behavior of such costs. However,
bankers generally segregate all costs into fixed and variable costs as it becomes
easier to study the behavior of profit in relation to volume.
e. Contribution:
i. Contribution can help management in identifying the directions in which
selling efforts should be made.
ii. Consider the following data in regard to two products manufactured by a
concern.
Product A Product B
-Selling Price Rs.10 Rs.15
-Variable Costs Rs.4 Rs.10
-Contribution Rs. 6 Rs. 5
-Fixed Costs Rs. 5 Rs. 3.50
-Profit on selling price Rs. 1 Rs. 1.50
Or Or
10% 10%
-P/V ratio = Contribution = 60% 33%
Selling price
7. Break – Even Analysis:
a. Break–Even Analysis is very much an extension or even a part of the Contribution Analysis.
Basically Break–Even Analysis concerns itself in finding the point at which sales
realisations and costs match. The Break–Even point is therefore, the volume of output at
which neither a profit made nor a loss is incurred.
235 - III
i. Example:
l Consider the example of a housewife wishing to start a cottage industry of
manufacturing jams. The following data is available:
Selling price per bottle Rs.10/-
Cost of fruits, sugar, flavour
Preservative, bottle label i.e. the
Variable cost per bottle Rs.6/-
Contribution per bottle Rs.4/-
l Assuming that the housewife employs a salesgirl to sell the jam on a salary of
Rs.20/- per day, it would be necessary for the housewife to produce and sell at least
5 bottles per day to cover the Fixed Costs (salary of sales girls). This, therefore, is
the Break – Even point for the cottage industry in the instant case.
l Break – Even point can be expressed as:

Sales revenue (Rs.50/- per day in the above example)
Number of units (5 bottles)
Capacity utilisation (50% assuming 10 bottles can be produced every day)
ii. In other words, Break – Even point, in terms of

l Volume of production, will be: Fixed Cost/Contribution per unit = Fixed
Cost/Unit Sales price – Unit variable cost.
l Sales revenue, shall be: Total FC/1 – Ratio of unit VC to Unit Sale Price
l Plant capacity, shall be:
BEP in terms of volume x 100 (Capacity is expressed in percentage)
Total installed capacity.
8. Margin of Safety:
a. Margin of safety is the percentage drop in sales that can occur before a loss starts. This
formula is a dramatic way of bringing to management's attention as to how close their sales
level is to Break – Even point.
i. Margin of safety = Sales – Break–Even Sales x 100
Sales
The answer is expressed as a percentage.
ii. Example
l Consider the following data:
Sales : Rs.1000
Variable costs : Rs.600
Contribution : Rs.400
Fixed Costs : Rs.300
Profit : Rs.100
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l At Break–Even point, the sales level would be such that the contribution is equal to
Fixed Costs so that neither any loss is incurred nor is any profit earned.
l If Rs.400/- contribution is earned for Rs.1,000/-sales, then Rs.1/- contribution will
be earned for 100/400 sales. Therefore Rs.300/- contribution (to cover Fixed Costs)
will be earned for = 1000 x 300
400
l i.e., Break – Even Sales = Rs.750/-
l Margin of Safety = Sales – Break – Even Sales x 100
Sales
= 1000 – 750 x 100
1000
= 250 x 100 = 25%
1000
l This shows that the concern would start incurring losses if sales were to drop by
more than 25 per cent.
iii. A banker's main role as a lender will be to supplement the borrower's resources in
carrying a reasonable level of Current Assets in relation his production
requirements. These Current Assets will be carried partly by a certain level of
creditors for purchases and other Current Liabilities. Funds required to carry the
remaining Current Assets may be called the Working Capital Gap which can be
bridged partly from the borrower's owned funds and long term borrowings and
partly by bank borrowings.
9. Profitability Analysis – Selected Ratios:
a. Evaluation of the financial soundness of an institution not only discloses the current
policies and practices followed, but also helps in the management's endeavors to bring
about desired improvements in financial as well as managerial decisions.
b. The primary function of banking institution is mobilization of resources through
deposits and borrowings and lending the same to borrowers thereby making a profit
after meeting the costs. The ratio analysis helps in finding out the diligence of the
banks in these functions. The selected ratios (generally expressed as percentages)
given below indicate the nature of Asset Liability Management, the quality of assets,
Managerial Efficiency and the Profitability of the bank.
237 - III
I. FINANCIAL RATIOS:
A. Yield on Assets = Total Interest Income (P & L) x 100
Average Working Fund (AWF)
(i) Yield on Advances = Int. Income from Advances (P & L) x 100
Average Advances
(ii) Yield on Investments = Int. Income from Investments (P & L) x 100
Average Investments
B. Cost of Funds = Total Interest Expenditure (P & L) x 100
Average Working fund
(i) Cost of deposits = Int. Expenditure on Deposits (P & L) x 100
Average Deposits
(ii) Cost of borrowings = Int. Expenditure on borrowings (P & L) x 100
Average Borrowings
C. Gross Financial Margin = (A – B)
D. Miscellaneous Income = Total Non-Fund Income (P & L) x 100
Average Working Fund
E. Risk Cost = Provisions for NPA (P & L) x100
Average Working Fund
F. Net Financial Margin = (C + D) – E
G. Transaction Cost = Staff salaries & other expenses (P & L)x100
Average Working fund
H. Net Margin = (F – G)
II. PROFITABILITY RATIOS:

1. Net Profit as per cent to Total Income
2. Return on Assets – Net Profit to Total Assets
3. ROE (Return on Equity) – Net Profit to Capital
4. Net Profit as per cent to Deposits
238 - III
III. PERFORMANCE RATIOS:
1. Capital Adequacy Ratio – Owned Funds to Risk Weighted Assets
2. Cash in Hand to Deposits
3. CRR (Cash Reserve Ratio) – Cash in Bank to Deposits.
4. Investment (SLR & Non SLR) Deposit Ratio (IDR) – Investments to Deposits
5. Credit Deposit Ratio (CDR) – Loans & Advances outstanding to Deposits
6. Gross NPA – Non Performing Assets to Gross Loans and Advances Outstanding
IV. PRODUCTIVITY RATIOS :

1. Per Employee Business – Deposits plus Advances to Number of Employees
2. Per Branch Business – Deposits plus Advances to Number of Branches
3. Per Employee Voucher – Number of Vouchers to Number of Employees
4. Per Branch Voucher – Number of Vouchers to Number of Branches
239 - III
CHAPTER – 21
ABOUT NABARD
1. General:
a. NABARD is set up as an apex development bank with a mandate for facilitating credit flow for
promotion and development of agriculture, small-scale industries, cottage and village
industries, handicrafts and other rural crafts. It also has the mandate to support all other allied
economic activities in rural areas, promote integrated and sustainable rural development and
secure prosperity of rural areas. In discharging its role as a facilitator for rural prosperity
NABARD is entrusted with
i. Providing refinance to lending institutions in rural areas
ii. Bringing about or promoting institutional development and
iii. Evaluating, monitoring and inspecting the client banks
b. Besides this pivotal role, NABARD also,

i. Acts as a coordinator in the operations of rural credit institutions
ii. Extends assistance to the government, the Reserve Bank of India and other organizations in
matters relating to rural development
iii. Offers training and research facilities for banks, cooperatives and organizations working in
the field of rural development
iv. Helps the state governments in reaching their targets of providing assistance to eligible
institutions in agriculture and rural development
v. Acts as regulator for cooperative banks and RRBs
c. With a capital base of Rs.2,000 crore provided by the Government of India and Reserve
Bank of India, it operates through its head office at Mumbai, 28 regional offices situated in
state capitals and 391 district offices at districts.
d. It is an apex institution handling matters concerning policy, planning and operations in the field
of credit for agriculture and for other economic and developmental activities in rural areas.
e. Essentially, it is a refinancing agency for financial institutions offering production credit and
investment credit for promoting agriculture and developmental activities in rural areas.
f. Initiates measures toward institution-building for improving absorptive capacity of the credit
delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of
credit institutions, training of personnel, etc.
g. Coordinates the rural financing activities of all the institutions engaged in developmental
work at the field level and maintains liaison with the government of India, State
governments, the Reserve Bank of India and other national level institutions concerned with
policy formulation.
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h. Prepares, on annual basis, rural credit plans for all districts in the country. These plans form
the base for annual credit plans of all rural financial institutions:
i. Undertakes monitoring and evaluation of projects refinanced by it.
j. Promotes research in the fields of rural banking, agriculture and rural development.
k. Functions as a regulatory authority, supervising, monitoring and guiding cooperative banks

and regional rural banks.
2. Role and Functions:

a. Credit Functions: NABARD's credit functions cover planning, dispensation and monitoring
of credit. This activity involves:
i. Framing policy and guidelines for rural financial institutions
ii. Providing credit facilities to issuing organizations
iii. Preparation of potential-linked credit plans annually for all districts for identification of
credit potential
iv. Monitoring the flow of ground level rural credit
b. Development and Promotional Functions: Credit is a critical factor in development of

agriculture and rural sector as it enables investment in capital formation and technological
upgradation. Hence, strengthening of rural financial institutions, which deliver credit to the
sector, has been identified by NABARD as a thrust area. Various initiatives have been taken to
strengthen the cooperative credit structure and the regional rural banks, so that adequate and
timely credit is made available to the needy. In order to reinforce the credit functions and to
make credit more productive, NABARD has been undertaking a number of developmental and
promotional activities such as:
i. Help cooperative banks and Regional Rural Banks to prepare Development

Action Plans (DAPs) for themselves.
ii. Enter into MoU with state governments and cooperative banks specifying their respective
obligations to improve the affairs of the banks in a stipulated time frame.
iii. Help Regional Rural Banks and the sponsor banks to enter into MoUs specifying their
respective obligations to improve the affairs of the Regional Rural Banks in a
stipulated time frame.
iv. Monitor implementation of development action plans of banks and fulfilment of
obligations under MoUs.
241 - III
v. Provide financial assistance to cooperatives and Regional Rural Banks for establishment
of technical, monitoring and evaluations cells.
vi. Provide Organisation Development Intervention (ODI) through reputed training
institutes like Bankers Institute of Rural Development (BIRD) Lucknow, National Bank
Staff College, Lucknow and College of Agriculture Banking, (CAB) Pune, etc.
vii. Provide financial support for the training institutes of cooperative banks.
viii. Provide training for senior and middle level executives of commercial banks, Regional
Rural Banks and cooperative banks.
ix. Create awareness among the borrowers on ethics of repayment through Vikas Volunteer
Vahini and Farmer's Clubs.
x. Provide financial assistance to cooperative banks for building improved management
information system, computerisation of operations and development of human resources.
c. Supervisory Functions:As an apex bank involved in refinancing credit needs of major

financial institutions in the country engaged in offering financial assistance to agriculture and
rural development operations and programmes, NABARD has been sharing with the Reserve
Bank of India certain supervisory functions in respect of cooperative banks and Regional Rural
Banks (RRBs). As part of these functions, it
i. Undertakes inspection of Regional Rural Banks (RRBs) and Cooperative Banks (other
than urban/primary cooperative banks) under the provisions of Banking Regulation Act,
1949.
ii. Undertakes inspection of State Cooperative Agriculture and Rural Development Banks
(SCARDBs) and apex non-credit cooperative societies on a voluntary basis
iii. Undertakes portfolio inspections, systems study, besides off-site surveillance of
Cooperative Banks and Regional Rural Banks (RRBs)
iv. Provides recommendations to Reserve Bank of India on opening of new branches by State
Cooperative Banks and Regional Rural Banks (RRBs)
v. Administering the Credit Monitoring Arrangements in SCBs and CCBs.
3. Core Functions:
a. NABARD has been entrusted with the statutory responsibility of conducting inspections of
State Cooperative Banks (SCBs), District Central Cooperative Banks (DCCBs) and Regional
Rural Banks (RRBs) under the provision of the Banking Regulation Act, 1949. In addition,
NABARD has also been conducting periodic inspections of state level cooperative institutions
such as State Cooperative Agriculture and Rural Development Banks (SCARDBs), Apex
Weavers Societies, Marketing Federations, etc. on a voluntary basis.
4. Objectives of Inspection:
a. To protect the interest of the present and future depositors.
b. To ensure that the business conducted by these banks is in conformity with the provisions of the
relevant Acts/Rules, regulations/Bye-Laws, etc.
242 - III
c. To ensure observance of rules, guidelines, etc. formulated and issued by
NABARD/RBI/Government.
d. To examine the financial soundness of the banks.
e. To suggest ways and means for strengthening the institutions so as to enable them to play more
efficient role in rural credit.
5. Instruments of Supervision
a. Periodic on-site inspection of 31 SCBs, 371 DCCBs, 20 SCARDBs and 82 RRBs and other
Apex level Cooperative institutions.
b. Supplementary Appraisal.
c. Off-site Surveillance System (OSS).
d. Portfolio inspection/System study.
e. CMA returns.
f. Broad Powers and Functions of the Board of Supervision:

i. Giving directions and guidance in respect of policies and on matters relating to
supervision and inspection, reviewing the inspection findings, suggesting appropriate
measures
ii. Reviewing the follow-up action taken by Department of Supervision (DoS) on matters of
frauds and internal checks and control
iii. Identifying the emerging supervisory issues in the functioning of cooperative banks/RRBs
such as NPAs recovery, investment portfolio, credit monitoring system, management
practices, frauds, etc.
iv. Suggesting necessary follow-up measures
v. Recommending appropriate training for Inspecting Officers of NABARD for imparting
necessary skills and knowledge
vi. Suggest measures for strengthening of DoS
vii. Recommend issue of directions by RBI
viii. Oversee the quality of inspections carried out and the reports issued
ix. Review the information generated through off-site surveillance and other supplementary
vehicles, action taken thereon
x. Undertake any other functions entrusted from time to time by the Board of Directors of
NABARD.
243 - III
g. Other Initiatives:
i. The day-to-day functioning of the supervised banks is being monitored through various
statutory returns prescribed by the RBI/NABARD including OSS returns
ii. Periodic coordination Meets are conducted with RPCD, RBI to discuss the policy and
operational matters relating to supervision
iii. State level groups comprising RCS, Apex bank, Cooperation and Finance Department,
State Government, Director of Audit and non-compliant banks have been
constituted/convened for preparing/discussing suitable strategy for Section 11 non-
compliant banks and monitoring the progress of Action Plan prepared by them to facilitate
them recompliance with the provision
iv. Periodic meetings are held with the Chief Executives & SCBs, RCS, State Government
etc. to discuss the supervisory concerns.
6. Types of Refinance Facilities:
Agency Credit Facilities
Commercial Banks Long-term credit for investment purposes,

Financing the working capital requirements of Weavers'
Co-operative Societies (WCS) & State Handloom
Development Corporations
Short-term Co-operative Short-term (crop and other loans), Medium-term

Structure (State Co-operative Banks, (conversion), loans Term loans for investment purposes,
District Central Co-operative Banks, Financing WCS for production and marketing purposes,
Primary Agricultural Credit Societies) Financing State Handloom Development Corporations
for working capital by State Co-operative Banks
Long-term Co-operative Structure Term loans for investment purposes, Pilot scheme for
(State Co-operative Agriculture and financing short term loans in three states
Rural Development Banks, Primary Co-
operative Agriculture and Rural
Development Banks)
Regional Rural Banks (RRBs) Short-term (crop and other loans) Term loans for
investment purposes
State Governments Long-term loans for equity participation in

co-operatives,
Rural Infrastructure Development Fund (RIDF) loans
for infrastructure projects
244 - III
Non-Governmental Organisations Revolving Fund Assistance for various micro-credit
(NGOs) - Informal Credit Delivery delivery innovations and promotional projects under
System 'Credit and Financial Services Fund' (CFSF) and 'Rural
Promotion Corpus Fund' (RPCF) respectively
a. The refinance is provided to SCARDBs, SCBs, CBs and RRBs. However, the beneficiaries of
the programme are partnership concerns, companies, state-owned corporations or cooperative
societies. But, finally the assistance reaches the individuals, who are members of the primary
credit institutions. The refinance is usually 50% to 95% of the project cost. The balance will
be met by the banks and the concerned state governments or the Government of India in the
case of SCARDBs. With a view to ensure credit flow to certain thrust areas, the quantum of
refinance is enhanced to 100% as in the case of special category beneficiaries like SC/ST
members and self-help groups.
b. Direct Credit: Direct credit from NABARD constitutes loans to State Governments.
7. Supporting Cooperatives:
a. In order to strengthen the owned funds position of cooperative credit institutions and thereby
increasing their capacity to leverage larger resources, NABARD provides loans to State
Governments to contribute to the share capital of these institutions.
b. Rural Infrastructure Development: With the objective of assisting State Governments in the
completion of on-going rural infrastructure projects and to take up new infrastructure projects,
the Rural Infrastructure Development Fund (RIDF) was set up with NABARD in 1995-96 with
contributions from Commercial banks The shortfall in agri/priority sector lending was
deposited by the commercial banks with NABARD as part of their contribution to
the RIDF. The total corpus covering RIDF I (1995-96) to X (2004-05) is Rs. 42,000 crore.
Sanctions under all trenches of RIDF as on 31 March 2005 were Rs.42948.51 crore against
which the disbursements were Rs. 25384.02 cr.
c. Co-financing: To ensure substantial credit flow to agriculture and rural sector and to instil
confidence in banks for financing hi-tech/export oriented agriculture projects involving large
financial outlays/sunrise technologies, etc., NABARD has entered into agreements for co-
financing with 12 Commercial Banks thereby sharing the credit risks with partner banks. Under
this arrangement, projects have been sanctioned in areas like floriculture, organic farming, milk
processing, ethanol production, infrastructure development and forestry.
d. Bulk-lending/ Revolving Fund Assistance: NABARD provides bulk-lending facilities to

NGOs.
e. Production Credit: This is a short-term refinance facility, aimed at supporting,

i. Agricultural production operations and marketing of crops by farmers and farmers
cooperatives.
245 - III
ii. Marketing and distribution of inputs like fertilizers, seeds and pesticides.
iii. Production and marketing activities of village cottage industries, handicrafts, handlooms,
power looms, artisans, small scale and tiny industries and other rural non-farm
enterprises.
iv. Eligible institutions for this facility are State Cooperative Banks (SCBs) and Regional
Rural Banks (RRBs). The period of credit is 12 months.
8. Short Term Credit:
a. Seasonal Agricultural Operations (SAO):

i. In order to ensure availability of timely credit to farmers, banks follow production-
oriented system of lending. The system has features like assessment of credit, needs based
on area brought under cultivation, crop wise scales of finance, provision of credit for
purchase of inputs like fertilizers and pesticides.
ii. Refinance is provided for production purposes at concessional rate of interest to State
Cooperative Banks (SCBs) and Regional Rural Banks (RRBs) by way of sanction of
credit limits. Each withdrawal against the sanctioned credit limit is repayable within 12
months.
iii. New line of credit for financing short-term agricultural /allied and marketing activities:To
provide liquidity to the cooperative banks and to boost credit flow to the agriculture
sector, a new line of credit was introduced in 2003-04 encompassing loans for agricultural
purposes against security of gold and security other than charge on crops, working capital
credit for allied agriculture activities, working capital credit for procurement and
distribution of agriculture inputs, marketing of agriculture/allied products, collection and
marketing of minor forest produce etc. and short-term credit support provided to
cultivators for higher scales of finance for commercialisation of agriculture, exports and
value addition.
b. Marketing of Crops: With a view to improve the flow of marketing credit to cultivators for
augmenting their holding capacity and checking incidence of distress sale, NABARD
encourages cooperative banks and RRBs to finance marketing of crops, through its refinance
facility for this purpose. Each drawal against the sanctioned credit limit is repayable within a
maximum period of 12 months.
c. Distribution of Agri. Inputs: With a view to ensuring timely supply of agri. inputs like
fertilizers, pesticides etc. a line of credit is made available to cooperative banks for financing
Apex/Primary Societies for stocking and distribution of agri. inputs by way of sanction of
yearly limits. Each drawal is repayable within a period of 120 days.
d. Pisciculture Activities: Refinance facilities is extended to cooperative banks and RRBs for
meeting the working capital requirements of farmers in pisciculture activities by way of
sanction of ST credit limits. Each drawal is repayable within 12 months.
246 - III
e. Other than SAO (OSAO):
i. Refinance is available to cooperative banks for financing the working capital requirement
of PWCS/Apex Weavers' Society, working capital requirements of industrial societies,
financing individual rural artisans, etc. Each drawal against the sanctioned credit limit is
repayable within 12 months. OSAO refinance is available to RRBs for financing
production and marketing activities of artisans, village industries and also for financing
persons belonging to weaker sections engaged in trade/business/services. Refinance
support is also available to commercial banks for financing the working capital
requirements of PWCS.
ii. Refinance support is available to SCBs and CBs for meeting working capital
requirements of State Handloom Development Corporations (SHDCs).
f. Special Initiatives:
i. Special line of credit for oilseeds and pulses production.
ii. Special line of credit for development of tribe in predominantly tribal areas.
iii. Liquidity support to cooperative banks and RRBs for providing relief to farmers in
distress and farmers in arrears.
iv. Revision in methodology for fixing scale of finance.
9. Refinance against Investment Credit: This is a long-term refinance facility. It is intended to create
income generating assets in the following:
a. Agriculture and allied activities
b. Artisans, small scale industries, tiny sector, village and cottage industries, handicrafts,
handlooms, powerlooms, etc.
c. Activities of voluntary agencies and self-help groups working among the rural poor
d. The credit is normally provided for a period of 3 to 15 years.
e. Investment credit leads to capital formation through asset creation. It induces technological
upgradation resulting in increased production, productivity and incremental income to farmers
and entrepreneurs.
f. Eligible Institutions:SCARDBs, SCBs, RRBs, CBs, Scheduled Primary Urban Cooperative
Banks, North East Development Finance Corporation Ltd. (NEDFI) and NBFCs are eligible
from NABARD for their investment credit in the rural sector.
g. Eligible Purposes: Some of the major purposes covered under Investment credit are Minor
Irrigation, farm mechanisation, plantation/ horticulture, animal husbandry, storage/market
yards, fisheries, post-harvest management, food/agro processing, non-farm sector including
rural industries, microfinance, purchase of land (for small/marginal Farmers, share croppers
etc.), rural housing and disbursements under poverty alleviation programmes like SGSY and
SC/ST Action Plan etc. Hi-tech projects and agri-export zones are identified as thrust areas and
NABARD helps in techno-financial appraisal of such projects besides providing refinance.
h. In recent years, refinance support has been extended to new activities like financing of diesel
generator sets in Madhya Pradesh and LPG kits to rural households all over the country.
247 - III
i. Criteria: The technical feasibility of the project, financial viability and generation of
incremental income to ultimate borrowers thereby enabling them to have a reasonable surplus
after repayment of the loan instalments are the necessary conditions to be satisfied for
sanctioning investment credit. The period of loan ranges between 3 and 15 years depending on
the purpose for which it is provided.
j. The beneficiaries of the programme are individuals / group of individuals, SHGs, proprietary /
partnership concerns, companies, state-owned corporations or cooperative societies.
k. The refinance is usually 90% to 100% of the loan amount. The balance, wherever applicable,
will be met by the banks or the concerned state governments or the Government of India in the
case of SCARDBs. With a view to ensure credit flow to certain thrust areas, such as special
category beneficiaries like SC/ST members, self-help groups, etc., the quantum of refinance is
enhanced to 100%.
l. Interim Finance:SCARDBs are being extended interim finance in order to enable them to
provide investment credit to ultimate borrowers for eligible purposes and avail refinance within
3 months against the same.
m. Under Non - Farm Sector, NABARD provides refinance for industrial units which qualify as
Small Scale Industries, Rural Housing, Small Road and Water Transport Operators, Health
Care units and other Service Sector activities. NABARD refinance covers wide range of
activities like Minor Irrigation, Land Development, Dry Land Farming, Watershed
Development, Farm Mechanisation, Plantation & Horticulture, Poultry / Dairy / Other Animal
Husbandry Activities, Fisheries, Bio-gas, Forestry, Storage/Market Yard, Non-Farm Sector
(Small Scale Industry & Tiny Cottage Village Industries), Self Help Groups / Joint Liability
Groups (JLGs), Self Employed / Professionals, Small Road and Water Transport Operators,
Agri.-clinics & Agri. Business Centres, Financing in Agri. Export Zones / Contract Farming/
Organic Farming, Agro Processing, Non-Conventional Energy, Rural Housing, Govt.
Sponsored Programmes.
n. Keeping in view the potential and the demand for a particular type of projects in a particular
area, NABARD prepares Area Development Projects in consultation with the line departments
of the State Govt. and the bankers in the area. Under the ADP, targets are decided and
achievements monitored at periodical intervals.
o. Investment Credit Department has also opened a window for direct lending by way of Co-
financing under Section 30 of NABARD Act 1981 for areas or projects where new / innovative /
sunrise technology is involved or where large outlays and long gestation period keep the banks
away or projects having longer repayment period.
10. Government Sponsored Schemes under Investment credit: Presently NABARD is

administering the subsidy under various schemes of Government of India as follows:
a. Centrally Sponsored Scheme - Integrated Development of Small Ruminants and Rabbits.
b. Centrally Sponsored Scheme - Establishment/ Modernisation of Rural Slaughter Houses
c. Centrally Sponsored Scheme for Establishing “Poultry Estates” and Mother Units For Rural
Backyard Poultry
d. Capital Investment Subsidy Scheme for Commercial Production Units of Organic Inputs
e. Capital Investment Subsidy Scheme for Commercial Production Units of Organic Inputs
f. Capital Investment Subsidy Scheme for Commercial Production Units of Organic Inputs
248 - III
g. Capital Investment Subsidy Scheme for Cold Storage and Onion godowns, Capital Investment
Subsidy Scheme for Rural godowns.
11. Farm Sector / Non-Farm Sector –Eligible for Refinance under Investment Credit :
a. Farm Sector Schemes:
i. Village Adoption/Village development Plan
ii. Backward Blocks
iii. Bamboo Farming
iv. MACs
v. Bio Fuels
vi. Crop Insurance
vii. Agriculture Commodities
viii. SGSY
ix. Farm Mechanisation
x. Land Purchase
xi. Scheme for Agri Clinic/ Agri-Business Centres (ACABCs)
xii. SEMFEX
xiii. Capacity Building for Adoption of Technology (CAT)
xiv. Agri. Export Zone (AEZ)
xv. Contract Farming
xvi. Farmer's Club
b. Non-Farm Sector Schemes:
i. Rural Non-Farm Sector (RNFS) holds the key to faster economic development of
the country. It has potential and promise for generating employment and increased
income in the rural areas. Hence, NABARD has identified financing, development
and promotion of RNFS as one of its thrust areas.
ii. NABARD has evolved several refinance and promotional schemes over the years
and has been making constant efforts to liberalise, broad base and refine/ rationalise
the schemes in response to the field level needs. The focus has been on greater credit
flow and provision of linkages for small, cottage and village industries, handicrafts
and other rural crafts and service sector in the decentralised sector in the rural areas.
12. Enterprises Loan Scheme (ELS):The refinance schemes which are in force viz. Integrated Loan
Scheme (ILS) and Composite Loan Scheme (CLS) have been merged and modified into a new
scheme ie. Enterprise Loan Scheme (ELS).
a. Salient features: Institutions eligible for drawal of refinance. Commercial Banks, Regional
Rural Banks, State Co-operative Banks, State Co-operative Agriculture and Rural
Development Banks and Scheduled Primary Urban Cooperative Banks.
249 - III
b. Borrowers: Individuals, artisans, small entrepreneurs, groups of individuals, associations
(formal and informal), proprietary/partnership firms, co-operative societies, registered
institutions/ trusts, NGOs/voluntary agencies, private and public limited companies, etc.
financed by the above eligible institutions.
c. Purpose:
i. To set up new units as well as for modernisation/ renovation/ expansion/diversification of
existing units and also for replacement of old and obsolete machinery even if the units
were not initially financed by the banks and refinanced by NABARD.
ii. To change over to new process of manufacturing/introduction of new technology/
computerisation, etc. For Expansion/Diversification, any unit which is in existence for at
least two years will be eligible.
iii. For acquisition of new machinery and equipment resulting in additional production
capacity and/or improving productivity or introducing new product/product line, etc.
(The total cost of investment in Plant and Machinery including that of modernisation/
renovation / expansion / diversification of the existing units to be financed should not
exceed the SSI limit prescribed by the Govt. of India).
d. Eligible activities: All manufacturing, processing, marketing and approved service activities
in the SSI sector with emphasis on Cottage, Village, Tiny Industries, Rural Artisans and Rural
Crafts. All activities in rural areas or benefiting rural areas that are income generating and/or
employment generating, including all service sector activities, are eligible activities under NFS
for refinance assistance. For e.g. Educational Services (Educational institutions such as
schools, colleges set up privately and Educational loans to students). Health services
(Hospitals/ Clinics, Health Care Units (both human & animals) set up in rural areas, mobile
hospital vans with necessary equipment, para- health services, etc.). Construction sector
(Building Material Supply Bank, Shops/ marketing outlets for rural products). Tourism sector
(Theatres, Eco-Tourism, Fair/Exhibition Complex, Hotels, Motels, etc.). Vehicles (Two
wheeler/ three wheelers and four wheelers other than those covered under SRWTO scheme).
Information Technology (All activities providing information technology to the rural people).
Infrastructure (Rural Industrial Estates, Growth Centres, Communication Networks, Rural
Safe Drinking Water, etc.).
e. Project Components:
i. For block and/or working capital requirements of tiny/SSI/Service sector units.
In respect of cottage and village industries, artisans etc. a component for consumption credit
could be built in the Working Capital component keeping in view the value of the family labour
engaged in the productive activity. If a unit avails Working Capital alone, the ceiling for
refinance limit per unit shall be limited to Rs.10 lakh.
250 - III
ii. Block capital will include the Cost of land (to the extent of borrowers' down payment),
work shed, plant and machinery, equipment and tools, computers, technology
upgradation, project formulation and consultancy charges, preliminary and pre-operative
expenses, etc. and working capital for one operating cycle.
iii. While sanctioning loans, banks may carefully work out the credit requirements of the
borrowers both for term loan and working capital. The quantum of working capital
component may be assessed taking into account the incremental requirement also for a
reasonable period within which the unit is expected to stabilise. Also, wherever the loan
includes both term loan and working capital components, while drawing up the repayment
schedule, it may please be ensured that, as far as possible, the working capital component of
the loan is recovered after the block capital component is repaid, so that the unit will have
adequate funds for meeting the working capital requirements.
f. Repayment period of loan: The repayment period should be fixed between 2 years and 10
years with a need based moratorium of upto 18 months for individual cases, based on the debt
servicing capacity of the borrower and taking into account the nature of activity to be financed,
operating cycle, cash flow and the borrower's sustenance needs.
251 - III
VOLUME - III
LOANS AND ADVANCES
PART - II
CHAPTER 22
AGRICULTURAL CREDIT
1. General:
a. The Agricultural Credit Department/ Section (ACS) of a SCB or DCCB performs two major
functions. One relates to policy functions such as sanctioning of limits to the DCCBs, utilising the
limits from NABARD, issuing all Policy Circulars, attending to correspondence with NABARD,
Government, RCS, and all DCCBs and the other relates to operational functions such as allowing
of eligible drawals to DCCBs, borrowing from and repayment to NABARD, adjustment of
recoveries passed on by the DCCBs, maintenance of all books / registers and other operational
matters.
2. Policy Functions:
a. Annual Credit Limits:
i. NABARD issues Annual Policy Circular to all the SCBs and DCCBs setting out their Terms
and Conditions for sanctioning various ST & MT Agricultural Credit Limits, revision in
norms, if any, for assessment of eligible limits, etc. Based on such circulars the SCBs (AC
Section) will issue a detailed circular to all the DCCBs specifically pointing out the main
conditions on which NABARD will be considering the credit requirements of the DCCBs for
the forthcoming financial year.
ii. It is the responsibility of the ACS to call for credit limit applications for all the eligible DCCBs
for availing credit limits from the Apex Bank and NABARD. Based on the credit limit
applications of the DCCBs and their eligibility for refinance limits from NABARD as per their
policy circular for the year, the Apex Bank will have to prefer a consolidated credit limit
application to NABARD on behalf of all the DCCBs.
b. Scrutiny of Limit Applications:
i. The Section will scrutinize all the ST credit limit applications received from various DCCBs.
Based on compliance with the norms of NABARD by the DCCBs, the targets as fixed for each
DCCBs for the year, the ILR of the DCCBs, the recovery performance of the DCCB etc. The
section will put up a detailed note to the CEO.
c. Board Approval:
i. On approval of the recommendation of the Section by the CEO, the subject will be placed
before the Board of Management for approval and for passing necessary resolution.
ii. After approval by the Board, the Section will forward a consolidated Credit Limit Application
252 - III
on behalf of the DCCB to the concerned Regional Office of NABARD together with all the
enclosures and Board Resolution.
d. Sanction of Credit Limit:
i. On receipt of NABARD's sanction order by the SCB on behalf of the DCCBs, this section will
immediately communicate to all DCCBs through a 'sanction order', the credit limits
sanctioned under NABARD limit and under SCB limit together with the specific conditions, if
any, as laid down by NABARD / SCB for drawals under the sanctioned limit.
e. Passing of Drawals:
i. All eligible drawals will be passed / sanctioned by the Section Head / authorized Officer
concerned as per delegated powers and only drawals proposed to be disallowed will be put up
to General Manager.
f. Sanction of Additional Limits:
i. All credit limits as well as additional credit limits which satisfy the terms and conditions of
NABARD can be initially sanctioned by the CEO (if he is empowered by the Board) and then
ratified by the Board.
ii. Sanction as well as rejection of proposals seeking fresh / additional limits can be done only by
the CEO (if he is empowered by the Board) or by the 'Loan Committee' or the 'Board'.
3. Operational Functions:
a. Short Term Seasonal Agricultural Operations (ST SAO):
i. The operational functions of the Department/Section include allowing drawals and accepting
repayments from DCCBs seeking drawals and making repayments under ST-SAO to
NABARD, collection/payment of interest, regulating of drawals as per NODC statements and
maintaining all books relating to loans availed from NABARD and loans sanctioned to
DCCBs and other subsidiary books.
b. District Level Technical Committees:
i. The quantum of crop loan each farmer can avail from the PACS is determined on the basis of i)
extent of land under cultivation (area); ii) per acre scale of finance as fixed every year by the
SLTC; and, iii) the Individual Maximum Borrowing Power (IMBP).The Scales of Finance for
various crops are recommended by the District Level Technical Committees constituted in
each DCCB's jurisdiction with representation from progressive farmers, Agricultural
department, Horticultural department, Sugar Mills in the District, etc.
ii. The DLTCs have to recommend the scales taking into account mainly the cost of cultivation
and gross yield. The scale of finance for each crop will mainly comprise cash and kind
253 - III
components (Fertilizers, seeds, pesticides, etc.) The DLTCs can recommend scale of finance
for major crops grown in the District and for other crops they can adopt the scales followed in
the neighbouring Districts where they are grown extensively, or accept the scale fixed by the
SLTC at the State level.
c. For e.g. the practices in Tamil Nadu are as follows:
i. 'District level Technical Committees' (DLTC) recommends the scales of finance for various
crops to the State Level Technical Committee (SLTC) which in turn approves fixing of scales
of finance for various crops.
ii. The DLTC are convened every year by the DCCBs before 31st December and scales of finance
are revised and proposed every year, taking into account the cost of cultivation, and yield.
iii. The scales of finance and the seasonality chart for all crops to be financed are proposed by
DLTC, indicating scales for both cash and kind components separately. Scales are proposed
for both irrigated and rain fed crops separately.
iv. While proposing the scale, it should be ensured that the scale of finance does not exceed 50%
value of gross yield per acre or cost of cultivation whichever is less. The scale of finance in the
neighbouring Districts can be taken into consideration while proposing the scale of finance for
a particular crop.
v. The scales of finance as revised and proposed by DLTCs should be forwarded to be SCB
st
before 31 January with their recommendations for approval by SLTC. The Apex Bank will
consolidate the DCCB-wise recommendations for reviewing the scales of finance crop-wise,
component-wise, District/Region-wise for irrigated and rain fed areas separately and send the
copies of the same to all the members of SLTC, well in advance before the Committee meeting
is convened.
vi. The SLTC will meet once in a year before April, and approve the scales of finance proposed by
DLTCs with modifications, wherever necessary for adoption from 1st April of that year.
vii. After approval of scales by SLTC, the scales are adopted for sanction of loans. The copies of
the approved scales are sent by the SCB to DCCBs and to Commercial Banks through DCCBs
for their adoption.
viii. During the year, if any revision in scales is required and sought for by DCCBs, such revision
may be referred to SLTC for its concurrence and got it ratified by the next SLTC meeting.
4. Role of District Central Cooperative Banks (DCCBs):

a. The DCCBs will then proceed to consider the extent to which it may be able to meet the
requirements as reflected in the scales of finance recommended by the SLTC. In doing so, the bank
will have to estimate the resources which it may be in a position to mobilize on its own and through
borrowings from the State Coop. Bank for providing the Short-Term agricultural credit. For
estimating the internal resources, the Bank may take into account not only the position of owned
funds and deposits already reached, but also the growth likely to take place in this respect and allow
for investment in the shares of the apex bank, requirements of fluid cover, financing of activities
254 - III
other than agricultural credit, etc., before arriving at the estimate of funds which will be available
for the provision of Short-Term agricultural credit. To these may be added the amounts that may
become available to the DCCBs from the Apex bank out of its own resources, besides
supplemented by borrowings from NABARD. As NABARD is the major source of refinance, the
DCCBs have to take note of the policies followed by NABARD in fixing of credit limits from year
to year.
b. The ST (SAO) limit sanctioned by the Apex Bank to DCCBs is of reimbursement in nature and is
available for operations on revolving basis. In other words, the DCCBs can draw and repay the
funds against their limit any number of times subject to eligibility norms.
c. Preparation of Credit Limit Statements by the PACS: PACS will have to prepare a Realistic
Lending Programme (RLP) statement in triplicate. The statement is to serve not only as the loan
application of the society but also the requirement of each member is included in it. Therefore, the
details, particularly of the crops grown and the area proposed under each crop by a member may be
filled up in consultation with him and his signature or thumb impression obtained on it as evidence
of such consultation.
d. Points for Preparation of RLP: In preparing the Realistic Lending Programme (RLP) statement:
i. The Statement should provide the details of the land holding of members propose to cultivate
during the next year. It should be ensured that fictitious acreages are not indicated and that, for
this purpose, the acreage shown in the statement is verified with reference to the register of
lands maintained for all members. The register should be prepared carefully with reference to
the village revenue records and checked and verified annually so as to note all the changes that
may have taken place in the meanwhile. It should also be ensured that information about the
crops to be grown is correctly given, so that a farmer does not show larger acreage under crops
which attract higher scales of finance.
ii. With a view to facilitating easy verification and avoiding the possibility of the same piece of
land being shown under different crops during the same season, only one statement should be
prepared for the whole year and for all crops grown by a member instead of separate
statements for different crops and seasons.
iii. Though the crop loan system envisages the provision of credit to members to meet their full
production requirements on the basis of the acreage and scales of finance, it is necessary to see
that their eligibility does not individually exceed the absolute limit represented by the
individual maximum borrowing power i.e. the ceiling on the amount which any individual
may borrow from his society.
e. Need for Fixing Individual Maximum Borrowing Power: The need for placing limit for individual
borrowing arises on account of various practical considerations, such as:
i. it is reasonable to expect that a big farmer should be able to meet a larger part of his production
outlay from his own resources than the small farmer and consequently his need for credit per
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acre should be relatively lower than that of the latter.
ii. the individual maximum limit helps to ration the available resources, preferences being shown
to the needs of the small and marginal farmers.
iii. concentration of loans with a few big farmers will mean that in the event of their failure to
repay, a large number of small and medium farmers who account for a relatively small amount
in the aggregate may suffer, as the eligibility of the society for fresh credit from the DCCB will
be impaired. While the imposition of an individual maximum borrowing power is justified for
these reasons it should be ensured that the ceiling is not fixed at such a low level that the
farmers who wish to raise high value cash crops or adopt improved practices are handicapped.
Liberalisation of individual maximum borrowing power in Societies where it is unduly low
should, however, be undertaken with due regard to the ability of the societies and DCCBs to
raise the resources required or financing agricultural production.
iv. After the credit limit statement is prepared as indicated above, the General Body or the
Managing Committee of the Society may recommend the amounts that may be sanctioned to
each member by indicating the details. The Managing Committee may work out the
disposable resources of the society for lending and apply to the DCCB for the balance,
furnishing the financial particulars such as the latest Balance-Sheet and Profit and Loss
Account and also copies of the resolutions of the General Body or the Managing Committee
for raising the necessary loan from the DCCB.
f. Sanction of Limits to PACS by DCCBs and time schedule: The Credit Limit Statement as passed
by the Society may be forwarded in triplicate to the DCCB (being routed through a supervisory
staff if one is functioning). The DCCB's inspector should then scrutinise the statement with
reference to the Society's books, to ensure particularly that the details of the crops and acreages
given therein for the different members are correct. He should also give a report on the society's
working bringing out serious irregularities in its working, if any, the position of overdues and the
action taken against defaulters etc. The statement, with his recommendations, should then be
placed for consideration before the Board or the Loan Committee of the District Central
Cooperative Bank with the Manager's remarks. It should be ensured that the credit limits to
Societies are thus sanctioned well in advance of the season and communicated to each one of them,
together with a copy of the Credit Limit Statement and also to the branch of the DCCB as well as the
Marketing Society which is to supply the Kind Component of the loan.
g. Once the statement is approved by the bank, the Society will be authorised to draw on the limit
specified therein as and when it is convenient, subject of course, to the conditions of eligibility
prescribed by the DCCB for the Societies and individuals.
h. An important feature of the crop loan system is that all the necessary procedural steps should be so
planned as to ensure that the finance becomes available to members at the time when they need it. It
is, therefore, important that all the stages of the procedure described earlier should be completed
according to a time schedule drawn up for the purpose i.e.:
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 January:- Communication by the SCB of the decisions taken in the SLTC.
 January February:- Preparation of Credit Limit Statements by Supervisors or Managers of
Primary Agriculture Credit Societies (PACS), their consideration by the Managing
Committees of the Societies and forwarding the applications to the DCCB.
 February-March:- Sanction of credit limits to Societies by the DCCB.
5. Operations on the Limits-Eligibility:

a. The actual drawals on the limits should be subject to the individual establishing his eligibility with
his Society and the latter with the DCCB. The individual may be allowed to borrow up to the limit
sanctioned to him provided (i) he is not a defaulter; (ii) he holds shares in the Society in the
prescribed proportion; (iii) he has furnished the prescribed security to the Society; and (iv) he has
executed the necessary documents, e.g. pronote agreement to sell through an approved Marketing
Society, etc.
b. The Society may be allowed to operate on the sanctioned limit provided (i) it has repaid the
prescribed proportion of the demand (which is expected to be fixed at not less than 40%) (ii) it holds
shares of the DCCB in the prescribed proportion; and (iii) it executes the necessary documents, e.g.
pronote, agreement etc.
c. It is important to note that the sanction of limits as indicated in the credit limit statement either by
the Society or the bank should not depend upon prior fulfilment of any of the conditions mentioned
above. It will be enough if the conditions are satisfied by the borrower concerned only at the time of
drawals on the limit.
d. Drawals Against Cash Component: On an application from the President or the Secretary of the
Society in the prescribed form for the drawal of cash loan on behalf of a given number of members,
the amount may be advanced to the office-bearers who are authorized to receive such advances on
the drawal amount may be credited to the Savings Bank a/c of the PACS concerned. In case of
crediting the savings bank account, the PACS will draw the amount from SB account and disburse
the loan amounts to its eligible borrower-members. However, a Statement of Disbursement with
the signatures of the recipients of the loan as in the form prescribed should be required to be
submitted to the bank within a fortnight of such disbursement. On receipt of such statements, their
verification with the lists submitted at the time of drawal will ensure that:
i. the amounts are actually advanced to those for whom they were intended,
ii. the Society has not diverted the amount to its other activities such as consumers' stores,
payment of instalment of godown loan etc., and
iii. the amounts have not been used by the Society for repaying another loan due later.
iv. At the time of the next visit to the Society, the Supervisor should verify the disbursements from
entries in the loan ledger.
e. In the case of Kisan Credit Card (KCC) holders, the PACS have to either use their own funds for
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allowing drawals and thereafter avail refinance from DCCB (or) as in the case described under this
(i) above prepare a drawal application and draw cash from DCCBs and disburse to KCC holder.
f. Drawals on the Kind Component: Where the Primary Credit Society is itself a sub-agent of the
Marketing Society for distributing fertilisers, the PACS will itself supply the required quantity to
the borrowers by debiting their loan accounts and crediting the account showing the borrowings
from the DCCB. The PACS should request the bank to debit its loan account and credit the
Marketing Society's account with the bank so that the PACS would be given corresponding credit
by the Marketing Society against fertilisers supplied on a consignment basis.
g. Where the system of cheques has been introduced and officer-bearers have become familiar with it,
the Society may issue a cheque in favour of the Marketing Society for the amount representing the
cost of the fertilizers etc., required by a member. The concerned member's signature may be
obtained on the back of the counterfoil of the cheque issued by the Society. In such a case, the
Society may also issue a forwarding slip indicating the name of the member and the number and
amount of the cheque issued. On presentation of such a cheque with the forwarding slip, the
Marketing Society will issue fertilisers to the member concerned. To prevent any misuse of this
facility, the cheques may be marked 'Account-Payee Only'. Further, such cheques may be made
payable only into the 'Fertiliser Cash Credit Account', drawals against which may be permitted
only for payment for fertilizers. When the cheques are presented to the DCCB, debits and credits
will be raised in its books against the concerned PACS and the Marketing Society respectively.
h. Execution of Time-Pronotes: After sanction is received by the Society, the person(s) authorized to
raise loans from the DCCB and execute the necessary documents for the purpose, will have to
execute a consolidated Time Promissory Note to cover the total of the Cash and Kind Components
of the loans intended to finance the production of the Kharif crops.
i. The pronote should have an appropriate due date for the payment of the loans out of the sale
proceeds of crops and will cover all the drawals under the limit during the year. For drawals
intended to finance the second or Rabi crops, the Society will execute another Time Pronote
subsequently with a different due date, covering both the Cash and Kind Components. This second
pronote is necessary in view of the difference in the dates of maturity.
j. Security for Short-Term Loans: The essential feature of the crop loan system is that a farmer's
eligibility for loan and the size of the loan are determined by the fact that he is a genuine farmer who
needs credit for production and that he will repay it from out of his production and not by the fact of
his ownership of land or the value of any other tangible security he can offer.
k. The most convenient security from the point of view of the lending agency as well as the borrowers
is the charge created by a mere declaration in favour of the Societies on the identifiable right or
interest (whether as owner or tenant) of the farmer in the land cultivated by him. The necessary
legal provision exists in some of the States and is being made elsewhere. It should, however, be
ensured that such a charge is vacated in case a borrower obtains a loan from the Agriculture and
Rural Land Development Bank (ARDB) against the mortgage of the same lands as is the case in
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Maharashtra.
l. Seasonality in Disbursement: Since under the crop loan system, the loan is for production of crops
and the recovery is expected out of the sale proceeds of such crops, it follows that the advances
should be confined to the period shortly before sowing and ending shortly before the harvest.
m. If a cultivator wants to stock the fertilisers in advance i.e. even at the beginning of the season, he
may be allowed to do so.
n. It would be preferable to provide the Cash Component in instalments separately for Kharif and
Rabi crops.
o. Seasonality in Recovery: Seasonality is necessary also in the recovery of loans and, for this
purpose, the due date may be so fixed that it is not too distant from the harvesting season, and at the
same time,a reasonable period is allowed for enabling the cultivator to dispose of his produce.
p. The practice of some DCCBs to fix the due date at the end of twelve months from the date of drawal
is inconsistent with the concept of seasonality. Such a practice may lead to overdues, as repayment
does not coincide with the period when most cultivators are likely to have funds.
q. The guiding principle should be to fix the due date or dates with reference to the points of time when
the majority of cultivators in the area are likely to market their produce.
r. Linking Credit with Marketing: Except in the case of cash crops like sugarcane it proves difficult to
persuade the borrowers to sell their produce through Cooperative Marketing Societies (CMS). In
the areas where the CMS are strong and are doing effective marketing the members of PACS
automatically dispose of their produce through such CMS. However it is desirable to persuade the
members to dispose their produce through CMS.
6. Period of the Limit and Sources of Finance:
a. The sources of funds for financing Seasonal Agricultural Operations through PACS are:
i. Internal resources of Apex Bank and DCCBs.

ii. Refinance from ST(SAO) credit limits sanctioned by NABARD to Apex Bank on behalf of
DCCBs.
b. ST (SAO) credit limits are sanctioned to DCCBs by the Apex Bank and to the Apex bank by
st st
NABARD for a period of one year i.e. from 1 April to 31 March every year.
7. Basic Objectives of Refinance:
a. The refinance facilities provided by NABARD aims at serving two basic objectives, viz.:
i. that of supplementing the resources of the Cooperative Credit System for meeting the credit
needs of its clientele as adequately as possible by providing refinance, particularly the
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agricultural credit needs of the farming community; and
ii. ensuring simultaneously the building up of a sound, efficient, effective and viable Cooperative
Credit Structure for purveying credit in the rural sector of the economy.
b. The main aspects of this policy which have been receiving increasing attention are the need to
ensure that:
i. the expansion of agricultural credit with the support of refinance facilities proceeds on sound
lines especially from the point of quantum of credit, manner of disbursement, supervision over
utilization and recovery of loans.
ii. the needs of small and marginal farmers are met increasingly year after year.
c. Accommodation by way of Refinance to SCBs: NABARD sanctions consolidated Short-Term

Credit Limits to the SCBs on behalf of their affiliated DCCBs for financing SAO and these limits
can be drawn upon by way of refinance. In other words, the credit limits sanctioned by NABARD
can be drawn upon by the SCBs only in respect of Short-Term agricultural loans already advanced
by the concerned DCCB and the SCB.
d. Nature of Accommodation:
i. The credit limits sanctioned by NABARD to the SCBs for financing SAO are in the nature of
Cash Credit (CC) accommodation. This means that the drawals and repayment under the
sanctioned credit limits can be made as many times as required, provided the outstanding in
the account do not at any time exceed the sanctioned credit limit.
ii. All drawals on the credit limits are in the nature of reimbursement finance. However, each
drawal is treated as a separate loan and may be allowed to run a period not exceeding twelve
months. In actual practice, however, the advances are repayable on demand but are ordinarily
not recalled before the expiry of twelve months from the date of each drawal.
iii. The credit limits are sanctioned for one year and are operative from April to March. However,
the credit limits sanctioned for a particular year are exclusive of outstanding under the credit
limits sanctioned for the previous year.
iv. Credit limits are sanctioned to the SCBs for refinancing the DCCBs or for direct lending to the
PACS in areas where the SCB is functioning as a Central Financing Agency (CFA).
e. Security for Advances:
i. The Consolidated Short-Term credit limits sanctioned by NABARD to the SCBs on behalf
of affiliated DCCBs for financing SAO may be secured against Stocks, funds and securities
other than immovable property in which a trustee is authorized to invest trust money by any
law for the time being in force (Section 21(1)(i) read with Section 21(4) of NABARD Act).
ii. The audit classification of the Bank is considered as an indicator of its financial soundness and
for accepting the pronotes of a DCCB as collateral, the DCCB should have been placed in A or
B or C class in audit. However, pronotes of a DCCB placed in C class in audit may also be
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accepted and credit limit on its behalf sanctioned (without Government guarantee), provided
the credit limit application is specially recommended by the Registrar of Coop. Societies
(RCS). Otherwise, the credit limits on behalf of a DCCB placed in C class in audit and those
classified as weak are sanctioned against Government guarantee.
8. Basic Norms of Eligibility for Credit Limits:
a. The ST credit limits for financing SAO are sanctioned by NABARD to the SCBs on behalf of
affiliated DCCBs. In order to be eligible for sanction of credit limits by NABARD, the SCBs as
well as the DCCBs shall have to comply with certain basic norms. These are discussed below:
i. Compliance with Section 11(i) of B.R. Act: In terms of section 11(i) of the Banking Regulation
Act, 1949 (As applicable to Coop. Societies), no Coop. Bank shall commence or carry on the
business of banking in India unless the aggregate value of its paid up capital and reserves is not
less than one lakh of rupees. The 'aggregate value' refers to the real or exchangeable value of
paid up capital and reserves, and is worked out by the inspecting officers of NABARD during
each of the statutory inspections of the banks.
ii. In view of the aforesaid provisions of B.R. Act, the State and District Central Coop. Banks
which do not satisfy the provisions of Section 11(i) of the Banking Regulation Act, 1949 (As
applicable to Coop. Societies) are not eligible for sanction of credit limits by NABARD till
they either start complying with the said provisions or have applied and have been granted
exemption by the Government of India from the provisions of Section 11(i) of the Act Ibid up
to a specified period.
b. Receipt of Audit Reports: Audit should not be in arrears for more than a year, i.e., the audit for the
year 2009-10 should have been completed while applying for the year 2011-12.
c. Receipt of Compliance Report on Statutory Inspection Reports: NABARD conducts Statutory

Inspections of SCBs and DCCBs and the concerned Banks are expected to submit a compliance
report within three months of the date of receipt of the Inspection Report by them. In order to ensure
timely action on Inspection Report and submission of a Compliance Report, the ST credit limit
applications of banks whose Compliance Report on the Statutory Inspection Report has become
due but has not been submitted, are not considered till the Compliance Report is submitted to the
concerned Regional Office of NABARD. In case, however, the credit limit is sanctioned,
operations are not allowed till the Compliance Report has actually been received.
9. Financial Disciplines Governing the Operations on Sanctioned Credit Limits:
a. The operations on Short-Term credit limits sanctioned by NABARD to the SCBs on behalf of
DCCBs for financing SAO are governed by certain financial disciplines which are as follows:
i. Availability of Non-Overdue Cover: The SCBs and DCCBs should absorb each overdue loan
within their own resources. The concept of 'non-overdue cover' was, therefore, brought into
the refinance facilities. This discipline envisages that borrowings from NABARD should be
backed up by the non-overdue loans outstanding at the level of DCCBs. However, to avoid
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hardships to the SCBs/DCCBs, this condition is required to be satisfied at the time of each
drawal on the sanctioned credit limit and in case the outstanding borrowings from NABARD
at any time subsequently exceed the non-overdue loan, because of either increase in overdue
loans or repayments by PACS/DCCB, further drawals on the credit limit are not allowed till
the position is regularized and non-overdue cover is built up.
ii. The state Coop. Bank at the time of each drawal, on the credit limit, has to furnish to
NABARD a certificate to the effect that the drawal and outstanding under earlier drawals
made on behalf of the concerned DCCB will together not be more than DCCB's Short-Term
loans for SAO outstanding against PACS exclusive of overdues.
iii. The SCBs are expected, particularly in the case of weak DCCBs, to advance loans to them
from out of their own resources to enable the DCCB to finance the societies and build up non-
overdue cover and thereafter draw upon the credit limit sanctioned by NABARD on the basis
of non-overdue cover so built-up
b. Financing of Small and Marginal Farmers: The percentage of the credit limit earmarked for
financing the small / marginal farmers and the free portion are specified in the sanction letter. There
are no penal provisions for non-compliance with the stipulation except that the operations on the
credit limit get restricted to the extent of the free portion of the credit limit plus loans actually
advanced to small farmers.
10. Special Conditions Governing Continuance of Operations on Sanctioned Credit Limits:
a. Recovery of Overdues: In cases where overdues, though within the eligibility norms, are found to
be substantially high, say, exceeding 50% of the demand, the banks are advised to make concerted
efforts for recovery and the concerned Regional Office of NABARD will keep a watch on the
progress achieved.
b. Avoidance of Default in Cash Reserve / Liquid Assets: Timely Submission of Statutory Returns
c. Compliance Report on Statutory Inspection Report: A condition is included in the sanction

letter that NABARD would have a right to stop further advances from the sanctioned credit limit if
the bank fails to submit the compliance report on the last inspection report issued by NABARD
within the stipulated time or defects noticed/suggestions made remain unrectified /
unimplemented.
11. Separate Credit Limits for Financing Cultivation of Oilseeds in NODP Areas:
a. NABARD, from the year 1986-87 has started sanctioning separate credit limits to SCBs on behalf
of DCCBs functioning in NODP areas, for financing cultivation of oilseeds. These separate credit
limits are, by and large, on the lines of the normal ST credit limits sanctioned by NABARD each
year for financing SAO. The important features of this separate line of credit are as under:
i. PACS financing oilseed growers in the project district have to indicate in the normal credit
limit statement separately the acreage proposed to be brought by the borrowers under the
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approved oilseeds. PACS, by adopting the revised scales of finance recommended for oilseeds
crops under the project have to prepare separate Credit Limit Statements for financing
cultivation of oilseeds in Project areas.
ii. It is not necessary for the DCCBs to prepare separate Credit Limit Applications. Based on the
Credit Limit Statements for financing of oilseeds in project areas, the DCCBs, while applying
for sanction of credit limits for financing SAO, may indicate separately in the application form
the total area to be brought under NODP and the estimated credit requirements for the same.
The resolutions of DCCBs and SCB applying for sanction of SAO limits and the
recommendations of RCS thereon have also to be provided in two parts, one for financing
growers of oilseeds under NODP and the other for remaining crops.
iii. Separate ledger accounts and DCB register in respect of crop loans under NODP and other
crops are to be maintained at each level viz. PACS, DCCBs and SCB. Further, separate drawal
application and disbursement certificate for NODP have to be prepared.
iv. In the case of DCCBs, which are not eligible for sanction of SAO limit on account of high
level of overdues, special credit limits may be sanctioned against Government Guarantee for
the limited purpose of financing oilseeds cultivation in NODP areas. The drawals on the limit
are to be utilized for the exclusive purpose of financing oilseeds under NODP. Similarly,
recoveries effected from societies under the loans provided for financing oilseeds under
NODP are to be passed on to the SCB and by the SCB in turn to NABARD towards the
repayment of outstanding borrowings under the special credit limits.
v. The drawals by the SCBs on the special limits for NODP may be permitted on the basis of total
non overdue cover subject to the condition that the total drawals made under the separate
credit limit for NODP shall not at any time exceed the total disbursements made for NODP
during the year as reflected in the books of accounts of the banks. At the time of each drawal,
the SCB has to furnish to NABARD a certificate to this effect in the prescribed form. Similar
certificates are to be obtained by the SCB from the DCCBs in the proforma prescribed.
vi. The drawals under the NODP limits are also subject to usual disciplines as in the case of
normal credit limits such as seasonality discipline, financing of small farmers, etc.
vii. It has to be ensured by the State Governments that the crop insurance scheme is extended to
cover all the crops of oilseeds production under NODP so that farmers can take full advantage
of the scheme as advised by the Government of India.
12. Special Rice Production Programme:
a. Every year in the month of January/February, NABARD issues a 'Policy Circular' inviting
applications in the prescribed form for sanction of Short Term credit limits to the SCBs on behalf of
DCCBs for financing SAO for the next financial Year, indicating therein its policy in this regard.
The Policy Circular indicates broadly the eligibility criteria, the terms and conditions governing
the sanction and methods of operations on the credit limits. The circular emphasises the need to
work out and indicate separately the credit requirements of the various Special Agricultural
Production Programmes undertaken in the area. The aspects such as financing of new and
nondefaulting members of PACS and treatment of defaults involving small and marginal farmers
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are also covered in the policy circular.
b. Public Distribution System would be treated as a legitimate charge on the lendable resources while
working out the credit gap for financing SAO.
c. In order to ensure that the resources of SCBs / DCCBs are deployed judiciously and efficiently in
the order of priority so as to make optimum use of resources, the need to introduce the concept of
and to prepare the Annual Credit Plans and Performance Budgets is emphasised.
13. Time Schedule for Submission of Applications:
a. The applications for sanction of normal credit limits in the prescribed proforma for financing both
Kharif and Rabi crops during the next Year complete in all respects and accompanied by a copy of
the proforma balance sheet of the DCCB as at the end of March are required to be forwarded in
duplicate by the SCB to the concerned Regional Office of NABARD by 30 April. The application
for additional normal credit limit, if any, has to be similarly forwarded to the Regional Office in
duplicate furnishing therein relevant information to justify the need for enhancement of the normal
credit limit already sanctioned.
b. The SCBs have to obtain the credit limit applications from the affiliated DCCBs along with their
own application for a credit limit on behalf of the DCCBs whose applications are being forwarded.
The SCB has to submit with its application the last audited Balance Sheet and Trial balance, the last
annual report and copy of the resolution of the Board of Directors of the SCB authorizing it to
obtain financial accommodation from NABARD. All credit limits applications are required to be
duly recommended by the RCS before they are forwarded to NABARD.
c. Preparation and Submission of Credit Limit Applications by DCCBs: The Credit limit applications
of DCCBs have to be prepared in the prescribed format and have to be accompanied by the
requisite documents, financial statements, etc.
d. Each DCCB is required to furnish in the credit limit application, its Realistic lending Programme in
respect of short term loans for financing Seasonal Agricultural Operations. This is expressed in
terms of maximum level of outstanding advances expected to be reached during the next Kharif
season / year. In the Normal Credit Limit Application for financing Kharif crops, the maximum
level of outstanding expected to be reached during the Kharif season i.e. upto September, by which
time the Kharif financing is by and large over, has to be indicated while in the Credit Limit
Application for supplementary credit limit for financing Rabi crops, the maximum level of
outstanding expected to be reached during the entire year has to be indicated.
e. Based on the scales of finance, the Realistic Lending Programme is to be prepared by PACS in the
month of January in respect of all its members and submitted to the DCCB for sanction. The DCCB
should be able to sanction all Credit Limit by the month of March. The same has to be prepared
separately for small farmers and for other farmers.
f. Normally, the increase in the lending programme of a DCCB for financing SAO shall be within 20
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percent of the level reached during the previous year and in correlation with the target fixed by the
Government for the respective year.
14. Scrutiny and Sanction of Credit Limit Applications and Issue of Sanction Letters by NABARD:
a. SCB has to prepare a consolidated credit limit application for financing ST-SAO on behalf of all the
DCCBs eligible for refinance from NABARD. SCB has to examine the credit requirements of all
the eligible DCCBs on the basis of credit limit applications received from them and has to arrive at
the total credit limit to be sought from NABARD for the ensuing year. This limit will be on behalf
of all the eligible DCCBs.
b. While assessing the credit limit that has to be applied for on behalf of all the eligible DCCBs, the
SCB shall examine/take into consideration the following aspects:
i. All applications for credit limits for financing Seasonal Agricultural Operations are required
to be submitted to the concerned Regional Office of NABARD for scrutiny. A comprehensive
scrutiny note has been prescribed for recording the findings based on the scrutiny of the credit
limit application, the audit and statutory inspection reports, statutory returns and other
material relating to the DCCB/SCB available in the Regional Office, and to make
recommendations to the Sanctioning Authority in NABARD at Regional Office or Head
Office in accordance with the sanctioning powers. A copy of the format for preparing the
scrutiny note for ST normal credit limits for financing SAO is given is given in the Annexure-
1 to this Chapter .
ii. The scrutiny is aimed at making a performance appraisal of the DCCB in respect of various
important aspects relevant to the consideration of the credit limit application arriving at an
acceptable lending programme for the DCCB, working out the resource gap for fulfilling the
lending programme and determining the quantum of credit limit that may be sanctioned. The
aspects covered in the scrutiny note for normal credit limit applications are:
 Provisions of NABARD Act, under which limit is applied for / recommended.

 Details regarding documents submitted, audit etc.
 Credit limits for various purposes sanctioned by NABARD during the previous year and
operations thereon.
 Compliance with various terms and conditions, which govern the credit, limits sanctioned
previous year and other operation requirements, viz. nonoverdue cover, seasonality
discipline, Advance to small farmers, defaults in repayment of borrowings, maintenance
of cash reserve and liquid assets and submission of statutory returns.
 Compliance on the Statutory Inspection report.
 Realistic Lending Programme (RLP)
 Actual eligibility
 Special conditions, if any, that may be imposed while sanctioning.
 Sanction of credit limit.
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c. The consolidated credit limit application under ST-SAO for the ensuing year has to be submitted to
the NABARD, RO duly supported by the resolution of the Board of Management for seeking the
credit limit and also other enclosures as prescribed by NABARD in its policy circular every year.
d. The scrutiny note for supplementary credit limit is in followup of the scrutiny note for normal
credit limits and is, therefore, brief.
e. The sanction letters are addressed by NABARD to the SCB and copies to the RCS, concerned
DCCB and the HO / RO of NABARD as the case may be.
f. Additional limits from NABARD: In case, the DCCB has fully utilized the ST (SAO) limits
sanctioned by NABARD, it can apply to NABARD for additional limits, furnishing the necessary
data in respect of lending programme under ST Agricultural loans and the targets fixed by RCS for
the same. The procedure for making application for additional limits to NABARD will be the same
as followed under normal ST (SAO) Credit Limits. NABARD will sanction additional limits
subject to the fulfilment of eligibility norms and the genuine need for such additional limits.
15. Sanction of credit limits by NABARD:
a. On receipt of SCB's credit limit application for ST-SAO, NABARD, RO will examine the same
against the eligibility criteria fixed in the policy circular and sanction a consolidated credit limit
under ST-SAO to the SCB on behalf of all the eligible DCCBs.
b. The consolidated credit limit sanctioned by NABARD will be on the basis of the credit eligibility
of each (eligible) DCCB for refinance for the ensuing year. The maximum credit limit that will be
sanctioned by NABARD to the SCB will vary according to the Annual Policy of NABARD on ST-
SAO. Presently, the maximum credit limit sanctioned by NABARD to SCBs on behalf of eligible
DCCBs is 45% of the ground level crop loan issues targeted for the year 2010-2011.
16. Documents to be executed:
a. On receipt of sanction letter, the SCB has to write to the Officer in charge of R.O. confirming that
the terms and conditions of sanction of credit limit are acceptable to them. Before commencement
of operations on the sanctioned credit limit, the SCB and DCCBs are required to execute the
following documents:
i. A Demand Promissory Note is to be executed by the SCB in favour of NABARD which has
to be backed by Time Promissory Note executed in respect of each drawal by the concerned
DCCBs in favour of the SCB, as collateral security. The Time Promissory Note executed by
DCCBs in favour of SCB are to be endorsed by SCB in favour of NABARD and held by the
SCB in its custody as agent of NABARD.
ii. The SCB has also to execute an Agreement in the prescribed form. Separate Agreement forms
have been prescribed for credit limits sanctioned without Government Guarantee, with
Government Guarantee and for SCBs functioning in Union Territories and those functioning
266 - III
as Central Financing Agencies to all of whom credit limits are sanctioned against Government
Guarantee.
iii. The SCBs are required to execute a Certificate as to the character of accommodation
enclosing therewith a schedule of Pronotes. Similar Certificates are to be obtained by the SCB
from the DCCBs borrowing either with or without Government guarantee.
iv. The SCB is required to give in triplicate an irrevocable 'Letter of Authority' addressed to
Reserve Bank of India (RBI) authorizing it to debit the Current Account of SCB with RBI on
receipt of a written requisition to this effect from NABARD by such amount as may be
indicated in the requisition. Two copies of this authority letter are required to be sent to the
concerned office of RBI which returns the duplicate copy of the letter indicating separately its
agreement to comply with the requisition of NABARD in terms of the letter of authority.
b. Certificates to be Furnished at the Time of Drawal: Along with the application for drawal on the
credit limit, the SCBs are required to furnish certain certificates at the time of each drawal. These
certificates are as under.
i. Certificates of Non Overdue Cover

ii. Certificate of Reserve Borrowing Power
iii.Certificate of Cover for OPP Borrowings
iv. Monthly Non-Overdue Cover Statements: This is by far the most important operational
statement, which the DCCBs are required to submit to the SCB and, in turn, SCB to the R.O of
NABARD by 20th of the next month.
v. Certificate of Safe Custody and Intrinsic Value of Pronotes Executed by DCCBs
Quarterly: As collateral security for advances under credit limits sanctioned by NABARD,
the Promissory notes executed by the DCCBs in favour of the SCB are assigned by SCB to
NABARD. However, the SCBs continue to hold these Pronotes in safe custody on behalf of
NABARD. The SCBs in this connection, are required to furnish to NABARD every quarter a
certificate that they are holding the Pronotes in safe custody and that the intrinsic value of the
pronotes held by them at any time during the quarter was not less than the aggregate amount
borrowed by the SCB on behalf of each of the DCCBs for the purpose.
vi. Progress in Financing New and Non Defaulting Members and Small Defaulters by
Ineligible DCCBs Half-Yearly: The SCBs are required to collect and furnish half yearly the
data in the prescribed form in respect of Short-Term and Medium Term agricultural advances
by the ineligible DCCBs for financing new and non-defaulting members and small defaulters.
The reasons for not financing such members are also to be furnished.
17. Operations Discipline:
a. Non-Overdue Cover (NODC):
i. The Apex Bank has to allow drawals to the DCCBs on the credit limits sanctioned by the Apex
bank / NABARD, subject to the availability of NODC.
267 - III
ii. The Apex bank has to consolidate the NODC particulars of all the DCCBs and furnish the
same in the prescribed format to NABARD'S Regional Office, on or before 20th of every
month.
iii. For getting the drawals from NABARD, the Apex Bank should furnish a certificate in the
prescribed format regarding the availability of NODC.
iv. If any deficit occurs in the maintenance of NODC, the DCCBs should regularize the same by
disbursing fresh loans out of their own funds or by reducing their borrowings by utilizing the
surplus resources. If the DCCB experiences any difficulty in this regard, the Apex Bank may
make good the deficit from its own resources.
v. If separate limits for other crops, oilseeds and any other scheme are availed by Banks, the
NODC position in respect of these loans and advances should be reported to NABARD
separately. The drawals in respect of these separate limits will be allowed, subject to
availability of separate NODC under each category.
b. Advance to Small Farmers:
i. The DCCBs will have to ensure that not less than the prescribed minimum (by NABARD at
present 30%) of the ST agricultural advances made to the PACS during the financial year are
issued for financing small / marginal / economically weak farmers.
ii. The drawals will be allowed to the DCCBs subject to fulfilment of this condition.
iii. For the purpose of compliance of small farmer condition of NABARD, a small farmer is
defined as one who 'owns or cultivates 5 acres of land, wet or dry'.
c. Compliance with Sections 18 and 24 of the B.R, Act 1949:
i. SCB / DCCBs should maintain Cash Reserves and Liquid Assets without any default as per the
provisions of Section 18 and 24 of B.R. Act as applicable to Cooperative Societies.
ii. In case, the Apex bank or any DCCB persistently defaults in maintenance of CRR and SLR,
NABARD may withhold all refinance facilities and / or charge penal interest on the refinance
equivalent to the quantum of such default for the period during which such default persists.
d. Due Date Defaults:
i. In case, the Apex bank fails to repay the principal, interest and other charges due to NABARD
on due dates, it will not be eligible for any refinance from NABARD.
ii. All refinance facilities will be stopped by NABARD till the clearance of defaults by SCB.
e. Compliance on Inspection Reports:

i. If the Bank fails to submit the compliance report on time or the report submitted is found to be
far from satisfactory, NABARD will not consider the limit applications of SCB on behalf of
DCCBs.
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18. Application to NABARD for Sanction of ST (SAO) Limits:
a. The DCCBs have to prefer a single limit for the whole year for meeting the credit requirements of
all crops that are grown in the area of the operation of DCCB.
b. The DCCBs, which have tribal population, have to prepare separate credit limit applications for
crop loan requirements of tribals.
c. While preferring the credit limit applications, the DCCBs have to forward, among other things, the
following documents along with the prescribed limit application.
i. A copy of the audit certificate for immediate second preceding financial year along with the
audited Balance Sheet and Profit and Loss Account.
ii. Demand, Collection and Balance Statement in respect of all loans for the preceding year
st
ending 31 March duly certified by the Auditor.
iii. Performance Budget for the ensuing year.
19. Availing of drawals from NABARD-Procedure:
a. The drawals are allowed to SCB by NABARD against credit limits sanctioned on behalf of DCCBs
on reimbursement / refinance basis, i.e., Apex Bank have to disburse the ST agricultural loans to
DCCBs and then apply to NABARD for drawal for reimbursement of the loan.
b. To become eligible for drawals: Apex Bank must also furnish a monthly Non-overdue Cover
th
(NODC) positions of all DCCBs to NABARD so as to reach 20 of the succeeding month to which
the statement relates.
c. The SCB has to apply to NABARD for drawals in the prescribed format which shall include the
following points:
i. A certificate confirming that the drawal applied for is within the Reserve Borrowing Power of
the Bank.
ii. Confirmation to the effect that the drawal is in reimbursement of loans issued to DCCB for
Seasonal Agricultural Operations.
iii. A certificate specifying that the Non-overdue loans and advances outstanding from Societies
affiliated to the DCCBs, in respect of Seasonal Agricultural Operations are not less than the
aggregate of the amount already drawn by the SCB on behalf of DCCBs.
d. The SCB has to apply for drawals to NABARD requesting them to grant an advance (specifying the
amount) under Section 21(1)(i) / 21(3)(b) of NABARD Act, 1981 against Apex Bank DPN
(specifying the date and amount) already executed and credit the amount to our account with RBI.
The application for drawal in the prescribed format should be signed by two authorized officers or
the SCB and forwarded to NABARD.
e. NABARD will scrutinize our drawal application to ensure that it has been made in accordance with
the terms and conditions stipulated by them for operating on the credit limits. If the drawal applied
269 - III
for by the bank is found to be in order, the drawal amount will be sanctioned and credited to Apex
Bank account with RBI under advice to Apex Bank.
f. On receipt of advice from NABARD of disbursement of the drawal to the credit of Apex Bank
account with RBI, SCB shall endorse the pro-notes / hundies (against which the SCB
reimbursement) executed by DCCBs in favour of NABARD and hold the same on their behalf in
safe custody.
g. The DCCBs have to furnish following particulars in the Prescribed Credit Limit
Application:
i. Programme for ST agricultural lending for the current year and the performance in the
previous year.
ii. Crop wise disbursement performance in the previous year and the programme / projections
for the current year.
iii. Particulars of credit limits sanctioned by NABARD and its utilization by DCCBs for the
previous year indicating maximum outstanding to Apex bank and percentage of utilization.
iv. Credit support required from NABARD
v. Details of financing of small farmers for the previous year.
vi. Maintenance of NODC during the previous year.
vii. Particulars of due date default to SCB, if any.
viii. Particulars of scales of finance crop wise as fixed by the SLTC
ix. Completion of Audit and issue of audit certificate.
x. Compliance report on NABARD inspection.
xi. Staffing pattern
xii. Maintenance of cash reserve and liquid assets during the previous year with minimum and
maximum liquid assets maintained month wise.
xiii. Borrowing power of the Bank and the Reserve Borrowing Power.
xiv. Compliance of NABARD's instructions regarding rates of interest.
h. The credit limit applications submitted by DCCBs should also be supported by its Board's
Resolution, resolving to borrow (indicating amount) from the Apex Bank and requesting the Apex
bank to apply for credit limits for a like amount to NABARD under section 21(1) (i) read with
section 21(4) of NABARD Act, 1981 with / without Government Guarantee. Such Board
Resolution should be signed by the Chairman and countersigned by the Chief Executive of the
Bank.
i. Sanction of limits by NABARD: After thorough scrutiny of the limit applications and based on
the fulfilment of eligibility norms by DCCBs, NABARD will sanction the limits to Apex Bank on
behalf of DCCBs. Separate credit limits will be sanctioned for other crops, oil seeds under OPP etc.
270 - III
j. The letter of sanction of limits sent to Apex Bank by NABARD will indicate the name of DCCB for
whom limit is sanctioned, the purpose of limit etc. and also the terms and conditions to be fulfilled
by Apex Bank while operating the limits with NABARD and while allowing the drawals under the
limits to DCCBs.
k. On receipt of sanction orders from NABARD, the SCB has to give its acceptance to NABARD,
accepting the terms and conditions stipulated by NABARD.
20. Scrutiny of Credit Limit Application and Assessment of Limits by Apex Bank:
a. On receipt of the Credit Limit Applications from DCCBs, the Apex bank should ensure that the
applications along with all the statements as required have been prepared and submitted in the
prescribed format.
b. After completing the process of assessing the credit limit requirements of DCCBs as per norms
above, a note to Board of Management, indicating the purpose of the limit, limit applied for by the
DCCB, the limit for which the Apex bank may make application to NABARD etc. will be put up for
consideration and approval.
c. The Board of Management will pass a resolution to apply to NABARD for credit limit (indicating
the amount) for the year under Section 21 (1) (i) read with Section 21 (4) of NABARD Act, 1981 to
refinance the DCCBs for financing Seasonal Agricultural Operations.
d. On approval by the Board of Management of the Apex Bank to apply to NABARD on behalf of
DCCBs for sanction of ST SAO credit limits, the Credit Limit Applications of DCCBs supported
by Apex Bank's Board Resolution should be forwarded to NABARD together with the following
documents pertaining to the Apex bank:
i. Financial particulars as on …… (latest month Proforma balance sheet).

ii. Liquid Assets position as on last Friday of the previous month.
iii. Particulars of Borrowing Power as on 31st March.
21. Sanction of Limits by Apex Bank:
a. Based on the sanction order from NABARD, the Apex bank will sanction ST (SAO) credit limits to
each DCCB for a like amount as sanctioned by NABARD stipulating its terms and conditions to be
followed by DCCBs while operating the limits. Two copies of its terms and conditions have to be
sent to each DCCB. While informing the DCCBs the sanction of credit limits by NABARD the
Apex bank has to advise them to forward the following documents and ensure to receive them
before applying for the first drawal on the credit limit:
i. A certified copy of the Resolution passed by the Board of Management of the DCCB, agreeing
to hold promissory Notes of PACS on behalf of the Apex Bank, duly endorsed in its favour and
authorizing the officials of DCCB by name to furnish the security certificate, undertaking etc.,
271 - III
and also authorizing the officials to sign the drawal applications and the enclosures thereto
under the credit limit.
ii. Pronote and agreement for the credit limit together with the specimen signatures of the
officials authorized to operate on the credit limit.
iii. Duplicate copy of the terms and conditions, governing sanction of credit limit duty signed by
the officials authorized to sign the pronotes etc. in token of having accepted the terms and
conditions.
b. Apex Bank's own limits:
i. In addition to NABARD's limit sanctioned to DCCBs, SCB also sanctions its own limit for
financing ST agricultural operations.
ii. The Apex Bank should watch and ensure that the funds drawn from Apex Bank limits have
been utilized by DCCB for issuing of ST Agricultural Loans. This can be verified from the
information furnished by DCCB at the time of making subsequent drawals.
iii. Interest may be charged at a rate higher than the rate applicable to NABARD limit (normal
limit) on the outstandings under this limit.as may be decided by the Board of Management of
the apex coop. bank from time to time. A specimen of the note for ST (SAO) Additional Credit
Limit from own Resources of the Bank is given in the Annexure-2 to this Chapter.
22. Norms and Procedures for Allowing / Sanction of Drawals to DCCBs from Apex Bank:
a. The Apex bank should ensure that the DCCB has complied with the following:
i. The DCCB should forward to the Apex bank NODC statement on or before 14th of every
month, succeeding the month to which the statement relates.
b. While allowing the drawals to DCCBs, the Apex bank should ensure that DCCB has forwarded the
following documents / certificates:
i. Application for drawal in the prescribed format.
ii. Hundi (Time Promissory Note) drawn and executed by the authorised official/s of the DCCB,
the amount of the drawal applied for, together with a schedule indicating the particulars of
pro-note drawn / issued for the purpose of financing agricultural operations and also
agreeing for the endorsement of the said pro-note / Hundi by the Apex bank in favour of
NABARD.
iii. The latest Non overdue cover (NODC) statement.
iv. Latest particulars of issues and recoveries of ST agricultural loans.
v. Certificate of Reserve Borrowing Power as per format.
vi. Statement of CRR and SLR as on the latest preceding operative Friday.
vii. Particulars of investment of deposits with commercial Banks.
viii. The DCCB has to furnish certificates in respect of the following:
272 - III
 The securities obtained from PACS bear the first charge of the Apex bank,
 The DCCB has sufficient non- overdue cover / pronotes duly endorsed in favour of Apex
Bank to cover the outstanding.
 The outstanding against PACS tally with the General Ledger and DCB Register.
 The overdues furnished are as per DCB Register.
 NODC particulars are furnished after posting General Ledger and DCB Register.
 All PACS are maintaining the crop verification register and verification done as prescribed.
 The signatures on pronotes are genuine signatures of the official authorised by Board of
Management.
c. The Apex bank has to ensure that the drawal application and other documents / certificates
enclosed thereto have been properly prepared and signed by the official/s of the DCCB as
authorised by the Board of Management.
d. The eligibility amount for drawal should be assessed to the extent of gap between the total limit
sanctioned and outstanding borrowings of DCCB from the Apex bank. (or) The difference between
Non-overdue cover (NODC minus dues payable to Coop. Marketing Societies and Balance in LSB
a/c. of Societies) and the total borrowing of DCCB as on the date of drawal application, whichever
is less.
e. ST (SAO) drawal application Scrutiny Sheet should be prepared and put up along with the
application for drawal and other enclosures to the Executive (in charge of Agricultural Section)
concerned for his orders for allowing the drawal. The amount of drawal allowed is to be credited to
the DCCB's Current Account with the Apex Bank, under advice to the DCCB concerned. When the
drawal is disallowed, the Apex Bank has to inform the same to the DCCB concerned immediately.
f. For the purpose of allowing drawals, ST agricultural loans pending conversion will be reckoned as
cover upto the period of 3 months from the original due date only when such extensions are granted
to borrowers who have obtained Annawari / Kist remission Certificates.
g. As soon as the drawals are allowed to the DCCBs the Apex bank will have to endorse the Pronotes /
Hundis executed by the DCCB in favour of NABARD and hold the same on their behalf under safe
custody.
23. Repayment of Loans and charging of Interest:
a. Each drawal by DCCB on its credit limit is repayable within 12 months without grace period from
the date of availment of each loan.
b. The Apex bank has to pay interest to NABARD on the amounts drawn under the credit limits as per
the rate of interest prescribed by NABARD and it has to be paid to NABARD at the end of
September and March each year.
c. Similarly, DCCB has to pay interest to the Apex Bank at half yearly rests on 31st August and
28th/29th February every year as the case may be. The apex bank will recover the interest amount to
the debit of Current Account of the DCCB concerned.
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d. Advances made by NABARD on the credit limits sanctioned on behalf of DCCBs are payable on
demand. However, each drawal allowed by NABARD is payable by Apex Bank on due dates of
pronote so discounted on behalf of DCCB.
e. In case DCCB commits default in repayment of each loan on due date, such loan amount becomes
overdue. Similarly, if each loan amount drawn from NABARD is not repaid by SCB on due date,
such advance also becomes overdue.
24. Passing on of Recoveries:
a. The DCCB should pass on the entire collections received under ST agricultural loans to the credit
of ST (SAO) account with the Apex Bank, then and there. If the DCCB has repaid its dues on the
due date, the DCCB shall be deemed to have complied with passing on of recoveries.
25. Maintenance of Demand, Collection and Balance (DCB) Register by DCCBs:
a. Every DCCB should maintain and post the particulars of Demand, Collection and Balance etc. in
DCB Register on fortnightly basis as per NABARD'S instructions.
b. The particulars of overdues furnished in NODC statement should be as per DCB Register.
c. The DCCB may also maintain DCB Register on a day-to-day basis or weekly basis.
d. The DCCB should furnish a certificate about the periodicity of maintenance of DCB Register.
e. The drawals on ST (SAO) limits should be regulated with reference to NODC position furnished
along with the drawal.
f. If DCCB maintains DCB register on day-to-day basis or weekly basis, the drawals may be
regularized with reference to NODC position on any day close to the date of drawal or NODC
position as at the close of business on the preceding Friday, as the case may be.
g. In case, NODC is maintained on fortnightly basis, the drawals will be regulated as per the NODC
position as on the first preceding Friday of the fortnight.
26. Maintenance of Crop Verification Register:
a. The DCCB should ensure that all PACS financed maintain the Crop Verification Register (CVR) as
prescribed by the Apex Bank.
b. The staff of PACS, supervisors and Field Mangers of DCCBs should supervise the utilization of
crop loans disbursed as per the norms fixed by the Apex Bank and record the particulars of such
verification in the Crop Verification Register. The DCCB should ensure that the loan issued for
raising of crops requiring high scales of finance are utilized only for cultivating such crops and not
for raising other crops.
274 - III
c. The DCCB has to send a consolidated verification report to Apex Bank within 3 months from the
month of issue of the loans and it should reach Apex Bank on or before the 15th of every month.
d. The loans unutilized or misutilised or underutilized within one month from the date of issues
should be foreclosed and recovered immediately.
e. Drawals will not be allowed to DCCBs if the Crop Verification Report is not submitted to Apex
Bank on or before the due date.
27. Submission of Revolving Credit Return:
a. The DCCB should furnish the Revolving Credit Return in the prescribed format as on the last
Friday of every month (excepting for the month of March and June, which should be as on 31st
th th
March and 30 June respectively) so as to reach the Apex Bank not later than 20 of the succeeding
month.
28. Investment of Reserve Fund and other Reserves with the Apex bank:
a. The DCCB should invest its entire Reserve Fund, Agricultural Stabilization Fund and other
reserves in Special Deposits with the Apex Bank / Govt. Securities.
b. Earmarking on Fixed Deposits towards investment of the said funds should not be done by DCCB.
In the event of such earmarking, the Apex bank has to foreclose such deposits and take them to
Special Deposits.
29. Stopping Further Advances:
a. The Apex Bank may stop making further advances even when the limit is not fully utilized, if the
DCCB,
i. makes a default in the submission of Form I and IX as required under B.R., Act.,
ii. fails to maintain CRR and SLR as required under sections 18 and 24 the B.R, Act.,
iii. fails to submit the rectification / compliance report in respect of inspection report issued by
NABARD / Apex bank,
iv. fails to comply with the Section 11(i) of B.R. Act. As per the findings of NABARD's
Inspection Report,
v. defaults in repayment of dues under ST (SAO),
vi. deviates from the regulations and instructions stipulated by RBI/NABARD/Apex Bank, in the
issue and repayment of loans and interest thereon and also those relating to conversion,
rescheduling / deferment (rephasement) of loans or other relief.
30. Accounting Procedure:
a. General Ledger Accounts: In respect of advances to DCCBs and borrowings from NABARD
under ST SAO limits, the following heads of accounts are maintained in the General Ledger.
275 - III
i. Advances to DCCBs ST SAO other crops/Oilseeds
ii. Loans from NABARD under section 21 (1) (i) / 21(3) (a) (b) as the case may be.
b. While disbursing loans to DCCBs the Apex bank has to prepare the debit and credit vouchers as
under:
i. Debit : Advance to DCCBs ST SAO other crops / oilseeds

ii. Credit : Current Account of the DCCB concerned (for reimbursement Finance ) / TT and DD
charges to Commercial banks.
c. When the repayments are received from DCCBs, the following debit and credit vouchers are to be
prepared:
i. Debit : RBI, Mumbai A/c.

ii. Credit : Advances to DCCBS ST. SAO…..DCB Other Crops / Oilseeds.
d. In the case of borrowings from NABARD under refinance limits, the debit and credit vouchers are
to be prepared as under:
i. Debit : RBI A/c. (Apex bank Current Account with RBI)

ii. Credit : Loans from NABARD under Section 21 (1)(i) / 21(3)(a) / (b) (as the case may be)
Other crops / Oilseeds.
e. When repayments are made by the Bank towards borrowings from NABARD, the above accounts
will be credited and debited respectively.
f. Entries for Interest Provision & Charging of Interest:
i. While making monthly provision for interest on advances to DCCBs, the following debit and
credit vouchers are to be prepared:
 Debit : Interest receivable on Advances to DCCBs ST SAO
 Credit : P & L Interest received on Advanced to DCCBs ST SAO
ii. When charging interest to the DCCBs,
 Debit : Current A/c. of DCCB
 Credit : Interest receivable on advance to DCCBs ST SAO
g. While making interest payment to NABARD the debit and credit vouchers in respect of interest
provision on loans from NABARD under section 21 (1) (i) / 21(4)
i. Debit: Interest paid on loans from NABARD under Section 21 (1) (i) / 21 (4)
ii. Credit: Interest payable on loans from NABARD
276 - III
h. ST SAO Advances Ledger:
i. In respect of advances to DCCBs under ST SAO a ledger is maintained Bank wise and
purpose wise i.e., other crops, OPP, Tribals Development Programme (TDP) etc. The loans
disbursed to DCCBs in respect of the limits from NABARD and from owned funds of the
Apex bank will be posted in the Bank-wise and purpose-wise Ledger. The debit and credit
vouchers are posted daily as in the case of Current Account Ledger and the products are
arrived at the end of the day. At the top of each ledger account, the following particulars are to
be recorded:
 The name of the DCCB
 Purpose such as crops other than Oilseeds, TDP, OPP etc.
 NABARD and SCB limits.
 Interest rate.
ii. Purposewise total liability of the DCCBs is also to be maintained at the end of the ledger. The
debit and credit vouchers pertaining to all DCCBs are posted daily and daily products are
arrived as in the case of CC accounts. The aggregate outstanding balances in all DCCB's
accounts under each purpose should tally with the balance as arrived in the total liability
column.
iii. Separate bankwise ledger account in respect of interim finance will have to be maintained.
Whenever the DCCBs are not eligible under normal limits on account of insufficient NODC,
they may avail advance under this limit from the Apex Bank.
iv. Under interim finance also, total liability account shall be maintained and all the debit and
credit vouchers are to be posted daily and the balance and products are arrived at the end of the
day.
v. The monthly interest provision on advances to DCCBs is calculated on the products arrived in
the total liability account maintained in the advances ledger and the debit and credit vouchers
are prepared accordingly.
vi. The monthly interest provision on borrowing from NABARD is calculated on the products
arrived in total liability account and debit and credit vouchers are prepared accordingly.
i. ST SAO Borrowing Ledger: In respect of Borrowings from NABARD, ledgers are maintained
for each purpose such as other crops, OPP, TDP etc.
j. Subsidiary Books:
i. Hundi Due Date Register: The Hundi Due date Register is maintained Bank-wise and
Purpose-wise. The details of the date of discount, date of Hundi, Hundi number, amount of
Hundi, period of Hundi, due date are entered in this register. The date of clearance of Hundi,
date of repayment, Hundi number, amount of credit are also entered in this register. The
balance in respect of all Hundies received from a particular DCCB is to be arrived in the
register. The date of return of discharged Hundi is also to be entered in the Column concerned.
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 The outstanding balance under each purpose in respect of each bank, after deducting part
payments should tally with the outstanding in the concerned account maintained in the
advances ledger, on the day.
 The Hundi numbers are given in the serial order by the Bank. When the entire amount of a
Hundi is repaid by the DCCB, the Hundi Number concerned will be rounded off in this
register to indicate full repayment by the DCCB in respect of that particular Hundi.
ii. Part payment Register: In this Register, bank-wise particulars of due date of Hundi, date of
re-discount, amount of Hundi , repayment by DCCBs towards the Hundi with date will be
entered.
 When repayment in full or part is received from the DCCB, the above particulars will be
entered in appropriate column indicating the date and amount of repayment.
 When the entire amount of a particular Hundi is repaid by the DCCB in full, the Hundi
number concerned will be rounded off in the Hundi Due Date Register.
k. NABARD Borrowing Due Date Register:

i. Due Date Register in respect of Borrowings from NABARD is maintained bank-wise. When
borrowings are made from NABARD, the particulars such as S.No. (of Hundi), Date of
borrowing, Amount borrowed, Due date and Date of clearance are to be entered in the
appropriate columns:
 The date and amount of repayments from DCCBs are also entered in this register. The
repayments are to be adjusted towards repayment of Hundi in full. The balance of
repayment, if any, after adjustment to a Hundi, will be entered in the “Carried Over”
column (repayment less borrowing). This carried over amount along with the subsequent
repayment can be adjusted to another Hundi towards its full payment.
 The outstanding balance in respect of borrowings from NABARD is also arrived in this
register.
l. Balancing of Books:
i. Trial balance in respect of advances to DCCBs shall be taken purpose wise and Bank wise
and the consolidated outstanding to be tallied with GL balance as at the end of each month.
ii. Trial balance in respect of borrowings from NABARD will also be taken from the borrowings
ledger and tallied with the G.L. balance as at the end of each month.
31. Annexure/s:

Annexure 1 : Specimen of ST (SAO) Credit Limit Scrutiny Note (Year 2010 - 11)
Annexure 2 : Specimen of the note for sanction of ST (SAO) additional Credit Limit from own
resources of the Bank (Year 2010 - 11)
Annexure 3: Specimen of terms and conditions governing ST SAO credit limit to DCCBs
278 - III
Annexure-1 to Chapter -22
SPECIMEN OF ST (SAO) CREDIT LIMIT

For the year 2010 - 2011 - Scrutiny Note
C.No. / ACS / 2010 – 11 (All figures in Rs. Lakhs)

1. Name of the DCCB. :
2. Section of NABARD Act, 1981 under
Which the limit has been applied for : Sec.21(I) (i) / 21 (4) (as the case may be)
3. Whether the DCCB is functioning in area
Covered under (indicate Yes or No) : OPP/SFFP/NPDP
4. General Particulars:
Sl
Particulars DCCB SCB RCS
No
1. Date of Application/ recommendation
2. Amount applied/ recommended
Other Crops
Oil Seeds (OPP)
TOTAL
3. No. & Date of Board Resolution
4. Whether the resolutions are in order?
5. Is the application as per our prescribed Proforma
and complete in all respects
6. Whether the bank has complied with Section 11(i)
of the B.R. Act 1949 (AACS) as per the latest
inspection
7. Date of receipt of audit report for the year 2008-
2009
8. Audit Classification of the DCCB 2008-2009
9. % of overdues to demand for the year
………. (i.e. DCB position as on………..)
D :
C :
B :
% of O.D. :
10 % of NPAs to total loans as on 31st March _____
Comments: The NPA of the DCCB is less than 10% and the DCCB is eligible for the credit limit from
NABARD.
279 - III
5. Progress of the Bank for the last 2 years and as on 31st December ________
Position as on % growth
Sl Last Friday of 2009-10 Position of
Particulars
No 31.3.2009 31.3.2010 Dec. 2010 over Dec.2010 over
2008-09 31.3.2010
1. Owned Funds
2. Deposits
3. Loans & Advances
a. ST Agricultural Oilseeds under
OPP other Crops
b. Other loans and Advances
Total
4. Total Demand as on 31.3........
5.a. Total Overdues
b. % of overdues to demand
c. Reasons if any for
increase or decrease
6. Profit or Loss for the year
7. Accumulated Loss/
6. Operations on ST Credit Limits for the year 20...... 20........

(i) Limits sanctioned by NABARD to SCB on behalf of DCCBs and utilisation
Outstanding reached
Type of Average
Normal Additional Total Maximum Maximum
Limits Utilisation
amount date amount date
ST SAO
OC
OPP
Total
(ii) Limits sanctioned by Apex Bank and utilisation during previous year*
280 - III
Outstanding reached
Type of Average
NABARD SCB Total Maximum Maximum
Limits Utilisation
amount date amount date
ST SAO
OC
OPP
Total
Comments: The DCCB has been utilising the limits to the maximum extent possible.
iii) Whether any adverse features were noticed in the operation on the Apex Bank's limits by the
DCCB? If so, give full details. Yes/ No.
iv) Whether the bank had reported compliance on our follow up letter issued last year? Comments on
its quality. Yes/ No.
v) Loans and Advances for SAO purposes during April ........ to March ........
Maximum Minimum
Particulars
Amount Date Amount Date
Loans o/s against Societies – OC
OPP
Loans o/s from Apex Bank - OC
OPP
Loans o/s from NABARD - OC
OPP
vi) Percentage of borrowings from Apex Bank/ NABARD to loans outstanding against PACS.
1999 2000
Particulars
Apex Bank NABARD Apex Bank NABARD
OC + OPP
7. Compliance with various terms and conditions: The concentration of recoveries / advances was due to
collection drive and consequent lending.
i. Non-Overdue Cover
a. whether the non - overdue cover statements in respect of borrowings for OPP and OC upto
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March 20……….. have been received: Yes/No.
b. Compare availability of NODC with utilization of limits sanctioned during the last year.
Type of Limit Limits Maximum Average Maximum Minimum

sanctioned utilisation utilisation NODC NODC
OC
OPP
Total
Comments: The DCCB was having sufficient cover for its borrowing with the Apex Bank.
c. Whether the bank has maintained adequate NODC in respect of its ST (Agrl) borrowings from
NABARD? Yes / No. If no, the details of deficit in NODC were as under:
Type of Limit Maximum

Period Minimum Deficit Period
Deficit
OC
OPP
Total
d. Whether continuous deficit observed and if so, action taken by SCB :

ii. Default in repayment of dues:
Whether the Bank has defaulted in the repayment of its borrowing from the Apex Bank?
If so give details.
Yes / No
i. Advances to Small Farmers Compliance with percentage norms for issue of loans to small
farmers (last 2 years)
Percentage
Year (Apr Mar)
Fixed by NABARD Achieved
2009-2010
2010-2011
8. Other Features of the DCCB.

a. Maintenance of Cash Reserve and Liquid Assets (April ......... - March ........)
Whether the DCCB has defaulted in the maintenance of cash reserve and liquid assets required to
be maintained under section 18 and 24 of the Banking Regulation Act, 1949 (AACS) respectively?
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Yes / No
If yes, give details:
b. Submission of Statutory Returns
i. Whether the DCCB was regular in submitting the statutory returns? YES/NO
ii. If No, give details:
Name of the Return No. of occasion of delay
Form IX
Form I
c. Management
Whether the DCCB has an elected Board? Adverse features noticed in the functioning of the Board
may be specified.
The DCCB was having elected board upto (month) 20………….
d. Steps taken by the State Govt. / DCCB for introducing professionalism in Management.
The staff of the DCCB have been deputed for the training programmes conducted by the various
training institutes run by SCB / NABARD.
e. Crop Loan System
i) Holding of the Technical Group Meeting :
The DLTC was convened by the DCB on ________ to consider scale of finance for various
crops for the year 20………. - ……………….
ii) Major cropping pattern in the District:
iii) Any Major shortcoming in implementation of special programmes with reference to targets:
iv) Disbursement and recovery performance during the last 3 years
Year Advances Recoveries

(Apr Mar) Kharif Rabi Total Kharif Rabi Total
Comments:
v) Comments on the % of kind component to total advances.
NIL
9. Lending Programme of the DCCB for the year 20……. 20…….:
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a) The total lending programme of the DCCB is as under
Type of Loans
Expected by Estimated
20....-20... 20....-20... 20....-20...
DCCB by SCB
OC
OPP
Total
Remarks on RLP:
b) i) Maximum NODC created during the last 3 years:
O.C. O.P.P.
i) 20…. 20…. : + =
ii) 20….-20….. : + =
iii) 20….-20….. : + =
ii) NODC likely to be available during 20…. 20…..
10. Determining the quantum of credit limit
11. Special Focus
12. Special conditions, if any proposed for stipulation in the Sanction Letter.
13. Recommendation: Considering the eligibility of the bank, the allocation of SCBs involvement to the
DCCB and the aforesaid special aspects, the following short - terms credit limit(s) is /are recommended.
Type of Limit Amount

OPP
OC
Total
For approval please.
284 - III
Annexure-2 to Chapter-22
SPECIMEN FOR THE NOTE FOR

ST (SAO) ADDITIONAL CREDIT LIMIT FROM OWN RESOURCES OF THE BANK
Submitted to the Chief Executive:
The '______________________' DCCB has applied for sanction of additional credit limit of
Rs.______________________________ lakhs from own resources of our Bank for financing seasonal
agricultural operations for the year 20.. 20..
We have already sanctioned ST credit limit of Rs lakhs from own resources of our bank in addition to
the ST credit limit of Rs. lakhs sanctioned by NABARD for the year 20…. 20…..
The '_______________' DCCB has utilized the existing credit limit as per details furnished below:
(Rs. In lakhs)
1. RCS target fixed for the year 20…. – 20……

2. Loans issued from 01.04.20….. to 31.10.20....
3. Limit sanctioned by
a) NABARD
b) Apex bank
c) Total
4. Borrowing with Apex Bank as on
5. Outstanding against PACBs as on
6. Non - overdue cover as on
7. NODC surplus as on
The DCCB has fully utilized the credit limit sanctioned by NABARD and Apex Bank for the year 20….. -
20…... The DCCB has maintained an average involvement of Rs._______________ Further the DCCB,
has non overdue cover to the extent of Rs._____________ lakhs and NODC surplus to the extent of
Rs.____________ lakhs as on (Date) NABARD has fixed an involvement at Rs.______ lakhs to the Apex
Bank for the year 20…. - …. we have already allocated Rs.__________ lakhs to various DCCBs on the basis
of past performance and requirement of ST (SAO) loans for the current year. The said DCCB has so far
issued Rs._____________ lakhs as ST(SAO) loans upto _______the balance amount of
Rs._____________ lakhs have to be issued to achieve the target of Rs. ._____________ lakhs fixed by RCS
for this current year.
The following projected loan programme has been proposed by the DCCB for the remaining period of the
year 20…… - 20……….
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Particular Recovery Issue Out standing
Nov 20…....
Dec 20…….
Jan 20…….
Feb ……
March ……
Total
In the above circumstances we may sanction an additional credit limit of Rs._________________ lakhs to
'__________________' DCCB for financing seasonal agricultural operations for the year 20….. 20…...
For instructions approval please.
286 - III
Annexure -3 to Chapter- 22
TERMS AND CONDITIONS GOVERNING SANCTION OF ST (SAO)
CREDIT LIMIT (BASED ON NABARD' POLICY FOR THE YEAR 2010-2011) - MODEL
1. NATURE OF THE LIMIT:
The credit limit is sanctioned to the DCCB from the consolidated limit sanctioned to the Apex bank on
behalf of the eligible DCCBs by NABARD in addition to the own funds of the Apex bank. The said
limit is inclusive of the limit applied for OPP (Oil Seeds) for 2010-11. However the DCCBs must
maintain separate figures for the loans issued to other crops and oilseeds. The limit is
reimbursement in nature and will be available for operation as a revolving credit limit. The District
Central Coop Bank can draw and repay on the limit any number of times, subject to the condition that
outstandings shall NOT exceed the limit sanctioned.
2. TENURE OF LIMIT
The operative period of limit for the year 2010-2011 will be from 01.04.2010 to 31.03.2011. The
refinance will be provided to the DCCBs based on the issue of fresh crop loans ONLY disbursed during
st
the operative period i.e. loans issued after 1 April 2010.
3. PURPOSE OF LIMIT
The DCCB should ensure that the drawals availed from this limit are in recoupment of the advances
made by the DCCB for Seasonal Agricultural Operations to the Primary Agriculture Cooperative Credit
Societies. The cumulative outstanding against the PACSs shall not be less than the loans availed from
the Apex Bank.
4. LIMIT EXCLUSIVE OF OUTSTANDING IN THE LIMIT SANCTIONED FOR THE YEAR

2009-2010.
The limit sanctioned for the year 2010-2011 is exclusive of the outstandings in the limit sanctioned for
the year 2009-2010. If the opening outstandings on 01.04.10 is higher than the limit sanctioned for the
year 2010-2011, there is no need to bring down the outstandings immediately. However, the DCCBs
have to pass on the amount collected under the previous year loans to have adequate cover for the
outstanding.
In case of inadequate cover for the outstanding borrowings under ST.SAO for 2009-10, further drawal
will be NOT be allowed under the NEW limit sanctioned for 2010-2011, even if sufficient cover is
available for the present limit till such time the cover deficit is cleared. The condition is stipulated to
ensure better financial discipline in respect of passing on the advance collections at the ground level.
5. RATE OF INTEREST AND PERIODICITY
(a) The rate of interest for the year 2010-11 as approved by the RCS vide his letter
RC.57291/2010/CBP1 dated 16.06.2010 is as below:
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Name of the Institution Rate of interest Margin
NABARD to SCB 4.00% --
------- SCB to DCCBs 4.20% 0.20%
DCCBs to PACSs 5.20% 1.00%
PACSs to farmers 7.00% 1.80%
(b) The rate of interest is applicable to the fresh loans/issues from 01.04.2010. THE ULTIMATE
RATE AT THE FARMER LEVEL i.e. AT THE PACS LEVEL IS 7% pea ONLY. Any
violation will result in denial of drawals under the limit. The outstanding of the previous year will
carry the interest rate stipulated for that year.
(c) If at any point of time, it comes to the notice of NABARD/------- SCB that the rate of interest
charged on loans provided to the farmers is more than 7% p.a., NABARD/APEX Bank shall
be free to charge additional interest as may be determined by NABARD/APEX Bank from
time to time or recall the refinance or stop further refinance.
(d) Interest is payable at half-yearly rests on last working day of August and February as the case may
be. The ------- SCB would recover the same to the debit of Current Account of the DCCB with the
Apex Bank. No extension of time will be given for payment of interest. The DCCBs will keep
sufficient funds in advance to meet the demand.
(e) If the borrowings from the ------- SCB is fully repaid by the DCCB at any time before the last
working day of August or February, the interest due would be debited to the Current Account of the
DCCB on the date of clearance of the outstanding.
(f) The interest rate is subject to revision on the instructions of the NABARD and on the direction of
the Government from time to time
6. DURATION OF LOAN
Drawals to the DCCB against the credit limit are repayable on demand, to the NABARD/ ------- SCB
without prejudice to its right to recall the advances at any time, may not ordinarily exercise this right for
a period of 12 months from the date of each advance. Each drawal on the credit limit is repayable within
12 months from the date of the Hundi enclosed to the drawal application without any grace period.
7. DCCB NOT ELIGIBLE FOR DRAWALS ON THE LIMIT IN THE EVENT OF DUE DATE
DEFAULT
The DCCB will not be eligible to obtain further drawals in the credit limit in the event of due date
default in repaying the amount borrowed under the limit till clearance of the amount due.
288 - III
8. PENAL INTEREST ON DUE DATE DEFAULT
i) The DCCB is liable to pay penal interest to the ------- SCB at 10% in the event of default in clearing
each loan on or before the due date. Penal interest will be collected from the date of default to the
date of clearance of default on the actual defaulted amount and the same would be collected soon
after clearance of default by the DCCB.
ii) In the event of default by the DCCB in paying the interest or any portion thereof on due dates, the
DCCB shall be liable to pay to the Apex Bank on demand interest at 10% from the date of default
till the date of clearance of the actual interest outstanding to the Apex Bank.
9. RIGHT TO ADJUST PROCEEDS OF DRAWALS IN OTHER ACCOUNTS
The ------- SCB reserves the right to debit the current account of the DCCB with it, if the DCCB does not
make arrangements to repay the loan on the due date and if the ------- SCB is satisfied that the DCCB has
committed default despite having adequate resources for clearance of default.
10. The ------- SCB also reserves the right to adjust certain percentage of drawal proceeds in respect of other
accounts to the due date defaults under this limit as per the percentage stipulated in the respective terms
and conditions.
11. FINANCING OF SMALL FARMERS
The DCCB will have to ensure that out of the DCCB's short term agricultural advances made to PACSs
during the year, at least 30% as prescribed by the NABARD, is issued for financing small/marginal
farmers. 60% of the total limit will constitute the free portion. Over and above free portion, drawals will
be allowed only if the SF/MF coverage is satisfied. Otherwise, drawals would be permitted on pro rata
basis to the extent of SF/MF coverage actually achieved. The DCCBs should further encourage issue of
crop loans to tenant farmers and oral lessees and ensure better coverage of tenant farmers and oral
lessees.
For compliance of stipulated coverage of SF/MF, the aggregate of maximum outstanding in the KCC of
SF/MFs can also be reckoned together with the aggregate of crop loans issued to SF/MF under normal
loaning system.
12. DCCB TO MAINTAIN DCB REGISTER ON A FORTNIGHTLY BASIS
The DCCB shall maintain and post the DCB register once in a fortnight as per the instructions of the
NABARD. The drawals on the short term credit limit sanctioned will be regulated with reference to the
NODC position to be furnished along with the drawal application. The particulars of overdues
furnished in the NODC Return should be as per the DCB register maintained. If the DCCB maintains
the DCB register on a day-to-day basis, the drawals will be regulated with reference to the NODC
position on any day close to the date of drawal application. If the DCB Register is maintained on a
weekly/ fortnightly basis, drawals will be allowed as per the NODC position as at the close of the
preceding Friday/ two preceding Fridays. The DCCB will also furnish a Certificate about the
289 - III
periodicity of maintenance of the DCB Registers (daily, weekly or fortnightly) along with the NODC
particulars enclosed to the drawal application.
Further, the DCCB has to maintain separate books of account for DCB, NODC, etc. for disbursement of
ST SAO Loan under Kisan Credit Card Scheme.
The Maximum outstanding under ST (SAO) loans in the KCC accounts reached during the year (April -
March) may be treated as demand and the outstanding in the unrenewed KCC accounts may be
reckoned as overdues.
The outstanding in the KCC accounts against PACSs for financing SAO excluding the amount
outstanding under the unrenewed KCC accounts will be reckoned as NODC for the purpose of
borrowings on the limit.
13. SUBMISSION OF NON-OVERDUE COVER STATEMENT
The DCCB should furnish NODC Statements separately for other crops, Oilseeds etc. in the
prescribed proforma as on the last DAY of every month so as to reach the ------- SCB on or before 14th of
the succeeding month. The DCCB shall send NODC Statement for the outstanding for the year 2009-
10 and also for the outstanding for the year 2010-11.
th
Drawals on the ST Credit Limit from 14 of the month will be allowed only if the latest NODC return
due is received at the TNSCB. In the event of non-submission of these statements, no drawals on
the credit limits will be allowed till such time the statements are furnished. Drawals will not be
allowed under the limit sanctioned for the year 2010-11, if there is any cover deficit for the loan
sanctioned for the year 2009-10, even if sufficient cover is available for the year 2010-2011.
14. DRAWALS TO BE REGULATED WITH REFERENCE TO NODC
The DCCB will be permitted to obtain refinance from the ------- SCB only to the extent of non-overdue
outstandings against PACSs. The DCCB should also ensure that the loans issued for financing seasonal
agricultural operations and outstanding against PACSs excluding overdues are at no time less than the
outstanding borrowings from the ------- SCB under the credit limit sanctioned for the year 2009-10 and
2010-11. In other words, the DCCB must have adequate cover for the loans sanctioned for the
year 2009-10 and 2010-11 individually and collectively.
15. NON-OVERDUE COVER DEFICIT AND DRAWALS
In the event of deficit in the maintenance of Non-overdue Cover, further drawals in this limit will not be
allowed till the deficit is made good. The DCCB should send the return in the prescribed proforma on a
weekly basis from the date of occurrence of deficit, till the deficit is regularised.
16. ADDITIONAL INTEREST ON THE DEFICIT IN NODC
In case of deficit in NODC, DCCB will have to make good the deficit in NODC. If the DCCB fails to
290 - III
make good the deficit within one month from the date of occurrence of such deficit, additional interest
@ 1% p.a. will be charged on the deficit in NODC for the duration of deficit from the date of occurrence
of such deficit till the date on which the amount of deficit is regularised.
17. CERTIFICATE REGARDING ADEQUACY OF NODC
The DCCB should, at the time of every drawal on the credit limit sanctioned, furnish a certificate to the
effect that the drawal, together with the outstanding borrowings will not be more than the NODC.
Separate NODC has to be maintained for other crops and Oil seeds and statements have to be
furnished accordingly to the ------- SCB before the due dates stipulated for the same.
18. PASSING ON OF RECOVERIES
If the DCCB repays the amount drawn on the due dates then it will be construed that the DCCB has
complied with the condition. However, the DCCB should pass on the advance collections if any,
received over and above their involvement then and there to the SCB. The Head Office of the DCCB
should maintain a Register to watch the collections made by the Branches/ Head Office and the amount
remitted to the SCB. The Branches should also maintain a similar Register.
19. TAKING ADVANCE ACTION FOR COLLECTION OF OVERDUES/ DEMAND
The DCCB should organise special collection drive before huge ST demand falls due, with a view to
collecting a major portion of the demand and also the earlier overdues at the time of raising the demand.
This is necessary for the purpose of avoiding NODC deficits and also for raising of adequate resources
for issue of ST agricultural loans.
20. DRAWAL PROCEEDS NOT TO BE UTILISED FOR REPAYMENT
The DCCB should ensure that the repayments made under this account are made out of collections only.
The drawal proceeds under this limit or other accounts from the ------- SCB should not be utilised for
passing on of recoveries under ST Agricultural Loans. However, in the event of NODC Deficit or the
due date default, the DCCB will be allowed to draw from other accounts and regularize the deficit/
default.
21. MAINTENANCE OF CROP VERIFICATION REGISTERS BY THE PACSs
The DCCBs will ensure that all the PACSs financed by them, maintain the CROP Verification Register
(CVR) as prescribed by the SCB. The DCCB should ensure that the PACSs maintain proper records of
verifications done by them, in the CVRs prescribed by SCB.
The Staff of the society will have to verify 100% of commercial crop loans and 50% of the crop loans
issued for raising other crops. The Supervisors of the DCCB will have to super check the utilisation of
the loans issued by the societies at 10% and 5% at random, for commercial and other crops,
respectively. The field managers of the DCCB will have to verify at least 1% of the loans at random
issued by each PACS.
291 - III
The DCCB will obtain necessary particulars from the PACSs regarding the verifications done by them
and send a consolidated Verification Report to the ------- SCB within 3 months from the month of issue
of the loans and returns should reach the ------- SCB on or before 15th of every month to enable the ------
- SCB to allow drawals on the limit. Loans which are unutilised or misutilised or underutilised within
one month from the date of issue should be foreclosed and recovered immediately.
22. LOANS ISSUED TO BE REGULARISED WITH REFERENCE TO PLAN OF ACTION:
The DCCB will issue short-term agricultural loans on the basis of the plan of action drawn up by it and
as per the target fixed by the Government. The Crop wise loans disbursement shall be as per the pattern
of cultivation in the district and major crops grown in the district should receive larger quantum of
assistance from DCCB. The DCCB should also ensure that adequate coverage is given in respect of
paddy, groundnut, other oilseeds, pulses and millets as prescribed by the Government from time to time.
The DCCB will send a crop wise (Major crop only) month wise loan issue details to the ------- SCB
along with the NODC return.
23. ISSUE OF LOANS IN KIND
The DCCB shall ensure that a substantial portion of kind component prescribed in the scale of finance is
lifted by the farmers.
24. SUBMISSION OF REVOLVING CREDIT RETURN
The DCCB will furnish the revolving credit return in the form prescribed as on the last Friday of every
month (excepting for the month of March and June which should be as on the 31st and 30th) so as to
reach the ------- SCB not later than 20th of the succeeding month to enable the ------- SCB to consider
the drawal applications on the limit.
25. RIGHT OF INSPECTION OF DCCB BY SCB/ NABARD/ RBI
It will be open to the SCB/ NABARD/ RBI to depute their officers to inspect the DCCB and the PACSs
availing of financial accommodation out of the above sanction. NABARD would have the right to
cause audit of the books of accounts and other materials of the DCCBs either by itself or through other
agencies to ensure that the same are maintained as per the rules and regulations in force and the terms
and conditions of refinance are adhered to by the DCCBs.
26. INVESTMENT OF RESERVE FUND AND OTHER FUNDS
The DCCB should invest its entire Reserve Fund, Agricultural Credit Stabilisation fund (unutilised
portion) and other special funds in special deposit with the ------- SCB carrying interest at the maximum
applicable rate. It will not be in order for the DCCB to do earmarking on the Fixed Deposit or other
investments made with the Apex Bank towards the above mentioned funds. If it is found that there is
violation of this condition, the ------- SCB would foreclose such deposits and take such funds to the
special deposits without reference to the DCCB.
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27. CERTIFICATE REGARDING RESERVE BORROWING POWER
The DCCB should, at the time of every drawal on the credit limit sanctioned, furnish a certificate to the
effect that the drawal applied for is within its Reserve Borrowing power.
28. DCCBs TO PREFER DRAWAL APPLICATION
The DCCB while applying for drawals on the limit should send an application for the amount applied
for in the format prescribed together with the certificates prescribed from time to time and the statement
showing the cash reserve and liquid assets particulars as at the close of business on the Friday prior to
the date of drawal application, but in any case not earlier than 13 days from the date of drawal
application. The Hundi and schedule must be drawn in the manner prescribed and more so as per
letter C No.60/ ACS(OPR) dated 27.12.2008 of the Apex Bank.
29. The DCCBs shall ensure that drawals are availed only based on the actual disbursements made to the
PACSs and the APEX Bank would take a serious view in case the DCCBs have availed drawals by
furnishing incorrect data on crop loan disbursement by way of recalling back the excess refinance or
stopping further drawals.
30. RIGHT TO STOP MAKING FURTHER ADVANCES
The ------- SCB reserves to itself the right to stop making further advances even when the limit
sanctioned is not fully utilised, if the DCCB:
i) defaults in the submission of statutory returns in Form I and IX under the Banking Regulation
(Cooperative Societies) Rules 1966;
ii) defaults in the maintenance of cash reserve and/or liquid assets as required under Section 18 and 24
of the Banking Regulation Act, 1949 (as applicable to Coop. Societies) ;
iii) fails to submit the compliance report on the last inspection report issued by the NABARD/ -------
SCB within the stipulated time, or the compliance report is found perfunctory and defects noticed,
suggestions made remain unimplemented without proper rectification and
iv) fails to comply with Section 11(i) of the Banking Regulations Act, 1949 (AACS) as per the findings
of NABARD's inspection report and is not exempted by the Central Government from the
application of the said provisions.
31. The Apex Bank shall be constrained to stop drawals on the credit limits if (a) the DCCB defaults in
repayment of dues in any type of credit limits sanctioned till the defaults are cleared and (b) the DCCB
deviates from the regulations and instructions laid down by RBI/ NABARD/ Apex Bank relating to
issue and repayment of loans and interest thereon and instructions issued by RBI/ NABARD relating to
conversion, reschedulement / deferment of loans or other relief.
32. In case a DCCB is in default to the ------- SCB under ST.SAO continuously for a period exceeding 3
months, refinance will not be provided by NABARD till the default is regularized.
33. In case a DCCB is in continuous deficit in CRR/SLR for a period of 3 or more consecutive months in the
293 - III
previous calendar year, the lending programme of such banks, while working out the eligibility for
sanction of credit limits, will be restricted to the maximum level of ST.SAO loans reached against
PACBs during the previous year.
34. The DCCB should take necessary steps for proper implementation of DAPs and effect monitoring and
follow-up of the plans. A review at periodic intervals should be made on implementation of DAP and
the position should be appraised to NABARD/ State Government at the end of every quarter.
35. AVAILING OF REFINANCE FOR SAO LOANS UNDER KISAN CREDIT CARD SCHEME
(KCC SCHEME)
The DCCBs/PACSs should maintain separate details of sanctions and accounts of operations on credit
limits for SAO purposes under KCC scheme both for other crops and oilseeds separately and also for
small/ marginal farmers exclusively.
36. RIGHT TO MODIFY THE TERMS AND CONDITIONS
The ------- SCB reserves the right to alter/ modify the terms and conditions governing the sanction of
this limit during the currency of the limit, and such modification would be communicated in the form of
circulars/Letters and these instructions will have the same effect as the terms and conditions indicated
herein.
37. RIGHT TO RECALL THE ADVANCE
The ------- SCB reserves the right to recall the advances to the DCCB even before the due date, if the
DCCB fails to adhere to any of the terms and conditions stipulated herein or any other terms and
conditions that may be stipulated during the year 2010-2011 regarding this limit, in part or full.
294 - III
CHAPTER 23
KISAN CREDIT CARD (KCC)
1. General:
a. The Hon'ble Union Minister for Finance in his Budget Speech for the year 1988-99 had desired that
the banks should issue Kisan Credit Cards to farmers on the basis of their land holdings so that the
farmers may use them to readily purchase agricultural inputs such as seeds, fertilisers, pesticides,
etc., and draw cash for their production needs and that NABARD should prepare a Model Scheme
for uniform adoption by the banks. Accordingly NABARD, in consultation with RBI has
formulated the Kisan Credit Card Scheme (KCCS) for adoption by the banks so that farmers may
use them for purchase of seeds, fertilisers etc., and also to draw cash to meet production cost
towards labour etc.
2. Applicability of the Scheme:
a. The Scheme provides broad guidelines to the banks for operationalising the KCC Scheme,
implementing banks will have the discretion to adapt the same to suit location specific
requirements.
3. Objectives:
a. Kisan Credit Card Scheme aims at adequate and timely support from the banking system to the
farmers for their cultivation needs including purchase of inputs in a flexible and cost effective
manner.
4. Eligibility:
a. The Scheme would primarily cater to the short term requirements of the farmers. Under the
Scheme, banks may provide the Kisan Cards to farmers who are eligible for sanction of production
credit.
5. Issue of Cards:
a. The beneficiaries under the Scheme will be issued with a Credit Card and a Pass Book or a Credit
Card cum Pass Book incorporating the name, address, particulars of land holding, borrowing limit,
validity period, etc. which will serve both as an identity card as well as facilitate recording of the
transactions on an ongoing basis. The card, among others, would provide for a passport size
photograph of the holder. The borrower would be required to produce the card cum Pass Book
whenever he operated the account. A specimen of the Kisan Credit Card cum Pass Book is given in
the Annexure-1 to this Chapter.
295 - III
6. Fixation of credit limit:
a. The credit extended under the KCC Scheme would be in the nature of a revolving cash credit and
provide for any number of drawals and repayments within the limit. Such an approach would
provide the much needed flexibility to the farmer in choosing the appropriate time to repay his loan
and reduce the interest burden, being in a position to draw on the card to meet his urgent credit
requirement.
b. While fixing the limit, the bank may take into account the entire production credit requirements of
the farmer for the full year, including the credit requirements of the farmer for the ancillary
activities related to crop production such as maintenance of agricultural machinery / implements,
electricity charges etc., In due course, the credit limit could provide for allied activities and non-
farm credit needs of the borrowers.
c. The credit limit under the card may be fixed on the basis of the operational land holding, cropping
pattern and scales of finance as recommended by the District Level Technical Committee (DLTC)
and approved by the State Level Technical Committee (SLTC). Wherever the DLTC/SLTC have
not recommended scale of finance for any crops or in the opinion of the bank, has recommended
lower than the required amount, the bank may fix appropriate scale of finance for the crop. For
fixation of Credit Card limits, operational land holdings will include the leased in land and exclude
leased out land.
d. Banks may at their discretion fix appropriate sub-limits within the overall credit limits sanctioned,
taking into account the seasonality in credit requirements.
7. Validity / Renewal:
a. The Credit Card should normally be valid for 3 years subject to an annual review.
b. The review may result in continuation of the facility, enhancement of the limit or cancellation of
the limit/withdrawal of the facility, depending upon the performance of the borrower.
c. The aggregate credits into the account during the 12 month period should at least be equal to the
maximum outstanding in the account.
d. No drawal in the account should remain outstanding for more than 12 months.
e. When the bank has granted extension and / or reschedulement of the period of repayment on
account of natural calamities affecting the farmer, the period for reckoning the status of operations
as satisfactory or otherwise would get extended together with the extended amount of limit. When
the proposed extension is beyond one crop season, it would be desirable to transfer the aggregate of
debits for which extension is granted to a separate term loan account with stipulation for repayment
in instalments.
296 - III
8. Security / Margin:
a. Security / margin norms etc. should be in conformity with the guidelines issued by RBI / NABARD
from time to time
9. Maintenance and operations in the account:
a. The issuing branch would maintain the ledger account in respect of each KCC account and all the
operations in the account will be generally through the issuing branch. However, banks may, at
their discretion permit operations through other designated branches, taking into account the
convenience of the clientele.
b. Withdrawal in the card account will be through withdrawal slips / cheques accompanied by the
Kisan Credit Card and Pass Book. Withdrawal slips / cheques of a different colour could be issued
to distinguish the KCC account holders.
c. In the case of cooperatives, the primary KCC account will be maintained at the PACS concerned,
and the cards will be issued by the DCCB branch / PACS. Cash withdrawals will be permitted at the
DCCB issuing / designated branch / PACS only. All transactions at the DCCB branch level will
have to be reported to the PACS concerned to enable them to make appropriate entries in the ledger
account of the card holder. The DCCB branch and the PACS concerned will have to develop
appropriate system for proper accounting of entries and reconciliation.
10. Rate of Interest:
a. Banks may apply the same rates of interest as are applicable to crop loans. The interest rates are to
be fixed with reference to aggregate credit limit sanctioned to an individual. Even if separate limits
were sanctioned for Kharif and Rabi crops, interest is to be charged at the rate applicable based on
total amount already sanctioned and levied with reference to the amount actually drawn on product
basis.
11. Application of Prudential Norms:
a. The KCC facility being in the nature of cash credit accommodation for agricultural purposes, the
prudential norms as applicable to such facilities would apply to the KCC accounts. In other words,
the Credit Card account would be deemed to be a Non-Performing Asset (NPA) if it remains out of
order for a period of two crop seasons. An account will be treated as out of order in the following
circumstances:
i. There are no credits in the account continuously for two crop seasons as on the date of balance
sheet
Or
ii. The outstanding remains continuously in excess of the limit for two crop seasons as on the date
of balance sheet
Or
297 - III
iii. The credits in the accounts are not sufficient even to cover the principle amount debited in
respect of the account for two crop seasons.
12. Reporting of transactions in LBRs:
a. The instructions of the RBI in regard to reporting of transactions under cash credit accounts in
LBRs wide their circular No. LBS(SAA)BC.139/6590/91 dated 18 June 1991 as modified from
time to time, would apply mutatis mutandis to the KCC accounts. In this connection the following
aspects may be kept in view:
i. The Credit limits sanctioned / likely to be sanctioned to the borrowers under the KCC may be
included in the Branch Credit Plan and reported in LBR-1.
ii. All debit entries (excluding those relating to interest charges) may be reported in LBR 2 as and
when such transactions take place.
iii. Renewal of existing limits should not be computed as fresh disbursement.
iv. The amount outstanding in the KCC account may be taken as credit being provided for target
purpose.
13. Operational Norms for refinance support from NABARD under KCC for SAO:
a. NABARD provides short term refinance to State Co-operative Banks (SCBs) on behalf of District
Central Co-operative Banks (DCCBs) under Section 21(1)(i) of the NABARD Act, 1981 against
their financing of Seasonal Agricultural Operations (SAO)by way of loans and cash credit. With
the introduction of Kisan Credit Card System (circulated vide out circular letter No. NB.PCD
(OPR) / 794 / A.137 (Spl.) / 98 99 dated 14 August 1998), the production credit for SAO disbursed
by SCBs / DCCBs under the Scheme would also be eligible for refinance support from NABARD
in this connection. Since the operations under the KCC Scheme are envisaged to be in the nature of
cash credit, the instructions on computation of Demand , Collection and Balance (DCB) position,
maintenance of Non overdue Cover (NODC). Financing of small / marginal farmers, etc.
conveyed vide NABARD circular letter No. NB.PCD(OPR)/5980/A. 135/9091 dated 17
December 1990 will also be, mutatis mutandis applicable for advances made under the KCC
Scheme. NABARD has further modified the KCCS and the modifications are spelt out in the
NABARD circular dated 3 May 2000 which is given in the Annexure-2 to this Chapter.
14. Maintenance of separate accounts for SAO under KCC:
a. Although under the KCC Scheme, production credit for SAO, advances for allied activities, non
farm activities and consumption purposes can be covered, only the production credit for SAO is
eligible for refinance from NABARD under the ST (SAO) credit limits. As such, the banks will be
required to maintain separate details of sanctions and accounts for operations on credit limits for
SAO purposes under the KCC Scheme so as to facilitate submission of drawal applications for
obtaining refinance from NABARD in respect of eligible loans and reporting such loans in the
monthly NODC statements for ST (SAO) loans and advances. The short term loans outstanding
298 - III
for financing ancillary activities relating to crop production such as maintenance of agricultural
machinery implements, electricity charges etc., under the KCC Scheme are also eligible for
refinance from NABARD under ST (SAO) credit limits.
15. Computation of DCB positions:
a. The maximum outstanding under ST (SAO) loans in the KCC accounts reached during the
financial year may be treated as Demand, and the outstanding in the unrenewed KCC accounts may
be reckoned as Overdues. The percentage of Overdues to Demand may be calculated accordingly.
In this connection it is clarified that for the purpose of renewal of accounts, as stipulated under Para
7 of the KCC Scheme, the aggregate credit into the account during the 12 months period should at
least be equal to the maximum outstanding in the account and no drawal in the account should
remain outstanding for more than 12 months.
16. Maintenance of Non-Overdue Cover (NODC):
a. The outstanding in the KCC accounts against PACS for financing SAO excluding the amount
outstanding under the unrenewed KCC accounts will be reckoned as NODC for the purpose of
borrowings from NABARD. Thus for the purpose of working out the aggregate NODC for
borrowings from NABARD for SAO, the non overdue short terms agricultural loans outstanding
under the normal loan accounts plus the non overdue outstandings under the normal cash credit
accounts under the KCC Scheme against PACS will constitute the NODC.
17. Financing of Small Farmers (SF) / Marginal Farmers (MF):
a. For the purpose of compliance with the condition in regard to financing of SF / MF, the maximum
outstanding under production credit for SAO reached in the KCC accounts of such farmers during
the year April to March should be reckoned as loans issued to SF/MF.
18. KCC-Payment of interest on Credit Balances:

th
a. Vide NABARD Circular Ref. No. NB. PCD (KCC)/H-436/KCC-1/2000-01 dated 24 Oct.2000
and RBI circular RPCD, PLFS, 100/05.05.09/99-2000 dated June 20, 2000. Cooperative Banks /
Regional Rural Banks have been permitted, at their discretion, to pay interest at a rate based on
their perception and other related factors on the minimum credit balances in the cash credit
accounts under the Kisan Credit Cards of farmers during the period from 10th to the last day of each
calendar month (as the case may be).
19. KCC-Sugar Cane Borrowers:
a. Usually the sugarcane farmers are to be assisted by PACs and the proceeds from the sugar mills are
routed through branches of DCCBs which in turn is required to be passed on to the PACs for
necessary adjustment towards loan account as well as payment of the balance to the SB account of
the borrower. In this way, there may not be hitch in issue of KCC to Sugarcane farmers or in
realization of proceeds due under loan accounts.
299 - III
b. Loan limits to Sugar Cane farmers are to be fixed based on land records, Scale of finance fixed by
DLTC/SLTC (mill wise for registered sugarcane farmers) etc., Issue of loans to registered
sugarcane farmers should be on the basis of registration with the concerned mill and not on the
certificate of a Cane Assistant who is no way connected to certification/issue of loans.
20. Procedures to be followed at DCCB Level:
a. The CCBs have to identify the PACs for implementation of the Scheme. The identification of the
PACS should be carried out based on the performance of the PACs for the past 3 years in both issues
and recoveries, maintenance of records, availability of own resources, overall performance etc.
b. The assessment of PACs in selecting the farmers who is eligible to receive KCC has to be verified
card-wise by the Supervisors of the DCCBs.
c. The DCCBs, through the branches have to provide special cash credit limit to the PACs for
operating under KCC Scheme. The cash credit limit to the PAC can be fixed based on the total
amount of cash credit limits sanctioned by the PACs under the KCC Scheme to their members for
the year as a whole.
d. The PACS have to be provided with Pass Book and cheque book by the DCCBs for operating the
cash credit account.
e. The rate of interest to be charged by the DCCB on the CC account of the PACS on half-yearly rests
as applicable to crop loans. No drawal in the account should remain outstanding for more than 12
months.
f. A comparative analysis of the Operational Issues and the Clarifications given by NABARD on
KCC is given in Annexure-3 to this Chapter.
g. In respect of failure of crops grown by the farmers due to natural calamities like drought, flood, riot,
etc., the Crop Insurance Scheme takes care of providing sufficient insurance in respect of specified/
notified crops.
h. Similarly insurance cover has been made available to farmers also in case of their death or injury
due to accidents. The NABARD in its circular No. NB.PCD (KCC)/ H.182/KCC 11A/01-02 dated
14.06.2001 introduced the scheme of providing insurance to the farmers in the event of death due to
accident, total disability, loss of limbs and eyes. Accordingly premium is collected from the
farmers at a nominal rate of Rs.15 per year from the borrower and Rs.30 to be contributed by the
PACS concerned on behalf of the borrower.
i. The insurance coverage made available to the farmers as per NABARD circular above, is as
follows:
i. Death due to accident (within 12 month of accident) : Rs.50,000/-

caused by outward violent and visible means
300 - III
ii. Permanent total disability : Rs.50,000/-
iii. Loss of two limbs or two eyes or
loss of one limbs or one eye : Rs.50,000/-
iv. Loss of one limb or one eye : Rs.25,000/-
j. The DCCBs will have to arrange for insurance cover by choosing any one public sector insurance
company and purchase of blanket policy to cover all the borrowers who have availed loans from
PACS. It is left to the DCCBs to recover the cost of insurance premium from the PACS (both
borrower's share and PACS share) or to shoulder a part of the insurance burden along with the
borrower and PACS.
21. Annexure/s:
Annexure 1 : Specimen of KCC and the Pass Book
Annexure 2 : KCC Modifications NABARD Circular dated 03.05.2000
Annexure 3 : KCC - Operational Issues & Clarifications for NABARD
301 - III
Annexure 1 to Chapter 23
SPECIMEN OF KISAN CREDIT CARD CUM PASS BOOK
Issuing Bank:
Valid upto
Valid for operation at _______ Branch / (es) / PACS ______
Name of the Card Holder :
Father’s / Husband’s Name :
Name of the PACS :
(incase of coops.)
Address :
Name of the village
Block
P.O.
Signature of issuing
Authority with seal
Photograph
Signature / Left Hand thumb impression of the card Holder
KISAN CREDIT CARD
Serial No:
Operational Land holding: Irrigated Un-irrigated

(in hectares)
Owned:
Leased in:
Total
Less : Leased out
Total
C.C A/c No.:

Ledger Folio:
302 - III
Limits sanctioned:
Sub-Limit if any:
Operative Period:
Signature of Issuing Authority
Signature of Secretary
with seal of PACS (incase of Cooperatives)
PASS BOOK
PARTICULARS OF TRANSACTIONS
Date Particulars Debit Credit Balance Signature of Bank / PACS Official
303 - III
NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT

Ref. No. NB.PCD(OPR)/336/A.137(Spl.)/20002001
Circular No.03 / 2000 2001 03 May 2000

The Managing Director
All State Coop. Banks
The Chairman
All Regional Rural Banks
Dear Sir,
Kisan Credit Card Scheme Modifications
Please refer to our circular letter No. NB.PCD (OPR) 794/A.137(Spl.)/98-99 dated 14 August 1998
forwarding therewith a Model Kisan Credit Card Scheme with a request to introduce a suitable KCC
Scheme in your area of operation. Operational guidelines were issued to SCBs and RRBs vide our circular
letter Nos. NB.PCD(OPR) / 662 & 662A/A.137 (spl)/1999-2000 respectively both dated 26 May 1999.
Since then the Scheme has made rapid strides and has been successfully operationalised in several States.
More than 50 lakh cards have been issued till 31 March 2000 by all agencies of which 37.50 lakh and 1.80
lakh cards/cards cum Pass Books have been issued by Cooperative banks and RRBs respectively.
Following the Hon'ble Finance Minister's Budget announcement for issue of additional 75 lakh Kisan Credit
Cards by banks during the year 2000-2001, we have already communicated state-wise targets both for
cooperatives (45 lakh cards) and RRBs (5 lakh cards) to be issued additionally by them and the bank-wise
targets would be finalized and communicated by our RO concerned to them shortly. The banks are requested
to take necessary steps to ensure that the targets given to them for issue of additional cards are achieved.
In some of the following discussions, certain operational issues have also been raised viz., removal of the
minimum floor limit of Rs.5000/- suggested under the model Scheme as eligibility for issue of Kisan Credit
Cards and also coverage of medium / long term investment credit under the Scheme so as to improve the
coverage of rural borrowers and have synergic impact at the level of the farmers. These issues have been
examined by using consultation with RBI and we have to advice as under.
i. It has since been decided to dispense with the floor limit for issue of Kisan Credit Cards and banks
at their discretion may issue Kisan Credit Cards for any amount below Rs. 5000/- also, keeping in
view their operational convenience.
ii. As regards the feasibility of inclusion of medium and long term investment credit component in the
credit limit fixed under the Kisan Credit Cards, we clarify as under:
a. Unlike production credit, disbursement under term loan is by and large, made in one or more
installments depending upon the type of assets purchased and repayment period in these cases
304 - III
is fixed depending upon the surplus generated by the investments and useful life of the assets.
Hence there is little scope for frequent transactions justifying the inclusion of term loan
component in the credit limit fixed under the Kisan Credit Cards.
b. There are also other aspects such as provision of margin money, variations in repayment
period, validity of the Credit Card, collateral and documentation requirements, etc. in respect
of term loans which may be difficult to be dovetailed into the mechanism of cash credit facility
which KCC basically seeks to provide. If term loan is to be covered, the card holder may have
to be required to offer mortgage / collateral to the banks, which may be cumbersome and
delaying the whole process.
c. Moreover, the quantum involved in the acquisition of agricultural assets through term loans
could be quite substantial which may require critical appraisal. It may also not provide may
tangible benefit to the borrowers since it is one time sanction and disbursed in installements.
iii. In view of the above, both RBI and NABARD are of the view that it may neither be desirable nor
feasible to include term (investment) loan component under the KCC Scheme.
3. The contents of this circular letter may please be brought suitably to the notice of DCCBs (by SCBs) and
your controlling offices and branches.
4. Kindly acknowledge receipt.
Yours faithfully-Sd-
(G.K.Agrawal)
305 - III
Kisan Credit Card Scheme

Operational Issues & Clarifications by NABARD
Sl No Issues Clarifications
1. Eligibility Criteria
a. Satisfactory dealings by Kisan Credit Card Scheme aims primary to cater to the short
borrowers: term credit requirements of the farmers and the banks may
provide Kisan Credit Cards to farmers who are eligible for
Some of the banks have stipulated a sanction of production credit (crop loans). As such, the same
minimum number of 2-3 years eligibility norms adopted by banks under the conventional
satisfactory dealings for the Crop Loan System to existing as well as new borrowers may
borrowers to be eligible for KCC be followed for issue of KC Cards also.
b. Opening of SB A/c. Opening of SB A/c. should not be a precondition for issue of

Some banks insist on opening of Saving KC cards. However, in case KCC holder desires on his own to
Bank Accounts before issuing KC Cards open SB A/c. he may be issued allowed to do so.
c. KC Cards to new farmers: If such a farmer is considered eligible for sanction of

KC cards may be issued to the production credit, he may be issued KC Card.
farmers approaching for production
credit for the first time.
d. Minimum land holding: The Scheme provides for issuance of KC cards to all farmer
A few banks have fixed minimum borrowers eligible for crop loan facility. It is clarified in terms
land holding as eligibility criteria for of NABARD's circular letter No. NB.PCD(OPR)/366/137
issue of KC Cards. (Spl)/2000-2001 dated 3 May 2000 that banks can now issue
KC cards for any amount below Rs. 5000 also, keeping in
view their operational convenience. Hence, it may not be
proper to insist on the minimum land holding area.
e. Non-availability of KCC The Scheme provides for insurance of KC cards toall farmer
facility for rainfed crops: borrowers who are eligible for crop loan facility. Even in
Some banks have issued instructions rainfed mono-crop areas the farmers should have the
to issue cards to farmers with flexibility in operations and KCC Cards may be issued to
irrigated lands only. Hence the farmers with rainfed crops.
farmers with rainfed crops are
deprived of the facility under KCC.
f. Financing illiterate farmers: Since there are no restrictions on sanction and disbursement
At present some banks are not of loans to illiterate farmers under normal crop loaning system
extending KCC facility to such farmers may be issued KC Cards with suitable
illiterate farmers. safeguards.
306 - III
2. Fixing Credit Limits Under the Scheme, while fixing the limit, the banks may take
a. IMBP: DCCBs have fixed a into account, the entire production credit requirements of the
maximum loan limit per borrower. farmers for the full year on the basis of the operational land,
Scale of Finance: holding, cropping pattern and scale of finance as
recommended by DLTC/SLTC. Individual Max Borrowing
b. Scale of finance adopted is less than Power, fixed by the bank in respect of crop loans would be
the actual requirement applicable to KCC accounts also. If need be, the IMBP may be
reviewed to take care of the credit requirements under KCC
Scheme.
3. Interest RatesCharging of interest The banks are required to charge interest in respect of KCC
at quarterly / Half yearly /Annual Accounts as applicable to crop loans as per the guidelines of
a. rests: the RBI. As per the present interest rate guidelines issued by
Banks debit interest rate at half RBI, the banks should not compound the interest in the case of
yearly or quarterly basis amounting current dues in respect of direct agricultural advances. Hence
to compounding of interest under there shall be no compounding of interest under KCC
KCC accounts. accounts until the account becomes overdue.
b. Charging higher interest rates: The banks are required to charge the same rate of interest on
Earlier, Kharif and Rabi loans were the credit limit under KCC as is being charged on crop loans.
sanctioned separately and interest The interest rates are to be fixed with reference to aggregate
rates fixed on slab basis i.e., credit limit sanctioned to an individual even if separate limits
a) up to Rs.2 lakhs etc. After were sanctioned for Kharif and Rabi. Interest is to be charged
introduction of KCC, interest is at the rate applicable to the appropriate slab, based on total
charged at higher rate than amount already sanctioned and levied with reference to the
earlier. amount actually drawn on a product basis.
4. Disbursement at PACS level The Model Scheme provides for disbursements at

a. In some banks, the disbursements issuing/designated branch / DCCB PACS. Cash
under KCCS are made by the DCCB disbursements may be permitted at PACS level also on the
branches only. The disbursements lines of the practice followed in respect of normal crop loans.
could be made at PACS level also.
Some banks allow cash
disbursements only at DCCB's
branches.
5. Fixation of Due dates / Seasonality

discipline
a. The due dates for repayment of loans The credit extended under KCC Scheme would be in the
are being fixed on old pattern of nature of a revolving cash credit providing for any number of
lending drawals and repayments. Each drawal is repayable within a
maximum period of 12 months. Any outstandings beyond this
maximum permissible period is to be treated as overdues.
307 - III
b. As the crop loans were sanctioned The existing security norms of RBI as applicable to crop loans
separately as kharif and Rabi loans are to be followed under KCC also.
no collateral was sought as a security
when the crop loans were upto a limit
of Rs.25000/-. In the case of KCC
Scheme, the farmers are expected to
bring a collateral when the loan is
more than Rs.25000/-
6. Levy of high Service Charges Issue of KC Cards may be taken as a refinement in the loan
Some banks levy service charges disbursement procedure which may be advantageous both for
to the extent of Rs. 100 to Rs.300 per the banks and the borrowers. As such, the banks may consider
card. not to levy any service charges on the issue of cards under the
Scheme.
7. Changing of Commission The Scheme provides that operations on the KC Cards may be
Some of the RRBs are charging at issuing branch and / or at the discretion of the bank through
2% commission in case of other designated branches. Since levy of commission / other
withdrawal from designated charges for operations at designated branches other than
branches other than issuing issuing branch will be a restrictive feature and will not be
branch. keeping with the spirit of the Scheme, the banks may review
and consider to waive such charges.
8. Credit balance in KCC cash Banks were advised vide our Circular letter No. NB.PCD
credit account (KCC) / H.436/KCC-11/1999-2000 dated 24 October
2000that they may at their discretion pay interest at a rate
a. Whether interest on credit balance in based on their perception and other related factors on the
KCC cash credit account can be paid. minimum credit balances in the cash credit accounts under the
Kisan Credit Cards of farmers during the period from 10 to the
last day of each calendar month.
9. Permitting operations in the

accounts despite part repayment
a. Whether it would be in order to permit KCC accounts are basically in the nature of revolving cash
drawals to the extent of the undrawn credits and as such there may not be any objection to permit
balance in the limit sanctioned to the drawal on the unutilized portion of the sanctioned limit even
account holder, in case where only a after making part repayment subject however to the fact that
part of the loan amount has been there is no overdue. In other words, in cases where more than
repaid. 12 months have elapsed from the time the drawal was made
and the same has not been fully repaid, the fresh drawals may
not be permitted till overdues are cleared and the account is
regulated.
308 - III
10. Classification of operations under The Model Scheme provides for fixing sub-limits within the
Kharif / Rabi OPP, OCC, NPDP, overall credit limit sanctioned. KCC accounts are basically
etc. Crop. Loan Accounts. In case a KCC borrower cultivates
crops falling under different seasons/categories Kharif/ Rabi
a. As the Scheme does not provide for (OPP, OC, NPDP, etc.), sub limits may have to be fixed to
crop wise disbursement, what should enable proper accounting of drawals and repayments. At the
be the procedure to be followed to time of each drawal/repayment, the borrower may have to be,
classify the operations under kharif/ in such cases, requested to indicate the relevant crop category/
Rabi OPP, OC, NPDP etc. purpose to enable booking of the transaction under the
respective sub limit.
11. Computation of DCB Outstanding reached in the limit / Account and for reckoning
of overdues, a maximum period of 12 months from the date of
a. Whether the stipulation that no drawal drawal is allowed. If however, any cut-off date/due date for
in the account should remain repayment is fixed for a particular season, all drawals for that
outstanding for more than 12 months in crop/season, even though not completing 12 months could be
the Model Scheme Since KCC accounts treated as fallen due for payment and demand / overdue
are cash credit accounts, computation of worked out accordingly
Demand is to be based 12 months, it is
not necessary for the card holder to
repay the loan in full before the cut-off
date/due date for repayment for such
crop? Further, how the demand should
be calculated in respect of drawals
which are yet to complete the cycle of 12
months
b. As per NABARD circular dated 26 In cases where the duration of the crop for which a credit limit
May 1999, the maximum outstanding sanctioned under KCC exceeds 12 months, the banks may
under loans in KCC accounts reached reckon the Demand, Collection and Balance as and when the
during the year (July-June) may be Demand actually falls due for repayment i.e., after taking into
treated as demand and the outstanding account the due date fixed for that crop.
in the unrenewed KCC accounts / and
the drawals outstanding for more than
12 months may be reckoned as
overdues. However, the problem arises
in calculation of DCB including
sugarcane, as due date for repayment
of sugarcane may fall after 15 months.
12. Possibility of inflation of NODC For permitting drawals to SCB on behalf of any DCCB by
NABARD, the NODC is verified only with reference to
a. As the card holders can operate at both
DCCB's Non-overdue outstandings against PACS. The mirror
the DCCB's branches and PACS, the
Accounts are expected to be maintained at DCCB and PACS
possibility of excess drawals /inflating
level. Any drawal / repayment at PACS level is expected to be
Non- overdue Cover cannot be ruled out.
309 - III
reflected in the concerned A/c. at DCCB level within a
reasonable period. Similar, arrangements for proper reporting
/ monitoring would have to be made where operations are
allowed at more than one branch. Also, as and when drawals /
repayments are made, these are required to be entered in the
Pass Book issued to the borrower under proper authentication.
310 - III
CHAPTER - 24
CROP INSURANCE SCHEME
1. General:
a. Agriculture Insurance Company of India Limited (AIC of India Ltd.) was incorporated under
the Indian Companies Act 1956 on 20th December, 2002 with an authorised share capital of INR
15 billion and paid up capital of INR 2 billion. AIC commenced business from 1st April, 2003 for
the exclusive purpose of providing crop insurance to the farmers throughout the country. The
prominent insurance schemes formulated by AIC are briefed hereunder:
2. Scheme - 1: National Agricultural Insurance Scheme (NAIS):
a. The objectives of the NAIS are as under:-
i. To provide insurance coverage and financial support to the farmers in the event of failure of
any of the notified crop as a result of natural calamities, pests & diseases.
ii. To encourage the farmers to adopt progressive farming practices, high value inputs and higher
technology in Agriculture.
iii. To help stabilise farm incomes, particularly in disaster years.
b. Crops Covered: Food crops (Cereals, Millets & Pulses) Oil Seeds, annual Commercial/annual
Horticultural crops (sugarcane, cotton, potato, onion, chilly, turmeric, ginger, jute, tapioca,
banana, pineapple have been covered almost in 25 states/UTs in our country. More crops will be
added in future.
c. Farmers to be covered: All farmers including sharecroppers, tenant farmers growing the notified
crops in the notified areas are eligible for coverage. The Scheme covers following groups of
farmers:
i. On a compulsory basis: All farmers growing notified crops and availing Seasonal
Agricultural Operations (SAO) loans from Financial Institutions i.e. Loanee-Farmers.
ii. On a voluntary basis: All other farmers growing notified crops (i.e., Non-Loanee farmers)
who opt for the Scheme.
d. Risks covered & exclusions: Comprehensive risk insurance will be provided to cover yield losses
due to non-preventable risks, viz.:
i. Natural Fire and Lightning

ii. Storm, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado etc.
iii. Flood, Inundation and Landslide
iv. Drought, Dry spells
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v. Pests/ Diseases etc.
e. Losses arising out of war & nuclear risks, malicious damage & other preventable risks shall be
excluded.
f. Sum Insured / Limit Of Coverage: The Sum Insured (SI) may extend to the value of the
Threshold Yield (TY) of the insured crop at the option of the insured farmers. However, a farmer
may also insure his crop beyond value of Threshold Yield level up to 150% of Average Yield (AY)
of notified area on payment of premium at commercial rates. In case of Loanee farmers the Sum
Insured would be at least equal to the amount of crop loan advanced. Further, in case of Loanee
farmers, the Insurance Charges shall be an additionality to the Scale of Finance for the purpose of
obtaining loan. In matters of Crop Loan disbursement procedures, guidelines of RBI / NABARD
shall be binding.
g. Premium Rates:
S.No. Season Crops Premium Rate
Bajra & Oilseeds 3.5% of SI or Actuarial rate,

whichever is less
1 Khariff
Other crops (cereals, other millets 2.5% of SI or Actuarial rate,
& pulses) whichever is less
Wheat 1.5% of SI or Actuarial rate,
whichever is less
2 Rabi
Other crops (other cereals, 2.0% of SI or Actuarial rate,
millets, pulses & oilseeds) whichever is less
3 Kharif & Rabi Annual Commercial / Annual Actuarial rates

Horticultural crops
h. Premium Subsidy: Govt of India offers 5% premium subsidy for Loanee Non Loanee Small and
Marginal farmers. Additionally in Tamil Nadu 45% Premium Subsidy is allowed for Loanee Small
& Marginal and other farmers and 50 % subsidy for Non loanee S/M Farmers.
i. Sharing Of Risk:Risk will be shared by Implementing Agency (IA) and the Government in the
following proportion:
i. Food crops & Oilseeds: Claims beyond 100% of premium will be borne by the State and
Central Governments equally.
ii. Annual Commercial / Annual Horticultural crops: Implementing Agency shall bear all
normal losses, i.e. claims upto 150% of premium.
j. Area Approach and Unit of Insurance: The Scheme is operated on the basis of 'Area Approach'
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i.e., Defined Areas for each notified crop for widespread calamities and on an individual basis for
localised calamities such as hailstorm, landslide, cyclone and flood. The Defined Area (i.e., unit
area of insurance) may be a Gram Panchayat, Mandal, Hobli, Circle, Phirka, Block, Taluka etc. as
decided by the State/UT Govt.
Individual based assessment in case of localised calamities, to begin with, would be implemented in
limited areas on experimental basis initially and shall be extended in the light of operational experience
gained. The District Revenue administration will assist Implementing Agency in assessing the extent of
loss.
k. Seasonality Discipline:The broad seasonality discipline followed for Loanee farmers will be as
under:
Activity Kharif Rabi

Loaning period April to September October to next March
Cut-off date for receipt November May
of Declarations
Cut-off date for receipt January / March July / September
of yield data
l. The broad cut-off dates for receipt of proposals in respect of Non-loanee farmers will be as under :
i. Estimation of Crop Yield: The State/UT Govt. will plan and conduct the requisite number of
Crop Cutting Experiments (CCEs) for all notified crops in the notified insurance units in order
to assess the crop yield. The State / UT Govt. will maintain single series of Crop Cutting
Experiments (CCEs) and resultant Yield estimates, both for Crop Production estimates and
Crop Insurance.
Minimum number of CCEs
S.No. Unit Area required to be done
1. Block 16
2. Fhirka / 10
3. Gram Panchayat comprising 4-5 villages 08
m. Levels of Indemnity & Threshold Yield: Three levels of Indemnity, viz., 90%, 80% & 60%
corresponding to Low Risk, Medium Risk & High Risk areas shall be available for all crops
(cereals, millets, pulses & oilseeds and annual commercial / annual horticultural crops) based on
Coefficient of Variation (C.V.) in yield of past 10 years' data. However, the insured farmers of unit
area may opt for higher level of indemnity on payment of additional premium based on actuarial
rates.
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n. The Threshold yield (TY) or Guaranteed yield for a crop in an Insurance Unit shall be the moving
average based on past three years Average Yield in case of Rice & Wheat and five years Average
Yield in case of other crops, multiplied by the level of indemnity.
o. Nature of Coverage and Indemnity: If the 'Actual Yield' (AY) per hectare of the insured crop for
the defined area [on the basis of requisite number of Crop Cutting Experiments (CCEs)] in the
insured season, falls short of the specified 'Threshold Yield' (TY), all the insured farmers growing
that crop in the defined area are deemed to have suffered shortfall in their yield. The Scheme seeks
to provide coverage against such contingency.
'Indemnity' shall be calculated as per the following formula:
Shortfall in Yield
X 100 or Sum Insured for the farmer
Threshold yield
{ Shortfall in Yield = 'Threshold Yield - Actual Yield' for the Defined Area }.
p. Indemnity In Case Of Localised Risks:Loss assessment and modified indemnity procedures in

case of occurrence of localized perils, such as hailstorm, landslide, cyclone and flood where
settlement of claims will be on individual basis, shall be formulated by IA in coordination with
State / UT Govt.
q. The loss assessment of localized risks on individual basis will be experimented in limited areas
initially and shall be extended in the light of operational experience gained. The District Revenue
administration will assist IA in assessing the extent of loss.
r. Procedure for Approval & Settlement of Claims: Once the Yield Data is received from the
State/UT Govt. as per the prescribed cut-off dates, claims will be worked out and settled by IA. The
claim cheques along with claim particulars will be released to the individual Nodal Banks. The
Banks at the grass-root level, in turn, shall credit the accounts of the individual farmers and display
the particulars of beneficiaries on their notice board. In the context of localised Phenomenon viz.
Hailstorm, landslide, cyclone and flood, the IA shall evolve a procedure to estimate such losses at
individual farmer level in consultation with DAC/State/UT. Settlement of such claims will be on
catastrophic individual basis between IA and insured.
s. Management of the Scheme, Monitoring and Review:In respect of Loanee farmers, the Banks
shall play the same role as under CCIS. In respect of Non-Loanee farmers, Banks shall collect the
premium along with the Declarations and send it to IA within the prescribed time limits. However,
in areas where IA has requisite infrastructure, a non-loanee farmer will have option to send
premium along with Declaration directly to IA within the time limits.The Scheme will be
implemented in accordance with the operational modalities as worked out by IA, in consultation
with GOI, Department of Agriculture & Co-operation.
t. Role Play of Various Agencies:
i. Role & Responsibilities of Financial Institutions (FIs): For the purpose of the Scheme, the
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Scheduled Institutions engaged in disbursing SAO loans as per the relevant guidelines of
NABARD / RBI will be reckoned as Financial Institutions. Each scheduled Commercial bank
shall with concurrence of IA fix Nodal points which would deal with IA on behalf of branches
in the division / district / state. The Nodal points for Commercial banks will be minimum one
level above the Branch office. The Nodal points for Cooperative banks will be DCC Banks and
those for RRBs, their Head Office.
ii. Nodal points would be designated for implementation and these banks would attend to the
following functions:
 On receipt of the communication on notification of crops and areas from the State Govt./
UT, the Nodal banks will communicate the same to the branch offices under their control.
 The FIs would advance additional loan to Loanee farmers to meet requirement of
Insurance charges / premium as applicable upto the extent of crop loan.
 Each such Nodal point would submit crop-wise, defined area-wise, monthly Crop
insurance Declarations to the Office of IA, in the prescribed format, along with Insurance
charges payable on all crop loans coming under the purview of the Scheme in case of
Loanee farmers and based on Proposals received in case of other farmers.
 The Apex FIs shall issue appropriate instructions to Nodal banks as well as crop loan
disbursing branches to ensure smooth functioning of the Scheme.
 For insurable crop loans disbursed under Kissan Credit Card (KCC), the FIs shall maintain
all controls and records as required under the Scheme.
iii. Other Responsibilities of FIs will be:
 To educate the farmers on the Scheme features.

 To guide the farmers in filing the proposal forms and collecting the required documents.
 Following the guidelines while disbursing crop loans and ensuring proper end-use of loan
disbursed.
 To prepare the consolidated statements for Loanee and Non-Loanee members, forwarding
the same to the branch along with the premium amount.
 Maintaining the records of proposal forms, other relevant documents, statements for the
purpose of verification by the district committee or representative of the insurer.
iv. Special Conditions for FIs / Nodal Banks / Loan Disbursing Points:
 FIs will submit Crop Insurance Declarations to IA on monthly basis, where sum insured is
on the basis of amount of loan disbursed and within one month time from cut-off date for
receipt of proposals, where sum insured is on any other basis.
 Claims received by the Nodal points, will be remitted to individual branches/PACS with all
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particulars within seven days and these branches/PACS will in turn credit the Accounts of
beneficiary farmers within seven days. The list of beneficiary farmers with claim amount
will be displayed by the branch / PACS.
 The IA will have access to all relevant records/ledgers at the Nodal point/Branch/PACS at
all times.
 The IA will be provided with all the norms / guidelines relating to SAO crop loan
disbursements as formulated by RBI / NABARD. Any amendments / simplification of
procedures / norms from time to time will be duly made available to IA by the concerned
institutions. In the absence of such communication, IA shall be free to not take cognisance
of such modifications.
 In case a farmer is deprived of any benefit under the Scheme due to errors / omissions /
commissions of the Nodal Bank/Branch/PACS, the concerned institutions only shall make
good all such losses.
 If the farmer is adopting mixed cropping, the sum insured of a crop should be on the basis
of its proportionate area in the mixed cropping.
v. Role & Responsibilities Of State Government / UT Administration :
 The State Government / UT will notify crop wise notified areas and premium rates as
applicable (in case of commercial/horticultural crops) well in advance of each crop season.
 The State Government / UT administration would, in advance provide to the IA, Unit Area-
wise yield data of immediate past 10 years for all crops notified under the Scheme.
 To the extent possible, the State Government / UT administration would notify smaller
defined areas for various crops, keeping in mind that smaller areas will be more
homogeneous and would be more reflective of all crop losses, including localized perils
like hailstorm, landslide etc.
 The State Government shall issue the requisite Notification and communicate to all
participating FIs during every crop season. The Notification of the State Government may
essentially contain the following information:
 Crops and Defined areas notified in various districts.
 Premium rates and subsidy, if and as applicable for various groups of farmers and crops.
 The cut-off dates for collection of proposals and remittance of premium with Crop
Insurance Declarations to IA.
 The State / UT administration will release it's contribution to Corpus Fund as per the scale
and dates fixed by MOA, the Government of India.
 The State / Union Territory administration would ensure that Crop Estimation Surveys
(CES) in general, and estimation procedures in case of multiple picking crops in particular
be strengthened in order to furnish accurate estimates of yield. Further, the State / UT
administration will assist IA in assessing the extent of crop loss of individual insured
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farmers due to operation of localised perils.
 To set up various monitoring Committees as required.
 The final Yield data in the standard format for all Unit Areas for notified crops for the crop
season will be furnished to IA within the stipulated date.
 In case, the State /UT administration fail to furnish yield data based on requisite number of
CCEs or fail to furnish yield data within the stipulated date, responsibility of such claims, if
any arising out of such data will totally rest with State / UT Administration.
 The IA will be allowed unrestricted access to records of CCEs at grass root / District / State
level.
 State Government / UT Administration shall set up District Level Monitoring Committee
(DLMC), headed by the District Magistrate. The members will be District Agriculture
Officer, DCCB, Lead Bank representative and IA. The committee will monitor
implementation of Scheme by providing fortnightly crop condition reports and periodical
reports on seasonal weather conditions, loans disbursed, extent of area cultivated, etc. The
DLMC shall also monitor conduct of CCEs in the district.
 As the Scheme is optional to Non-loanee farmers, adequate publicity will be provided to
ensure maximum coverage of farmers through all means available at the disposal of State /
UT administration.
vi. Role And Responsibilities Of The Implementing Agency (IA):
 Implementing Agency of the Scheme.

 The IA shall open separate Accounts to deal with Corpus Fund and also premiums received
under the Scheme.
 Building up crop yield database and preparation of Actuarial premium rates through a
Professional agency.
 Underwriting and Claims finalization.
 Responsibility for claims to the extent mentioned in the Scheme.
 Negotiating Re-insurance arrangement in the international market.
 Co-ordination in organizing training, awareness, publicity programmes.
 Providing returns / statistics to the Government of India.
 Examining and exploring possibilities of setting up separate agency for implementation of
the Scheme.
vii. Duties Of Farmers :
 As the Scheme is compulsory for all Loanee farmers availing SAO loans for notified crops,
it is mandatory for all Loanee farmers to insist on coverage of all eligible loans (as per the
Scheme provisions) under the Scheme.
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 If the farmer is adopting mixed cropping, the proportion of different crops in a mixed
cropping will have to be compulsorily declared.
 In respect of Non-loanee farmers, the Proposals will be accepted only upto stipulated cut-
off date, which will be decided in consultation with State Government / UT
Administration.
 The important duties in case of Non-loanee farmers are as follows:
 The farmer desiring coverage should have an Account in the branch of the designated
bank.
 The farmer must approach the designated branch / PACS and submit the proposal form
in the prescribed format.
 The farmer must provide documentary evidence in regard to the possession of
cultivable land (copy of the pass book, 7/12 / land extract or land revenue receipt should
be enclosed). The farmer must furnish area sown confirmation certificate, if required.
3. Scheme - 2: Weather Based Crop Insurance Scheme (WBCIS):
a. Weather Based Crop Insurance aims to mitigate the hardship of the insured farmers against the
likelihood of financial loss on account of anticipated crop loss resulting from incidence of adverse
conditions of weather parameters like rainfall, temperature, frost, humidity etc.
b. While Crop Insurance specifically indemnifies the cultivator against shortfall in crop yield,
Weather based Crop Insurance is based on the fact that weather conditions affect crop production
even when a cultivator has taken all the care to ensure good harvest. Historical correlation studies
of crop yield with weather parameters help us in developing weather thresholds (triggers) beyond
which crop starts getting affected adversely. Pay-out structures are developed to compensate
cultivators to the extent of losses deemed to have been suffered by them using the weather triggers.
In other words, Weather based Crop Insurance uses weather parameters as 'proxy' for crop yields in
compensating the cultivators for deemed crop losses.
c. Operation: Weather based Crop Insurance Scheme (WBCIS) operates on the concept of “Area
Approach” i.e., for the purposes of compensation, a 'Reference Unit Area (RUA)' shall be deemed
to be a homogeneous unit of Insurance. This RUA shall be notified before the commencement of
the season by the State Government and all the insured cultivators of a particular insured crop in
that Area will be deemed to be on par in the assessment of claims. Each RUA is linked to a
Reference Weather Station (RWS), on the basis of which current weather data and the claims would
be processed. Adverse Weather Incidences, if any during the current season would entitle the
insured a pay-out, subject to the weather triggers defined in the 'Pay-out Structure' and the terms &
conditions of the Scheme. The “Area Approach” is as opposed to “Individual Approach”, where
claim assessment is made for every individual insured farmer who has suffered a loss.
d. Who Can Join: All Cultivators (including sharecroppers and tenant cultivators) growing the crop
(insurable under the scheme) in any RUA in the Pilot areas shall be eligible for coverage. However,
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the Scheme is mandatory for all Loanee Cultivators of Lending Banks/ Financial Institutions who
have Sanctioned Credit Limit for the particular crops and optional for 'Others'.
e. Sum Insured: Amount of insurance protection (sum insured) is broadly the cost of inputs expected
to be incurred by the insured in raising the crop. Sum insured is pre-declared per unit area (Hectare)
by AIC at the beginning of every crop season, in consultation with experts in State Government;
and it may be different for different crops in different RUAs. Sum insured is further distributed
under the key weather parameters used in the insurance in proportion to the relative importance of
the weather parameters.
i. In case of Loanee cultivator, the sum insured per crop is calculated by multiplying the sum
insured (pre-declared cost of inputs) with the crop-specific 'Acreage' declared in the Loan
Application Form by the Loanee cultivator for the purpose of “Maximum Borrowing Limit
(MBL)” fixed for him by the Lending Bank.
ii. In case of Others (Non-Loanees), the sum insured per crop is calculated by multiplying the
sum insured (pre-declared cost of inputs) with the 'Acreage' expected to be sown / planted
under the particular crop and mentioned in the 'Insurance Proposal Form' There are many
advantages of Weather Based Crop Insurance Scheme (WBCIS) which makes it beneficial for
cultivators in their production risk management. The major advantages / benefits are:
 Trigger events like adverse weather (rainfall, temperature, relative humidity etc.) can be
independently verified & measured.
 It allows for speedy settlement of claims, say within 45 days from the end of the insurance
period.
 All cultivators irrespective of Loanee or Non-Loanee; Small / Marginal or Others; Owners
or Tenants / Sharecroppers can buy Weather Based Crop Insurance Scheme (WBCIS).
 The Government is providing Subsidy in Premium and hence, the premium payable by the
cultivator is affordable.
 It provides transparent, fully objective, efficient & direct pay-outs for adverse weather
incidences and thus, an effective risk mitigation tool against weather risks.
 The insured is not required to submit claim form or other documents as proof for his/ her
loss. The claim pay-out is automatically calculated on the basis of weather data collected
from the Reference Weather Station at the Tehsil / Block level.
 Since the weather data decides the compensation, the insured retains the incentive for
putting in extra effort for getting better yield of his / her crop.
4. Scheme - 3: Rainfall Insurance Scheme for Coffee (RISC): RISC is a unique rainfall insurance
product specially designed for the coffee growers of Karnataka, Kerala and Tamilnadu. This product is
designed in consultation with Coffee Board, Central Coffee Research Institute and the Coffee Growers
of Karnataka. RISC is expected to provide effective risk management aid to those coffee growers likely
to be impacted by adverse rainfall incidence. The most important benefits of RISC are:
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i. Trigger events like adverse rainfall can be independently verified and measured.
ii. Parameters considered in designing this insurance product are relevant, appropriate and to a large
extent captures the rainfall induced risks affecting Coffee production.
iii. Allows for speedy settlement of indemnities.
a. Scope of Coverage:The policy compensates the insured, against the likelihood of diminished
coffee output / yield resulting from shortfall / excess in the actual rainfall (as the case may be) for
different coverage options within a specific geographical location and specified time period,
subject to a maximum of the Sum Insured specified in the policy under each of the coverage
options.
b. The policy provides the following coverage options:

th
i. “Monsoon Showers” shall mean the rainfall received during 1st July to 30 September for
st
Gudalur Coffee Zone of Nilgiri District in TamilNadu for Arabica and Robusta and from 1
October to 30 th November 2010 for Bathlagundu, Adalur, Perumalmalai,
Pannaikadu,Yercaud, Bodi and Connoor Coffee zones with an aggregate rainfall beyond a
specified limit (distinct for each zone/sub zone) in any seven consecutive days during the
period.
ii. “Post Monsoon Showers” shall mean the cumulative rainfall of at least 100 mm received
continuously over a period of 3 days in case of Arabica during 1st November to 31st January and
cumulative rainfall of at least 125 mm received continuously over a period of 5 days in case of
st
Robusta coffee during 1 December to end of February. This is applicable only for Gudalur
Zone.
st
c. Period of Insurance: The insurance operates during 1 March to end of February. The periods
under different coverage are as follows:
th
i. Monsoon Shower: 1st July to 30 September 2010 For Gudalur Zone
1st October to 30th November 2010: For other Coffee Zones.
st st st
ii. Post Monsoon Shower: 1 December to end of February (Robusta) / 1 November to 31
January (Arabica) applicable only for Gudalur Zone of Tamil Nadu State.
d. Insured: Any coffee grower, cultivating Robusta / Arabica variety of coffee in the selected Sub
zones of Tamil Nadu are eligible to buy the insurance.
e. Phases to choose: The Insurance phases available during RISC 2010 are (a) Monsoon Showers,
(b) Post-Monsoon Showers and (c) Monsoon & Post Monsoon Showers.
f. Claim triggers: “Monsoon Showers Trigger” shall mean a point above which the pay-out
triggers. The pay-out shall commence if the aggregate rainfall is beyond a specified limit (distinct
for each zone) in any seven consecutive days during the period. One event of highest rainfall would
be considered for deciding the pay-out.
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g. “Post Monsoon Showers” shall mean a point above which the pay-out triggers. The pay-out shall
commence if the aggregate rainfall is beyond a specified limit (distinct for each zone) in any 3
consecutive days for Arabica and any 5 consecutive days for Robusta during the period. One event
of highest rainfall would be considered for deciding the pay-out.
h. Agencies for data: “Reference Weather Station. and the Automatic Weather Station (AWS) set
up by National Collateral Management Services Ltd. (NCMSL) the Rainfall data shall be collected
from the “Reference Rain gauge Station”, as specified in the Cover note/policy.
i. “Backup Rain gauge Station” : The rainfall data of the Backup Rain gauge station shall be
considered for those specific dates for which rainfall data from the Reference Weather station are
not available. The rainfall data shall be collected from the “Backup Rain gauge station as specified
in the cover note/Policy.
j. How claims become payable: In the event that, in the geographical location (coffee zone) and
during the time period specified in the Schedule to this policy for different options, the Actual
Rainfall is deficit / excess compared to the specified trigger level, the benefit payable to the insured
shall be a sum specified corresponding to the trigger level, subject to maximum of the Sum Insured
specified under various options of the Scheme.
k. Sum Insured: Maximum sum insured per hectare for Robusta and Arabica varieties shall be
Rs.12,000 and Rs.16,000 respectively for Monsoon & Post Monsoon phases. This is the maximum
indemnity that AIC will pay in all under each cover note / policy. The phase-wise break-up is as
follows:
Phase Robusta Arabica

Monsoon Showers Rs. 6,000 Rs. 8,000
Post Monsoon Showers Rs. 6,000 Rs. 8,000
Total Rs. 12,000 Rs. 16,000
l. Premium: Premium chargeable would be statistically/actuarially calculated based on the type of

coffee crop, location, the coverage sought, the past rainfall pattern in the specified geographical
area and the acreage under cultivation. Those growers who buy all two phases together would save
on the premium.
m. Premium Subsidy: Coffee Board is extending premium subsidy to all small coffee growers with
plantation size up to 10 hectares in all coffee zones of Tamilnadu state to particularly cover the Sum
Insured for all two risk windows i.e. Monsoon & Post Monsoon Showers. The subsidy is as
follows:
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Arabica Robusta
Subsidy (per Hectare) Subsidy (per Hectare)
50% of the premium amount subject to 50% of the premium amount subject to a
a ceiling of Rs.2500 ceiling of Rs.2000
n. The phase wise breakup is as follows:
Phase Robusta Arabica

Blossom Showers Rs. 5,000 Rs. 9,000
Backing Showers Rs. 3,000 Rs. 5,000
Monsoon Showers Rs. 6,000 Rs. 8,000
Post Monsoon Showers Rs. 6,000 Rs. 8,000
Total Rs. 20,000 Rs. 30,000
o. How to avail insurance: Planters can avail insurance in the respective Coffee Board Liaison
Office (JLOs & SLOs) of all coffee zones of Tamil Nadu who are authorized to collect proposal
form & premium. The respective Coffee Board Liaison Office (JLOs & SLOs) would also help the
growers in providing and filling up insurance proposals. Premium net off subsidy.
p. Insurance availing period: Only for Gudalur Coffee Zone: During RISC 2010 season Monsoon
coverage insurance can be availed till 30th June 2010 and Post Monsoon insurance can be availed
till 31ST October 2010for both Arabica and Robusta varieties (may be extended up to 30th
November 2010).
q. For Other Zones in Tamil Nadu: Monsoon Coverage: Insurance can be availed till 30th
September 2010 for Arabica and Robusta varieties.
5. Scheme - 4:Varsha Bima (VB): A Rainfall based scheme of AIC of India Ltd. Sixty five per cent of
Indian agriculture is heavily dependent on natural factors, particularly rainfall. Studies have
established that rainfall variations account for more than 50% of variability in crop yields. It's known
that yields are variable, however, it's now being realized that the weather, particularly rainfall is also
becoming increasingly unpredictable and uncertain. Although there is no way of controlling weather-
factors, there is now a hope of mitigating the adverse financial effects that rainfall can have on the rural
economy, particularly farm incomes.
a. Scope: Varsha Bima covers anticipated shortfall in crop yield on account of deficit rainfall. Varsha
Bima is voluntary for all classes of cultivators who stand to lose financially upon adverse incidence
of rainfall can take insurance under the scheme. Initially Varsha Bima is meant for cultivators for
whom National Agricultural Insurance Scheme (NAIS) is voluntary.
b. Coverage Options: The Scheme covers Deficit Rainfall, Consecutive Dry Days, Excess Rainfall
during the Sowing, Vegetative, Reproductive and Maturity stage of the Crop.
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c. Crops: Implemented for all the field crops on optional basis.
d. Claim Pay-outs: Insured cultivators would become eligible for pay out if the “Actual Weather”
Data recorded at a “Reference Weather Station (RWS)” during the specified time period shows
deviation (Adverse Weather Incidence) as compared to the specified “Trigger Weather”. In such
case, the specified 'crop' in that particular RUA shall be deemed to have suffered the same level of
Adverse Weather Incidence, and consequently the same proportion of loss of crop yield, and
become eligible for same proportion of Pay-outs. Pay-out / Claim settlement is an automatic
process based on weather readings recorded at the RWS. Insured cultivators are not required to
'make a claim'.
6. Scheme - 5: Coconut Palm Insurance Scheme (CPIS): CPIS is being implemented in selected
st
districts in the 1 phase, in the state of Tamil Nadu, Kerala and Andhra Pradesh with Premium subsidy
support form Coconut Development Board of 50%, State Government of 25% and farmers share of
25%.
a. The full Premium per tree (4 years to 15 years ) is Rs 4.69 & for the trees from 16years to 60 years
the premium is Rs. 6.35 subject to above subsidy.
b. Sum Insured : Trees from 4 years to 15 years the sum insured is Rs. 600/- per tree. For the trees
from 16 years to 60 years the sum is Rs. 1150/-.
c. All farmers can avail the scheme through Agriculture / Horticulture Department and the claim
assessment will be done if the palm is unproductive due to wilt or dead. The healthy Palm has to be
insured yielding 30 nuts per year.
d. All round the year the farmers can join in the scheme. Annual policies are issued subject to one
month waiting period.
e. The loss is intimated by the farmers within 48 hrs. of any one incident resulting in total loss. The
survey done by the State Agriculture / Horticulture Department and based on the recommendations
the claims will be considered subject to scheme provisions like excess and franchise clause, etc.
f. Modified NAIS Scheme: Government of India letter on Modified NAIS scheme is also given in
Annexure for future reference. Modified National Agricultural Insurance Scheme (MNAIS) is
given as Annexure - 1 to this Chapter.
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Annexure 1 to Chapter - 24
Modified National Agricultural Insurance Scheme (MNAIS)
Ministry of Agriculture, Department of Agriculture & Cooperation has been implementing National
Agricultural Insurance Scheme (NAIS) as Central Sector scheme since Rabi 1999-2000, to insulate farming
community against agriculture risks. In view of representations received from States/UTs and farmers,
ongoing National Agricultural Insurance Scheme (NAIS) has been reviewed to make it more farmers
friendly and accordingly the scheme has been modified and a new scheme, namely, Modified National
Agricultural Insurance Scheme (MNAIS) is proposed to be implemented, as Central Sector Scheme on a
pilot basis in 50 districts, from Rabi 2010-11.
MNAIS aims at sustainable production in agriculture sector, thereby ensuring food security, crop
diversification and enhancing growth and competitiveness from agriculture sector, besides protecting
farmers from production risks.
The proposed scheme has following main features :-
(i) actuarial premiums will be paid for insuring crops and hence claims liability will be on insurer;
(ii) unit area of insurance for major crops is village/village panchayat;
(iii) indemnity amount will become payable, for prevented sowing/planting risks and for post-harvest
losses, due to cyclones;
(iv) on account payment up to 25% of likely claim under MNAIS will be released as advance, for
providing immediate relief to farmers;
(v) uniform seasonality norms will be applicable for both loanee and non-loanee farmers;
(vi) more proficient basis for calculation of threshold yield (average yield of last seven years excluding
upto two years of declared natural calamity) will be applicable; and
(vii)minimum indemnity level in case of MNAIS of 70% will be, instead of 60% as in NAIS.
Loanee farmers will be insured under 'compulsory category' while non-loanee farmers will be insured under
'voluntary category'.
Private sector insurers with adequate infrastructure and experience will also be permitted to implement
MNAIS. NAIS will be withdrawn for those area(s)/crop(s) of districts, in which MNAIS will be
implemented.
All State/UTs are requested to take necessary action urgently and issue appropriate instructions to concerned
Departments/agencies, at State level and are requested to give wide publicity to the Scheme for creating
awareness amongst farmers in notified districts, so that farming community can avail full benefits of the
scheme. Implementation of the scheme will require close monitoring and periodic review at State and
district levels. Concurrent evaluation of parameters and impact of scheme will be undertaken, after two
years of implementation of MNAIS, by an external agency.
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1. OBJECTIVES
The objectives of the Scheme are as under: -
i) To provide insurance coverage and financial support to the farmers in the event of prevented
sowing & failure of any of the notified crop as a result of natural calamities, pests & diseases.
ii) To encourage the farmers to adopt progressive farming practices, high value in-puts and better
technology in Agriculture.
iii) To help stabilize farm incomes, particularly in disaster years.
2. SALIENT FEATURES OF THE SCHEME
In addition to Agriculture Insurance Company of India Ltd., Private sector insurance companies with
adequate infrastructure and experience will be allowed on selective basis to implement the scheme by the
implementing States from out of the companies short listed by the Department of Agriculture &
Cooperation.
3. CROPS COVERED
i. Food crops (Cereals, Millets & Pulses)

ii. Oilseeds
iii. Annual Commercial / Horticultural crops
(a) Loanee farmers would be covered under compulsory component.
(b) Non-loanee farmers would be covered under voluntary component.
(c) The Crops are covered subject to availability of i) the past yield data based on Crop Cutting
Experiments (CCEs) for adequate number of years, and ii) requisite number of CCEs are
conducted for estimating the yield during the proposed season.
Ten years historical data is adequate for setting premium rates, fixing indemnity limit and threshold yield
etc. Wherever such historical yield data at insurance unit is not available for some years, the data of nearest
neighbouring unit / weighted average of contiguous units / next higher unit can be adopted, subject to
appropriate loading in the premium rate, if necessary.
4. STATES AND AREAS TO BE COVERED
Modified NAIS based on major improvements suggested by the Joint Group is to be implemented in 50
districts. These districts may be identified in consultation with the States/UTs.
5. FARMERS TO BE COVERED
All farmers* including sharecroppers, tenant farmers growing the notified crops in the notified areas are
eligible for coverage.
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I. Individual owner-cultivator/ tenant farmers/ share croppers.
II. Farmers enrolled under contract farming, directly or through promoters / organizers
III. Groups of farmers / societies serviced by Fertiliser Companies, Pesticide firms, Crop Growers
associations, Self Help Groups (SHGs), Non-Governmental Organisations (NGOs), and Others
The Scheme will extend coverage Component-wise:-
Compulsory Component
All farmers availing Seasonal Agricultural Operations (SAO) loans from Financial Institutions (i.e. loanee
farmers) would be covered compulsorily.
Voluntary Component
The Scheme would be optional for all non-loanee farmers.
6. RISKS COVERED & EXCLUSIONS
(A). STANDING CROP (Sowing to Harvesting)
Comprehensive risk insurance is provided to cover yield losses due to nonpreventable risks, viz.:
(i) Natural Fire and Lightning

(ii) Storm, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado etc.
(iii) Flood, Inundation and Landslide
(iv) Drought, Dry spells
(v) Pests/ Diseases etc.
(B) PREVENTED SOWING / PLANTING RISK
In case farmer of an area is prevented from sowing / planting due to deficit rainfall or adverse seasonal
conditions, such insured farmer who failed to sow / plant (but otherwise has every intention to sow / plant
and incurred expenditure for the purpose), shall be eligible for indemnity. The indemnity payable would be a
maximum of 25% of the sum-insured. The scale of payment for different crops will be worked out by
implementing agency in consultation with experts.
(C) POST HARVEST LOSSES
Coverage is available only for those crops, which are allowed to dry in the field after harvesting against
specified perils of cyclone in coastal areas, resulting in damage to harvested crop. Further, the coverage is
available only upto a maximum period of two weeks from harvesting. Assessment of damage will be on
individual basis.
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(D) GENERAL EXCLUSIONS
Losses arising out of war & nuclear risks, malicious damage and other preventable risks shall be excluded.
7. SUM INSURED / LIMIT OF COVERAGE
In case of Loanee farmers under Compulsory Component, the Sum Insured would be at least equal to the
amount of crop loan sanctioned/advanced, which may extend up to the value of the threshold yield of the
insured crop at the option of insured farmer. Where value of the threshold yield is lower than the loan amount
per unit area, the higher of the two is the Sum Insured. Multiplying the Notional Threshold Yield
(district/region/state level) with the Minimum Support
Price (MSP) of the current year arrives at the value of Threshold Yield. Wherever Current year's MSP is not
available, MSP of previous year shall be adopted. The crops for which, MSP is not declared, farm gate price
established by the marketing department / board shall be adopted.
Further, in case of Loanee farmers, the Insurance Charges payable by the farmers shall be financed by loan
disbursing office of the Bank, and will be treated as additional component to the Scale of Finance for the
purpose of obtaining loan. For farmers covered on voluntary basis the sum-insured is upto the value of
Threshold yield of the insured crop. If the farmer so desire he may be provided with higher level of risk
coverage. Sum insured up to 100% of threshold/average yield of notified area with normal premium subsidy
but sum insured above 100% and up to 150% of the value of average yield without premium subsidy.
8. PREMIUM RATES & SUBSIDY
Premium rates are to be worked out on actuarial basis. However, the premium paid by the farmer is
subsidized on the following lines:
Subsidy to Farmers
1 Upto 2% Nil
2 >2 - 5% 40% subject to minimum net premium of 2%
3 >5 10% 50% subject to minimum net premium of 3%
4 >10 15% 60% subject to minimum net premium of 5%
5 >15% 75% subject to minimum net premium of 6%.
Before the start of each crop season, insurance companies shall work out actuarial premium as well as net
premium rates (premium rates actually payable by farmers after premium subsidy) for each notified crop
through standard actuarial methodology approved by the Govt. of India. Premium structure would be
worked out with a discount provision on the premium in respect of an unit area where all farmers have
adopted better water conservation and sustainable farming practices for better risk mitigation.
9. SHARING OF RISK
All claims will be borne by the Insurance Companies.
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10. SCHEME APPROACH AND UNIT OF INSURANCE
(A) WIDESPREAD CALAMITIES
The Scheme would operate on the basis of 'Area Approach' i.e., Defined Areas for each notified crop for
widespread calamities. The Defined Area (i.e., unit area of insurance) is village/Village Panchayat level by
whatsoever name these areas may be called for major crops and for other crops it may be a unit of size in
between Village Panchayat to Taluka to be decided by the State/UT Govt. The scheme on pilot basis at
reduced insurance unit area would be implemented in those villages/village panchayats where appropriate
yield data are available at least for last five years at village panchayat or higher level or in neighboring
village in different States.
(B) LOCALIZED RISKS
In case of localized risks, viz. hailstorm and landslide, the claims will be assessed on individual basis. For
other calamities the assessment will be on the basis of 'area approach'.
11. SEASONALITY DISCIPLINE
(a) The broad seasonality discipline for Loanee and Non-Loanee farmers can be as under:
Activity: Kharif-Rabi
Loaning period (loan sanctioned) for Loanee farmers covered on Compulsory basis. - April to June/ July
October to December Cut-off date for receipt of Proposals of farmers covered on Voluntary basis.
15th June / 15th July 31st December Cut-off date for receipt of Declarations of Loanee farmers covered on
compulsory basis from Banks - 31st July 31st January Cut-off date for receipt of Declarations of farmers
covered on Voluntary basis from Banks 31st July 31st January
Cut-off date for receipt of yield data within a month from final harvest within a month from final harvest In
case of Kharif crops, the cut off dates are fixed in such a way that these dates correspond to historical onset /
coverage by the South-West Monsoon. The tentative schedule is as follows :-
Historical onset and coverage by South-West (SW) Monsoon and proposed cut-off dates for Kharif :
1. Kerala & Tamil Nadu - 1st Week of June 15th June

2. Andhra Pradesh, Karnataka, Orissa, West Bengal, North-Eastern States- 15th June 30th June
3. Maharashtra, Chhattisgarh, Jharkhand, Bihar- 3rd week of June 30th June
4. Gujarat, Madhya Pradesh, Uttar Pradesh, Uttarakhand, Himachal Pradesh- 4th week of June 30th
June
5. Rajasthan, Punjab, Haryana, Jammu & Kashmir - 1st week of July 15th July
Further, in case of three crop / season pattern, a modified discipline keeping in mind the overall seasonality
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discipline prescribed above, will be adopted by the State Level Co-ordination Committee on Crop Insurance
(SLCCCI).
Farmers covered on voluntary basis can buy insurance before actual sowing / planting based on advance
crop planning for the season. For any reason, if farmer changes the crop planned earlier at the time of buying
insurance, such changes should be intimated to financial institution at which insurance proposal was
submitted, within 30 days from the cut-off date for buying insurance, accompanied by sowing certificate
issued by concerned official of the State at village level. Where required, the farmer will pay the difference
in premium or implementing agency will refund difference in premium, as per the premium structure.
12. ESTIMATION OF CROP YIELD
The State govt./UT will plan and conduct the requisite number of Crop Cutting Experiments (CCEs) for all
notified crops in the notified insurance units in order to assess the crop yield. The State govt./ UT will
maintain single series of Crop Cutting Experiments (CCEs) and resultant yield estimates, both for Crop
Production estimates and Crop Insurance. Planning and supervision for all CCEs will be of the same order as
that of General Crop Estimation Surveys (GCES).
CCEs shall be undertaken per unit area /per crop, on a sliding scale, as indicated below:
Minimum sample size of CCEs
1. District - 24
2. Taluka / Tehsil / Block -16
3. Mandal / Phirka / Revenue Circle / Hobli or any other equivalent unit -10
4. Village Panchayat - 08
However, a Technical Advisory Committee (TAC) comprising representatives from Indian Agricultural
Statistical Research Institute (IASRI), National Sample Survey Organisation (NSSO), Ministry of
Agriculture (GoI) and implementing agency shall be constituted to decide the sample size of CCEs and all
other technical matters. Inputs from satellite imagery could also be utilized in deciding sample size. In
instances where required number of CCEs could not be conducted due to non-availability of adequate
cropped area, the yield data for such units can be generated by Insurer by proxy indicators, such as clubbing
with neighbouring / contagious units, adopting yield of next higher unit, yield data generated by correction /
correlation factor with next higher unit, etc. Alternative yield assessment techniques, such as satellite
imagery, agro-meteorological and bio-metric and a combination of such techniques, etc. can be explored
and adopted after establishing reasonable level of standardization.
13. LEVELS OF INDEMNITY & THRESHOLD YIELD
Three levels of Indemnity, viz., 90%, 80% & 70% corresponding to Low, Medium & High Risks areas
respectively shall be available for all crops. The criteria for deciding low and high risk will be determined by
implementing agency. The Threshold yield (TY) or Guaranteed yield for a crop in a Insurance Unit shall be
the average yield of the preceding 7 years excluding the year(s) in which a natural calamity such as drought,
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floods etc. may have been declared by the concerned Government/authority, multiplied by level of
indemnity. However, it may be ensured that at least 5 years' yield data is available for calculating the
threshold yield.
14. NATURE OF COVERAGE AND INDEMNITY
(A) WIDE SPREAD CALAMITIES
If the 'Actual Yield' (AY) per hectare of the insured crop for the defined area [on the basis of requisite number
of Crop Cutting Experiments (CCEs)] in the insured season, falls short of the specified 'Threshold Yield'
(TY), all the insured farmers growing that crop in the defined area are deemed to have suffered shortfall in
their yield. The Scheme seeks to provide coverage against such contingency.
'Indemnity' shall be calculated as per the following formula:

(Shortfall in Yield / Threshold yield) X Sum Insured for the farmer
[Shortfall = 'Threshold Yield - Actual Yield' for the Defined Area]
(i) ON ACCOUNT PAYMENT OF CLAIMS
In case of adverse seasonal conditions during crop season, claim amount upto 25 percent of likely claims
would be released in advance subject to adjustment against the claims assessed on yield basis. The on
account payment will be considered only if the expected yield during the season is less than 50 percent of
normal yield. The criteria for deciding on-account payment of claims shall be based on proxy indicators
such as weather, agro-meteorological data / satellite imagery/acreage damaged or such other indicators to be
decided by the Government, and will be implemented in States and for crops for which such proxy indicators
can be established.
(ii) PREVENTED SOWING / PLANTING CLAIMS
The extent of claims payable will be decided in respect of the insurance unit area on the basis of rainfall
position issued by the concerned Indian Meteorological Department (IMD) for the area during the sowing
season and acreage-sown particulars issued by the State Government. Other authentic rain gauge stations
which the government shall install for the purpose/ insurer/insurer nominated agencies can also be
considered for the purpose of measuring rainfall. The maximum claims payable will be 25 percent of the
sum insured. Having received indemnity based on prevented sowing / planting, the insurance cover is
automatically terminated.
(iii) POST HARVEST LOSSES
Coverage is available only for those crops, which are allowed to dry in the field after harvesting against
specified perils of cyclone in coastal areas, resulting in damage to harvested crop lying in the field in 'cut &
spread' condition. In other words, the crop, which after harvest is left in the field for drying, is only covered
against the peril specified above. The state/ UT concerned will bring out the list of such crops in consultation
with Implementing Agency. The harvested crop bundled and heaped at a place before threshing is beyond
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coverage under post-harvest losses. Further, the coverage is available only upto a maximum period of two
weeks (14 days) from harvesting. Assessment of damage will be on individual basis.
(B) LOCALIZED RISKS
The losses would be assessed on individual basis in case of loss / damage resulting from occurrence of
identified localized risks viz., hailstorm and landslide. The cost of inputs incurred until the time of
occurrence of peril, and the expected loss in final yield due to the peril, would form the basis for loss
assessment. In case of localized risks, implementing agency may utilise the services of concerned
departments of the State government, such as Agriculture, Revenue etc.
15. COMMISSION & BANK SERVICE CHARGES
Rural agents and others who are engaged for procuring and servicing business of farmers may be paid
appropriate commission as decided by implementing agency. The servicing banks are allowed at present,
2.5% of gross premium under NAIS as service charges.
16. REINSURANCE COVER
Efforts will be made by the implementing agency to obtain appropriate reinsurance cover for the Scheme in
the national / international reinsurance market. In the event of failure to procure such cover at competitive
rates, and in case premium to claims ratio exceeds 1 : 5, at national level, the Government would provide
protection to insurance company. A Catastrophic Fund at the national level would be set up for this purpose,
which would be contributed by the Centre and the State Governments on 50 : 50 basis. The overall loss
exceeding 500% would be met out of this fund.
17. REVIEW OF THE SCHEME
The Scheme will be reviewed after two years and necessary modifications will be incorporated based on the
review.
18. IMPORTANT CONDITIONS/CLAUSES APPLICABLE FOR COVERAGE OF RISK
(a) The banks will display the list of all insured farmers at the village panchayat office. Further, the
banks will also display the list of benefited farmers together with claim amount soon after the
claims are received from implementing agency.
(b) Implementing agency possesses the discretion to accept or reject any risk of defined area(s) for any
crop(s) considering the prevailing agricultural situation. Mere sanctioning / disbursement of crop
loans and submission of proposals/ declarations and remittance of premium by the farmer / bank
without explicit intent to raise the crop, does not constitute acceptance of risk by implementing
agency.
(c) In the event of near total crop failure during early or mid-season affecting the entire defined area,
implementing agency shall adopt a graded scale indemnity settlement restricting the indemnity to
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the proportion of input cost upto that stage. The graded scale shall be worked out by implementing
agency.
(d) Implementing agency if deemed necessary shall investigate the coverage on its own or by an
agency appointed for the purpose and shall for this purpose utilize satellite imagery data for
identification of anomalies in crop insurance coverage vis-à-vis actual field conditions. Upon
identification of adverse phenomenon based on such investigations, implementing agency may
resort to scaling down of sum insured.
19. BENEFITS EXPECTED FROM SCHEME
The Scheme is expected to:
! Be a critical instrument of development in the field of crop production, providing financial support
to the farmers in the event of crop failure.
! Encourage farmers to adopt progressive farming practices and higher technology in Agriculture.
! Help in maintaining flow of agricultural credit.
! Provide significant benefits not merely to the insured farmers, but to the entire community directly
and indirectly through spillover and multiplier effects in terms of maintaining production &
employment, generation of market fees, taxes etc. and net accretion to economic growth.
! Streamline loss assessment and enable expeditious settlement of claims.
20. MONITORING AND EVALUATION
The proposed scheme shall be monitored closely at the levels of District, State & Nation by the State Govt.,
the Implementing Agencies & GOI. As the proposed Modified NAIS is to be implemented on the pilot basis
in 50 districts, independent evaluation of the scheme shall be carried out after two years of implementation.
Evaluation has been considered as an essential aspect of the formulation and execution of this scheme which
is essential for the assessment of the progress & impact of programmes and for analysis of the reasons for
success failure and indication of the direction of improvement in programmes' operation. Keeping this in
view, an independent evaluation of Pilot Modified NAIS may be carried out through study for assessing the
impact and success of the scheme with respect to the set objectives and based on the findings of the
evaluation study, possibility to extend the scheme to implement in all the districts in place of NAIS during
12th Five Year Plan would be examined.
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CHAPTER 25
MEDIUM TERM CONVERSION (AGRI.) LOANS
1. General:
a. The farmers are sanctioned ST Loans by Primary Agricultural Coop, Societies (PACS) for
cultivating various crops. As soon as the harvest is over, the farmers are expected to repay their crop
loans from out of sale proceeds of agricultural products. Agricultural operations by and large
depend on seasons. When the season fails, the farmer's ability to repay the crop loans is affected
and consequently, they make default in repayment of loans on due dates to PACS. This may make
the farmer borrowers ineligible for further loans for the next agricultural season. In order to
overcome this difficulty, the farmers are to be allowed extension of period for repayment of
defaulted loans and at the same time sanctioned further loans for raising the crops.
b. Pursuant to the recommendations of 'All India Rural Credit Survey Committee' (1985) and based
on the RBI's recommendations, the State Government had set up 'Agricultural Credit Stabilisation
Fund' at Apex Bank level as well as DCCBs level. The purpose of this fund is to grant medium term
loans to DCCBs by the Apex Bank and to PACS by DCCBs for converting Short Term agricultural
loans into Medium Term loans, when the farmers are unable to repay their ST agricultural loans on
account of crop failure due to natural calamities such as drought, floods etc.
2. Sources of Funds to Agricultural Credit Stabilisation (ACS) Fund:
a. Every State and District Central Cooperative Bank have to set up ACS Fund at their level and this
Fund is augmented from the following sources:
i. 15% of the Net Profit of the Bank every year.

ii. 3% interest credit on the amount at the credit of this fund from the general resources of the
Bank.
iii. The excess dividend declared on the ordinary shares over and above the contractual dividend
(3% now) payable on the Government's Share Capital.
iv. In the case of SCB:
 Outright grant from the Government of India under the centrally sponsored scheme to
strengthen ACS Fund of SCBs which is channelled through the State Government.
 Long term loans from State Government.
3. Utilisation of ACS Fund:
a. The ACS Fund is intended only to be utilized for granting conversion of ST (SAO) loans medium
term conversion loans (MTC Loans) / rephasement loans, on account of failure of crops and cannot
be utilized in the general business of the Bank.
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b. The unutilized portion of the ACS Fund should be invested in approved unencumbered securities.
The DCCBs may also invest ACS Fund in Special Deposits with SCB.
c. It should be noted that ACS Fund remain intact at all times, whereas the deployment of the fund
gets changed from investment to MTC/MTCR loans as and when conversion takes place.
d. The securities earmarked towards ACS Fund Investment should not be taken for computation of
liquid assets as required to be maintained under Section 24 of the B. R. Act.
4. When Conversion can be given:
a. The ACS Fund can be utilized for conversion of ST Agricultural Loans into Medium Term Loan
when,
i. There is failure of crops due to natural calamities such as floods, drought, etc. and
ii. The crop yield has gone down by 60% in the case of irrigated crop and by 50% in the case of
unirrigated crop. The assessment of the crop yield should be based on the crop cutting
experiments done at District / Block / Group of villages, level.
b. It should be noted that cases of sporadic or individual failures of crops will not be eligible for
conversion under this scheme.
5. 'Annawari' Assessment:
a. The procedure for “Annawari” assessment has been streamlined on the following basis:
i. Annawari Certificate: Annawari Certificate should be issued by revenue authorities not

lower than the rank of Tahsildar.
ii. Annwari Certificate should indicate the following points:
 Nature of calamity indicating whether it is drought or flood etc.
 The season and the year during which such calamity has occurred.
 The villages / area affected by the failure of crops.
 Crops affected.
 Extent of crop yield.
b. The DCCBs should advise the PACS concerned to send proposals for conversion on the basis of the
declaration made by the Revenue authorities.
6. Eligibility for Conversion:
a. Medium Term Conversion facility is available in respect of ST crop loans current outstanding
(overdues not exceeding 3 months) in the areas affected by natural calamities where Annawari
declared is less than 6 annas i.e. less than 60% in the case of irrigated crop and less than 50% in the
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case of unirrigated crops, provided the extension of original due date is approved by the DCCB/
SCB pending conversion of ST loans.
b. Conversion can be given only in respect of principal dues outstanding under ST (SAO) loans and
not in respect of interest due. However, the interest due must be collected from the farmer
borrowers other than Small and Marginal Farmers before conversion is to be effected.
c. The eligibility for each PACS has to be assessed with reference to the ST SAO outstanding against
PACS at DCCB level or the aggregate of the conversion proposed as per Annawari Certificate
whichever is lower.
d. The eligibility of DCCB for assistance from SCB will be to the extent of 85% of amount of
conversion, the difference between eligible conversion amount and the balance to the credit of
ACS Fund with DCCB or the ST SAO loans outstanding loans due to SCB as on the date of
application whichever is less.
e. SCB will be eligible for assistance from NABARD to the extent of difference between eligible
amount of DCCB from SCB and the balance in ACS Fund of SCB or the outstanding of STSAO
loans due to NABARD as on the date of application whichever is lower.
f. In the case of crops which have been covered by Crop Insurance Scheme, the eligibility for
conversion stands reduced by the amount of insurance claims received from Insurance Company
before effecting the conversion.
g. In case, it is found impossible to complete the formalities relating to conversion by due dates, the
due dates may be extended upto a period not exceeding three months.
7. Share of Conversion:
a. The financial burden of conversion of ST. SAO into M.T. loan should be borne by DCCB, SCB,
State Government and NABARD indicated below:
i. DCCB : 15% of the amount proposed to be converted

ii. SCB : 10% of the amount proposed to be converted
iii. State Govt. : 15% of the conversion proposed.
iv. NABARD : 60% of the amount proposed to be converted.
b. In case, the unutilized balance in the ACS Fund of SCB/DCCB is not sufficient to meet its share of
conversion, the same should be met from the general funds (own resources) of the Bank.
8. Duration of Conversion Loan:
a. The current ST crop loans outstanding in the affected areas are to be converted into loans repayable
in three years such as 15, 24 & 36 months respectively.
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b. In the event of another crop failure during the currency of MTC loan, the remaining instalment of
MTC loan could be rephrased / rescheduled and made repayable within a total period not
exceeding 5 years.
c. In the event of two or more successive failure of crops, the aggregate burden of ST loans and MTC
loans could be rescheduled into MT conversion loan repayable in a period not exceeding 7 years.
9. Security for Conversion of ST. (SAO) Loans:
a. MTC loans upto a specified amount which may vary from state to state can be secured by personal
security (surety). MTC loans exceeding the specified amount should be secured either by first
mortgage of land or charge on such land in terms of declaration made by the individual borrower
under the Cooperative Societies Act.
b. In case, a charge on land or first mortgage of land is not possible, loans above the specified amount
may also be secured by personal security of one or more members of the Society.
a. The rate of interest that could be charged on MTC loans will be the same as applicable to ST Loans
for financing SAO which are being converted.
11. Basic Conditions for MTC/MTCR Loans:
a. The objective of annawari system is to help arrive at an assessment of crop condition. The normal
crop i.e. average of crops in satisfactory season is reckoned as 12 annas crop and the cultivators are
deemed to be eligible for relief wherever crop turnout is less than 50 per cent of the normal crop i.e.
where annawari is less than 6 annas. Annawari is used as a practical index of crop situation and,
based on annawari, the state Governments provide relief to the cultivators by way of full / partial
suspension or remission of land revenue and other Government dues. In the absence of any other
method to assess crop situation, the stabilisation arrangements in Cooperative Credit Structure are
also linked to annawari declared by the State Government and MediumTerm credit limits are
sanctioned by NABARD to the SCBs on behalf of DCCBs from out of the National Rural Credit
(stabilisation) Fund for converting the outstanding Short Term crop loans into Medium-Term
loans in areas where the annawari declared by the State Government is less than 6 annas i.e. where
the crops have been damaged to the extent of more than 50 per cent by a widespread natural
calamity.
b. Annawari Certificate by the state authorities in the prescribed form will have to be furnished by the
SCBs along with the MediumTerm conversion applications. The RCS will have to clearly indicate
the progress in the implementation of various recommendations of the Working Group by the State
Government. The revised proforma of 'Annawari Certificate' is given in the Annexure-1 to this
Chapter.
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12. Suspension / Remission of Land Revenue:
a. Conversion facilities are provided only in respect of areas where relief has actually been provided
by the State Governments by way of suspension / remission of land revenue and other Government
dues. A certificate to this effect based on Gazette Notifications has to be submitted along with the
conversion application.
13. Financial Commitment of the State Government-Sharing of Conversions:
a. The financial burden of conversion of ShortTerm crop loans into MediumTerm Conversion loans
in the event of natural calamities have to be borne by different agencies at various levels in the
following proportions:
i. 15 per cent by the DCCB from its stabilisation fund and other own MediumTerm resources;
ii. 10 per cent by the SCB from its stabilisation fund and other own MediumTerm resources;
iii. 15 per cent by the concerned Stare Government and
iv. Balance of 60 per cent by NABARD way of refinance from National Agricultural Credit
(Stabilisation)
b. In the case of States/Union Territories having two tier credit structure, refinance at 70 per cent is
provided by NABARD and 15 per cent each is to be provided by the SCB and the State
Government.
14. Eligibility Norms:
a. MediumTerm conversion facilities are available only in respect of current ShortTerm crop loans
outstanding in areas affected by widespread natural calamity where the annawari declared is less
than 6 annas i.e. less than 50 per cent of the normal / standard yield provided the State Government
has granted suspension / remission of land revenue and other Governments dues.
b. In the case of DCCBs whose areas are covered by Crop Insurance Scheme, the eligibility for
conversions stands reduced by the amount of insurance claims.
c. Only the current ShortTerm crop loans will be eligible for conversion. In case, it is not found
possible to complete the formalities relating to conversions by the due dates, extension of due dates
may be granted upto a period not exceeding three months. However, such extensions should be
confined to the dues eligible for conversion determined on the basis of annawari certificates and
suspension / remission of land revenue and other dues by the State Government.
15. Process of Conversion:
a. The process of granting conversions should start at societies level and completed at NABARD
level in that order. It would however be preferable to put through these transactions simultaneously
at the DCCB and SCB levels and thereafter at NABARD level.
337 - III
16. Rephasement and Reschedulement of MT Loans / Instalments:
a. The facilities of rephasement and rescheduling of MediumTerm conversion loans are provided in
the case of recurrence of natural calamities. If during the pendency of a MediumTerm loan, natural
calamity re occurs and crops are affected to such an extent as to justify stabilisation arrangements
again, the period of first conversion loan is extended from 3 to 5 years. The instalment falling due
for repayment in the year in which the calamity re occurs is deferred and the balance amount of the
outstanding conversion loan is suitably rephased to correspond to the extended period of
rephasement i.e. 5 years. In the event of two or more successive natural calamities, the aggregate
burden is similarly rescheduled to correspond to a period of 7years.
b. State Government's concurrence to rephase or reschedule Medium Term Conversion

loans/instalments are necessary as all these loans are covered by the guarantee of the State
Government.
c. An illustration of Conversion / Reschedulement facilities to be granted to farmers' affected by

drought / flood for three years in succession ending with 1997-98 is given in the Annexure-2 to this
Chapter.
17. Conversion facilities for Crop Loans covered under Crop Insurance Scheme:
a. Crop Insurance Scheme had been introduced in several states from Kharif 1985 in the notified
areas in respect of specified crops. In terms of the Scheme formulated by GOI the areas covered by
the Crop Insurance Scheme may fall into four broad categories as under:
i. Where actual yield is more than the threshold yield and no insurance claim is admissible.
ii. Where the indemnity payable is more than the crop loan and there is no net loss to the farmer.
iii. Where the crop yields is estimated at less than normal yield but more than 50 per cent of the
normal yield.
iv. Where the yield is estimated to be less than 50 per cent of the normal yield and the indemnity
payable under crop insurance is less than the loan amount.
b. The farmers under categories (i) and (ii) above will not be eligible for any conversion facilities. In
the case of farmers in category (iii) above, although indemnity payable will not be enough to repay
the entire outstanding loan amount, the damage to the crops being less than 50 per cent of the
normal yield, such loans would not be eligible for conversion. As regards farmers in category iv
above, where the annawari relating to the crops is less than 50 per cent, the relief to the borrower
would amount to only about 56.25 per cent of the loan amount and he will still have to repay the
balance of 43.75 per cent of the crop loan if he is not to be declared as a defaulter. In order to provide
relief to such farmers, NABARD agreed to provide conversion facilities to the extent of the balance
amount i.e. the crop loan minus insurance claim, provided other conditions relating to grant of
338 - III
conversion facilities such as declaration of annawari, suspension / remission of land revenue and
other Government dues, etc. were complied with.
c. The terms and conditions governing the Credit limits under Section 22(ii) of National Bank for
Agriculture and Rural Development Act, 1981 are:
i. Only such of the DCCBs which are eligible for refinance from NABARD under Section
21(1)(i) of NABARD for Act, 1981 but either did not apply for a credit limit on whose behalf
was not sanctioned as they had adequate internal resources for meeting the requirements of
their lending programmes and also those on whose behalf ShortTerm credit limits have been
sanctioned by NABARD but there are no outstanding borrowings on their behalf from
NABARD but eligible for financial accommodation under Section 22(ii) of the Act, ibid.
ii. In the total amount involved in conversions at the level of PACS, the concerned DCCB will
provide 15 per cent or the unutilised balance to the credit of its stabilisation fund, whichever is
more, the SCB will provide, 10 per cent or the unutilised balance to the credit of its
stabilisation fund, whichever is more, the concerned State Government will provide 15 per
cent and the balance 60 per cent will be provided by NABARD from the NRC (Stabilisation)
Fund as loans and advances to the SCB on behalf of such DCCBs.
iii. The loans and advances under Section 22(ii) of National Bank for Agriculture and Rural
Development Act, 1981 will be sanctioned subject to fulfilment of usual basic conditions viz.
 declaration of annawari by the concerned State Government, issue of annawari

certificates by the Collector / revenue authorities of the district concerned in the
prescribed proforma, suspension or remission of land revenue and other dues by the State
Government and release of State Government share in conversions.
 The advances have to be fully guaranteed by the State Government as to the repayment of
principal and payment of interest.
 The rate of interest on these advances from NABARD will be the same as applicable on
short-term loans for financing SAO, which are being converted.
 These advances will be sanctioned initially for a converted period of 3 years subject to
rephasement/reschedulement upto 5 to 7 years in the event of successive natural
calamities.
iv. The advances under Section 22(ii) of NABARD Act, 1981 will not be by way of adjustment
towards ShortTerm borrowings under Section 21(1) (i) of NABARD Act, 1981 as there would
not be any such outstanding borrowings; but would be by way of fresh loans and advances to
SCBs on behalf of DCCBs for reimbursement of the conversion loans granted by the DCCBs,
SCBs will have therefore to maintain separate accounts in respect of borrowings under
Section 22(i) and Section 22(ii) of NABARD Act, 1981.
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18. Application for Credit Limits:
a. Applications for sanctions of MediumTerm Conversion loans and rephasement and

reschedulement of MediumTerm Conversion loans / instalments have to be prepared separately in
the prescribed proformae. The applications duly recommended by RCS together with the
annawari certificate and the certificate of suspension / remission of land revenue have to be
submitted directly to the Head Office of NABARD. Applications for credit limits- under Section
22(1) of NABARD Act, 1981 may be prepared in the same form.
b. The scheme of NABARD in the conversions to be granted at the individual members' level is
determined on the basis of the accepted pattern as under:
i. Total ShortTerm crop loans outstanding against members of PACS ineligible areas
ii. Amount expected to be recovered out of (i) above (directly / under insurance claims)
iii. Amount requiring conversion at members level (i + ii)
iv. Amount that may be sanctioned by NABARD (60% of iii)
v. Amount to be provided shall be DCCB (15% of iii), SCB (10% of iii), State Govt. (15% of iii),
vi. of (iv) above, amount to be sanctioned:
 Under Section 22(1) of NABARD Act, 1981.
 Under Section 22 of NABARD Act, 1981.
c. The credit limits are sanctioned at the Regional Office / Head Office in accordance with the
sanctioning powers and sanctions conveyed. Drawals are allowed by the concerned R.O.
19. Documents and Certificates:
a. On receipt of sanction letter, the SCB will have to write to the concerned R.O. confirming that the
terms and conditions of sanction are acceptable to them and furnish the following documents:
i. Time promissory notes executed by SCB in favour of NABARD.

ii. Agreement executed by SCB.
iii. Guarantee deed executed by the State Government.
iv. Letter of concurrence from the State Government in the case of rephasement and
reschedulement.
v. Mandate from SCB for debit of Current Account with RBI in the event of default.
vi. Time Promissory Notes executed by DCCBs in favour of SCB will be endorsed by SCB in
favour of NABARD and held by SCB as agent of NABARD.
vii. Certificates as to the character of pronotes by SCB and DCCBs together with the schedule of
promotes lodged.
340 - III
20. Operations on MediumTerm (Conversion) Limits:
a. In the case of MediumTerm Conversion limits sanctioned under Section 22(1) of NABARDAct,
1981, drawals are allowed by adjustment of the amount towards repayment of outstandings under
ShortTerm credit limits for financing SAO sanctioned under Section 21(1)(i) of NABARD Act,
1981. In the case of rephasement / reschedulement, the repayment schedule of the amounts
rephased / reschedule is readjusted as per the terms of sanction.
b. MediumTerm (conversion) credit limits sanctioned under Section 22 of NABARD Act, 1981 are
by way of loans and advances and drawals are allowed as reimbursement of the conversion loans
granted by SCBs to DCCBs. In the case of rephasement / reschedulement, the repayment schedule
is readjusted as in the case of loans under Section 22(1) of the Act, ibid.
21. Annexure/s:
a. The following AnnexureS are appended to this Chapter:
Annexure 1 : Specimen of 'Annawari Certificate' to be given by the District Collector or

Authorised Revenue Official regarding implementation of the scientific method of
crop cutting experiment.
Annexure 2 : Specimen of an illustration of conversion / reschedulement facilities to be granted
to farmers affected by drought / flood for 3 years in succession(ending with 1997-
98).
341 - III
Specimen of 'Annawari Certificate' to be given by District Collector or Authorised Revenue Official
regarding implementation of the scientific method of crop cutting experiment
This is to certify that the standing crops for the Kharif / Rabi season for the year 19. . . . In the following
villages were damaged due to . . . . . . . . . . . . . (State the type of natural calamity) and the yield in terms of
annawari was less than 6 annas, i.e. less than 50% of the normal yield.
Sl No. Name of the Village/s Name of crop damaged Extent of damage in terms of per
(1) (2) (3) centage or annas
(4)
1. (a)
2. (b)
3. (c)
* Strike out whichever is not applicable.
It is also certified that the procedure for 'annawari' assessment has been streamlined on the basis of the
various recommendations of the Working Group on Scientific Method of Assessing Crop Yield in the event
of natural calamities for conversion of Short Term production Loans into MediumTerm and Long Term
loans appointed by the Government of India, Ministry of Agriculture in January 1980 and the following
concept / basis in particular have been followed while declaring 'annawari'.
(a) Area Concept
In determining the crops for assessment of yields, the area concept has been followed; i.e. the crops which
covered 70 per cent of the normal cropped area in the district have been taken into account.
(b) Comparison of yields
The yields for the affected year have been compared with the average of yields of the preceding five years.
(c) Scientific Methodology
The average crop yield has been estimated by adopting scientific methodology, i.e., by crop cutting
experiments.
(d) Annawari
On the basis of comparison of per yield date of crop / crops for the affected region, the District Level
Committee has certified that the yield has gone down by 50% or more in the case of unirrigated crop in the
affected and accordingly the Revenue Department has declared 'annawari' for these areas.
Signature of District Collector /

Authorised Revenue Official.
NB: Revised format in terms of the National Bank's circular NO.NB.POD I (OPR) 4134/A.10/86-87 dated
12 January 1987.
342 - III
Specimen of an illustration of Conversion / Reschedulement facilities to be granted to farmers

affected by drought / flood for 3 years in succession (ending with 199798)
The manner in which relief extended to borrowers who were affected by drought / flood for 3 years in
succession, i.e. 1995-96, 1996-97 and 1997-98 was follows. (For the purpose of illustrations it is assumed
that the ShortTerms (crop) loan eligibility of a member is Rs.300 and in every year / consecutive year of
natural calamity, the affected Short Term (crop) loan is converted / rescheduled and a fresh crop loan for an
equal amount issued for agricultural operations). As stated in the circular letter, there will be a moratorium of
two years i.e., 1997-98 and 1998-99 for the recovery of principal instalments and interest and interest due in
the current year (1997-98) and as such the recovery of deferred instalments / interest will commence from
1999-2000 onwards. If however, 1998-99 happens to be a normal / good crop year, the recovery will
commence from that year itself. The repayment schedule for the converted / rescheduled loans with
instalments commencing in 1998-99 if it is a normal year vide Section A below, and with instalments
commencing in 1999-2000 if 1998-99 is not a normal year vide Section B hereunder:
Section A
1. ShortTerm (crop) loan of Rs.300 issued for Kharif 1997 (1997-98)
The ShortTerm (crop) loan issued for the kharif 1997 season will be converted into a Medium Term loan for a
period of 7 years. Assuming that a ShortTerm loan of Rs. 300/- has been given to a farmer as crop loan for
kharif 1997 and originally due on 31.3.1998, the conversion will be granted with repayment schedule as
follows:
Repayment schedule, if 1998-99 is a normal year vide column (3)
(Amounts in Rupees)
Year Due Date Principal Instalment Interest Liability

(1) (2) (3) (4)
1997 – 1998 31-3-1998 — —
1998 – 1999 31-3-1999 43 60.00
1999 – 2000 31-3-2000 43 25.70
2000 – 2001 31-3-2001 43 21.40
2001 – 2002 31-3-2002 43 17.10
2002 – 2003 31-3-2003 43 12.80
2003 – 2004 31-3-2004 43 8.50
2004 – 2005 31-3-2005 42 4.20
Note:
(i) Interest that will be charged is 10%p.a.

(ii) Interest on crop loan of kharif 1997 and the converted loan would be recovered in 1998-99
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(iii) For the purpose of illustration, the due date is uniformly fixed as 31 March and the period of crop
loan/instalment of MediumTerm loan is treated as 12 months.2.
ShortTerm (crop) loan of Rs.300 issued for 1996-1997. The ShortTerm loan issued for 1996 1997
and converted into a MediumTerm loan repayable from 1997 1998 will now be rescheduled for a
period of 7 years from the date of first conversion. The revised repayment schedule will be as
given overleaf.
Repayment schedule, if 1998-99 is a normal year vide column (4)
(Amount in Rupees)
Principal instalments as fixed / revised on
Year Due Date Interest Liability
31.03.1997 31.03.1998
(1) (2) (3) (4) (5)
1997 – 1998 31.3.1998 100 - -
1998 – 1999 31.3.1999 100 50 60.00
1999 – 2000 31.3.2000 100 50 25.00
2000 – 2001 31.3.2001 - 50 20.00
2001 – 2002 31.3.2002 - 50 15.00
2002 – 2003 31.3.2003 - 50 10.00
2003 – 2004 31.3.2004 - 50 5.00
* If interest on crop loan was not collected on 31.3.1997, it will also stand postponed to 31.3.1999 raising the
total interest liability as on 31.03.1999 to Rs.90.00
3. Short Term (crop) loan of Rs.300 issued for 1995- 96
The Short Term loan given in 1995-96 converted into Medium Term for a period of 3 years and
rescheduled during 1996-97 for a period of 5 years shall again be rescheduled for a period of 7 years
from the date of first conversion. The repayment schedule of the 7 year Medium Term loan will be as
follows:
Repayment schedule if 1998 99 is a normal

Repayment schedule, if 1998 99 is a normal year vide column (4) (Amount in Rupees)
31.03.1997 31.03.1998 31.3.1998
(1) (2) (3) (4) (5) (6)
1996-1997 31.3.1997 100 - - (Deemed as
1997-1998 31.3.1998 100 75 (Deferred) collected)
1998-1999 31.3.1999 100 75 60 (Deferred)
1999-2000 31.3.2000 - 75 60 60.00
2000-2001 31.3.2001 - 75 60 24.00
2001-2002 31.3.2002 - - 60 18.00
2002-2003 31.3.2003 - - 60 12.00
6.00
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(It is assumed that interest for the year 1996-1997 (conversion loan) and for the year 1995-1996 (crop loan)
would have been already collected.
Section B
1. Short Term (crop) loan of Rs.300 issued for kharif 1997 (97 98)
The ShortTerm (crop) loan issued for the kharif 1997 season will be converted into MediumTerm loan for a
period of 7 years. Assuming that a Short Term loan of Rs.300 has been given to a farmer as a crop loan for
kharif 1997 and originally due on 31.3.1998, the conversion will be granted with repayment schedule as
under: Repayment schedule if 1998-1999 is a drought
(Amounts in Rupees)
Year Due Date Principal Instalment Interest Liability

(1) (2) (3) (4)
1997 1998 31.3.1998 - -
1998 1999 31.3.1999 - -
1999 2000 31.3.2000 50 94.50
2000 2001 31.3.2001 50 25.00
2001 2002 31.3.2002 50 20.00
2002 2003 31.3.2003 50 15.00
2003 2004 31.3.2004 50 10.00
2004 2005 31.3.2005 50 5.00
* Interest on the crop loan of kharif 1997 and interest in conversion loan at 10% to be recovered in 19992000.
2. ShortTerm (crop) loan of Rs.300 issued for 1996 1997

The ShortTerm loan issued for 1996 1997 and converted into a MediumTerm loan repayable from 1997
1998 will now be rescheduled for a period of 7 years from the date of first conversion. The revised
repayment schedule will be s follows:
Repayment schedule if 1998-99 is a drought / flood year vide col.4 (4)
(Amount in Rupees)
31.03.1997 31.03.1998
(1) (2) (3) (4) (5)
1997-1998 31.31998 100 - -
1998-1999 31.3.1999 100 - -
1999-2000 31.3.2000 100 60 90.00
2000-2001 31.3.2001 - 60 24.00
2001-2002 31.3.2002 - 60 18.00
2002-2003 31.3.2003 - 60 12.00
2003-2004 31.3.2004 - 60 6.00
345 - III
* If interest on crop loan was not collected on 31.3.1997 it will also stand postponed to 31.3.2000 raising
the total interest liability as on 31.3.2000 to Rs.120.00
3. ShortTerm (crop) loan of Rs.300 issued for 1995-96
The ShortTerm loan given in 1995 96 converted into MediumTerm loan for a period of 3 years and
rescheduled during 1996 97 for a period of 5 years shall again be rescheduled for a period of 7 years
from the date of first conversion. The repayment schedule for the 7 year MediumTerm loan will be as
follows:
Repayment schedule if 1998-99 is a drought / flood year vide col.5

(Amount in Rupees)
31.3.1996 31.3.1997 31.3.1998
(1) (2) (3) (4) (5) (6)
1996 1997 31.3.1997 100 - - (Deemed as
1997 1998 31.3.1998 100 75 (Deferred) collected)
1998 1999 31.3.1999 100 75 (Deferred) (Deferred)
1999 2000 31.3.2000 - 75 75 (Deferred)
2000 2001 31.3.2001 - 75 75 90.00
2001 2002 31.3.2002 - - 75 22.50
2002 2003 31.3.2003 - - 75 15.00
Note:
In the illustration given above, it has been assumed that a farmer would have borrowed one crop loan for each of
three years. It might have happened that some borrowers had taken only one or two crop loans. It might also have
happened that not all of them had been converted / rescheduled. The concessions listed in the circular letter vide
paragraph 3 would apply to such cases also, in areas affected by drought / flood for 3 or more years in
346 - III
CHAPTER - 26
HANDLOOM FINANCE SECTION
1. General:
a. NABARD's policy for sanction of Weavers Credit limits to SCBs/ DCCBs / PWCS has been
undergoing changes every year, primarily to give boost to this sector. The policy changes were
normally in respect of eligibility norms and rate of interest.
b. As in the case of Agricultural Credit Section, this section also will have to issue detailed circular to
all the DCCBs every year in December, advising the DCCBs to prepare credit limit applications for
financing Primary Weavers cooperative Societies (PWCS) and forward them to the Apex bank
latest by February. This annual circular should cover all the policy changes announced by the
NABARD including its Terms and Conditions relating to weavers finance for the current year.
c. In case the NABARD announces revised norms to work out the eligibility of the WCS both under
handloom and Powerloom groups, then the Handloom Finance Section in the Apex bank will have
to give detailed guidelines, in its circular to the DCCBs about the preparation of the credit limit
applications based on the revised norms of NABARD.
d. It is also the responsibility of this Section to ensure that all the eligible DCCBs are able to get their
eligible limits from NABARD.
2. Financing of Primary Weavers Cooperative Societies (PWCS):
a. Nature of Credit limits:
i. The credit limit sanctioned by the NABARD is in the nature of reimbursement finance
(refinance). The DCCB should, therefore, use its funds first in making advances towards
working capital requirements of PWCS and later approach the SCB for reimbursement.
ii. Similarly, the Apex Bank should disburse loans to DCCBs in the first instance and later
reimburse itself from out of the credit limit sanctioned by the National Bank on behalf of
DCCBs concerned.
b. Period of the credit limits:The Credit limits sanctioned by DCCBs to PWCS, by SCB to DCCBs
and by NABARD to SCB are for the financial year (April to March) and are inclusive of
outstandings against previous year's limits.
c. NABARD Refinance: The National Bank provides refinance under a consolidated ST. Weavers
credit limit to SCB on behalf of the eligible DCCBs under section 21(1) (v) read with Section 21(4)
of NABARD Act, 1981 for financing the production and marketing activities of the Primary
Weavers Coop. Societies (PWCS).
347 - III
d. Need for refinance: Financial assistance is required for WCS for procuring inputs like yarn, dyes,
chemicals and other raw materials required for production of cloth and also for holding stocks of
finished goods before sale.
i. NABARD is sanctioning credit limits to SCB on behalf of DCCBs for financing PWCS:
 for production and marketing of cloth,
 for implementation of Special Programmes
 against pledge or hypothecation of finished cloth and against bills payable by Apex
society etc.
3. Eligibility for NABARD Refinance:
a. Type of WCS:
i. Only societies which are working as production-cum-sale units (i.e. WCS producing cloth on
their own account by supplying yarn and other materials to their members and taking back the
finished goods on payment of wages) are eligible for finance.
ii. WCS working purely as marketing societies are not eligible.
iii. The cotton, silk, woollen, and polyester Handloom WCS and Powerloom WCS are eligible for
NABARD refinance.
b. Viability:
i. The WCS should be viable or potentially viable. A society is treated as viable when it has an
office owned or rented, has paid Manager/Secretary and has its own staff and earns sufficient
profits to declare a reasonable dividend to its members after making appropriations towards
Reserve Fund and other reserves.
ii. Society having at least 100 active looms is considered viable.
iii. The State Level Committee may lay down suitable norms for viability depending on the
conditions of the Handloom Sector in the state.
c. Net worth: The WCS should have Net Disposable Resources (NDR). WCS whose accumulated
losses exceed owned funds are not eligible for financial accommodation.
d. Satisfactory Operations in Cash Credit account: The Cash Credit account of the WCS should
not have been inoperative for more than 3 months, unless the Society is under a specific
programme of reorganization.
4. Sanction of Short Term Credit Limit by NABARD:
a. Eligibility norms for SCBs / DCCBs - (The illustration given below is based on the Annual
Policy of NABARD for the year 2009-10):
i. Audit: Audit of SCB/DCCB for the year should have been completed and relative audit
reports along with financial statements should have been received by NABARD. Wherever
348 - III
audit for 2008-09 has been completed and audit report is available, the same should be
submitted along with the application.
ii. Compliance with Section 11(1) of BR Act of 1949, AACS:
 All SCBs/DCCBs complying with the provisions of Section 11(1) of the BR Act (AACS)
or exempted from complying with the said provision by Govt. of India, will be eligible
for sanction of credit limit.
 SCBs/DCCBs not complying with Section 11(1) of Act, ibid, where exemption from
complying with said provision has not been granted by GOI, will be eligible for sanction
of credit limit provided their exemption applications, duly approved and recommended
by NABARD, are not pending with RBI/GOI for more than one year.
 Sanction of credit limits to Section 11 (1) non-compliant banks, subject to the above
conditions, would be either against Government guarantee or pledge of Government
securities and such sanction will be decided by NABARD, HO.
 However, SCB/ DCCBs whose license applications have been recommended by
NABARD to RBI for rejection or already rejected by RBI will not be eligible for credit
limit.
 Special relaxation would be granted in respect of states which have accepted and
executed MoU as per Vaidyanathan Committee I recommendations. Accordingly,
Section 11(1) non-compliant SCBs/DCCBs of such States will be eligible for refinance
even though:
 their exemption applications, duly approved and recommended by NABARD are
pending for more than a year with RBI/Govt. of India
 NABARD had recommended for rejection of license, provided SCBs/DCCBs have
submitted fresh application together with suitable action plan seeking exemption
from the provisions of Section 11(1) of B.R. Act, 1949 (AACS), acceptable to
NABARD Head Office(DOS). However, SCBs/ DCCBs in such states whose
license applications have already been rejected by RBI will not be eligible for
sanction of credit limit.
iii. In case of ineligible DCCBs, the WCS affiliated to such DCCBs may be financed by branch of
SCB or nearby DCCB, subject to approval by their bye law. Such financing by SCB/DCCB to
such WCS would be eligible for NABARD refinance.
iv. Sanction of credit limit to SCB whose deposits have been eroded as per the latest statutory
inspection would be against State Government guarantee or pledge of securities in lieu of
Govt. guarantee. Credit limit applications of such SCBs may be forwarded to NABARD H.O.
b. Quantum of Refinance:
i. The amount of refinance will be linked to the level of 'Net' NPAs of the SCB as on 31 March
2008/2009 as indicated below:
349 - III
Level of Net NPAs of SCB Eligible limit
Upto 10% Normal eligibility as per norms

Above 10% and upto 15% Maximum O/s reached by SCB against limit sanctioned by
NABARD during 2008-09. Cases of SCBs not sanctioned limit
during 2008-09 may be referred by NABARD RO to HO for
consideration on merit.
Above 15% Cases to be referred by NABARD RO to HO for consideration
on merit.
ii. The SCBs in the Eastern Region i.e. Bihar, Chhattishgarh, Orissa, West Bengal and Jharkhand
would be eligible for additional refinance of 5% over and above the applicable quantum of
refinance.
iii. However, with a view to increase the credit flow in the North Eastern region, Jammu &
Kashmir, Sikkim, Andaman and Nicobar Islands, Himachal Pradesh and Uttarkhand the
eligibility in these states will be as under:
Level of Net NPAs of SCB Eligible limit
Upto 15% Normal eligibility as per norms

Above 15% and upto 20% Maximum O/s reached by SCB against limit sanctioned by
NABARD during 2008-09. Cases of SCBs not sanctioned limit
during 2008-09 may be referred by NABARD RO to HO for
consideration on merit.
Above 20% Cases to be referred by NABARD RO to HO for consideration
on merit.
iv. If NPA level as per statutory audit is less as compared to NPA level as revealed by inspection
report of NABARD, NPA level as revealed by inspection report will determine the eligibility.
v. The net NPA position as on 31 March 2008 should be considered for sanction of credit limit.
vi. However, in view of receipt of grant under ADWDR scheme 2008 as well as recapitalization
assistance under VC I package, if duly audited NPA position as on 31 March 2009 is beneficial
for sanction of credit limit, the same may be considered for determining the quantum of credit
limit.
c. Drawal Conditions (SCBs/DCCBs):
i. The operative period of the limit would be 01.04.2009 to 31.03.2010.

ii. Drawal by Section 11 (1) non-compliant banks would be permitted only up to the period of
exemption. Drawal beyond the exemption period granted by the GOI but during the remaining
part of the operative period of the credit limit would be permitted only after the banks
350 - III
application seeking further exemption from the said provisions, along with action plan duly
recommended by the state government concerned, is received by NABARD and is found
acceptable.
iii. In case of SCBs found not complying with Section 11(1) of Act, ibid, after sanction of credit
limits, further drawals may be allowed either against Government Guarantee or pledge of
Government securities provided it has submitted exemption application and action plan for re-
compliance within one month of receipt of IR. Otherwise operations will be suspended. In
case of DCCBs not complying with Section 11(1) of Act, ibid, after sanction of credit limits,
further drawals may be allowed only after the exemption application along with action plan
submitted by the bank has been submitted before expire of one month from the date of receipt
of NABARD's inspection report and found acceptable for being forwarded to RBI for
favourable consideration.
iv. In case SCB/DCCB is under direction of RBI for non-acceptance of fresh deposits from
public, no drawals will be allowed.
v. In the case of new units, SCB/DCCB may submit an undertaking that it had not availed
refinance for such units for the purpose under any other refinance scheme of NABARD.
d. Consolidated limit:
i. A consolidated limit will be sanctioned to SCBs on behalf of eligible DCCBs. The limit will be
sanctioned under Section 21(1)(v) read with Section 21(4) of the NABARD Act, 1981 against
the DPN executed by the SCB and declaration in writing at the time of each drawal that the
drawal preferred and the refinance already availed are against the loans provided to eligible
D C C B s f o r f i n a n c i n g e l i g i b l e P r i m a r y We a v e r s ' C o o p e r a t i v e
Societies(PWCS)/individuals/HWGs/MWs and are covered by adequate non-overdue loans
o u t s t a n d i n g a t D C C B l e v e l a g a i n s t P r i m a r y We a v e r s ' C o o p e r a t i v e
Societies(PWCS)/individuals/HWGs/MWs etc. However, SCB will continue to endorse the
TPNs executed by DCCBs in favour of SCB and keep the endorsed TPNs with them as agent of
NABARD. The amount of such TPN at all times should not be less than the outstanding of the
individual DCCBs against the SCB and the DCCBs/ SCBs refinance outstanding from
NABARD.
ii. Good working PWCS in the jurisdiction of ineligible DCCBs may be considered for refinance
through neighbouring branches of SCB or nearby DCCB subject to their bye laws and
approval of director of Handlooms/RCS.
e. Eligible activity:
i. working capital finance extended for production and marketing of cloth by primary
Handloom/Powerloom WCS.
ii. working capital finance extended to the individual weavers.
iii. working capital finance extended to the HWGs/Master weavers.
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5. Eligibility criteria for sanction of credit limits to PWCS:
a. Society should be functioning as production-cum-sale unit.
b. Society should be viable/potentially viable and should have paid Manager/ Secretary.
c. Society should have positive Net Disposable Resources (NDR). NDR should be worked out as the
aggregate of owned funds and deposits of the society minus the investments in Government and
other trustee securities, shares in cooperative institutions, fixed assets, fixtures and fittings and
accumulated losses, if any.
d. Society should not be placed in 'D' class audit.
e. Audit of the Society should not be in arrears for more than 1 year [i.e., for sanction of credit limits to
SCBs/DCCBs for financing PWCS during 2009-10, audit of society should have been completed
upto 2006-07].
f. Banks should sanction society-wise credit limits as per prescribed norms and ensure that drawals
made on the consolidated sanctioned credit limit are utilised only for financing eligible societies
and as per the norms prescribed by NABARD.
6. Assessment of Working Capital:
a. 50% of anticipated production based on actual production during the previous year or the average
production during the preceding 3 years, whichever higher, plus reasonable increase during the
year (generally assumed at not exceeding 20%).
b. Renewal of the credit limit upto previous year's limit -
i. Provided PWCS has remitted into the cash credit account an amount equal to at least either
50% of sales or 60% of the credit limit sanctioned.
ii. In case of any shortfall in remittances, credit limits should be reduced proportionately.
iii. Societies failing to remit even 30% of sales or 40% of the credit limit sanctioned whichever is
lower, should be treated as defaulter to the bank, their outstandings should be considered as
overdues and such societies will not be eligible for any credit limit.
c. Enhancement of cash credit limit to a PWCS only where society has remitted at least 60% of
sales or 75% of the limit sanctioned, whichever is higher.
d. Additional credit limit - If the normal credit limit is not adequate for continuing its production and
marketing activities during the slack sales season when sales are less, resulting in accumulation of
stocks, PWCS having good sales record can apply for additional limit against pledge or
hypothecation of finished cloth, procurement dues from Coop. Textile Emporium and rebate dues
from govt. Such additional credit limit will be subject to the following:
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i. Achievement of at least 80% of the previous year's anticipated production.
ii. Remittance of at least 60% of sales or 75% of limit sanctioned, whichever higher.
iii. Aggregate of normal and additional limit not exceeding 75% of the anticipated production
during the year.
iv. Liquidation of additional limit, ordinarily, within a period of 6 months.
v. Quantum of additional limit together with the normal limit not exceeding 9 times the NDR of
the PWCS.
vi. Both normal and additional credit limits should be within the prescribed multiples of owned
funds of the bank concerned.
e. Working capital finance under Special Programmes: In case of newly established

PWCS/dormant societies activated and in case of established/running societies, where new looms
are acquired/idle looms are activated, assessment will be on the basis of per loom scale of finance
fixed by the unit cost committee (State Level Standing Committee) on regional basis. In such
cases:-
i. Number of new/active looms should be certified by the Director of Handlooms and Textiles. In
cases where such looms are not operative, the limit will be reduced proportionately.
ii. Assessment of working capital on per loom scale of finance should be made for an initial
period of 2 years and thereafter with reference to the anticipated production as in the case of
normal working societies.
iii. Banks financing such special programmes/new societies should ensure proper supervision
over the end-use of funds.
iv. Separate accounts should be maintained in regard to production under normal programme and
special programmes, and the production under special programmes should not be clubbed
along with the normal programmes.
f. Fixation of Per Loom Scale of finance:
i. The per loom scale finance is fixed by the “Unit Cost Committee” constituted for the purpose
and the same is revised every year.
ii. The Unit Cost Committee is convened by the SCB every year and the committee consists of
representatives from the:
 NABARD
 Department of Handlooms & Textiles
 State Apex Coop. Society/ Textile Emporium
 selected DCCBs
iii. The committee meets once a year to review the per loom scale of finance fixed for various
types of looms. The per loom scale of finance is fixed taking into account the cost of inputs that
go into production, the performance of the existing WCS in the previous year and the general
trend of costs and prices prevailing in the industry.
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iv. To assess the cost of production, details of cost of production of different types of cloth
produced both on handloom and powerloom in the cooperative sector are obtained from some
good working WCS in the districts where most of the WCS are concentrated through a
structured proforma.
v. For applying for credit limit to NABARD, the special programmes drawn-up should be
supported by the specific recommendations of the Asst. Director of Handlooms concerned.
vi. Under special programmes, working capital is assessed on the basis of per loom scale of
finance for the first two years. After the initial period of 2 years, the credit requirements will be
assessed with reference to anticipated production.
vii. The per loom scale of finance fixed for the year 2009-10 was as follows.
Per Loom Scale of Finance

Sl.No Variety of Cloth fixed for the year (in Rs.)
1 Hand loom - Cotton 26000
2 Hand loom- Special Cotton/ 44000
Hand loom - Polyester
3 Power loom 49000
4 Handloom - Pure Silk with Half Fine Zari 60000 *
5 Handloom - Pure Silk with Pure Zari 75000 *
* Maximum amount fixed for HF silk & pure silk. However the DCCBs can even fix lower amount also
while sanctioning the limit under special programmes by taking into account of the cost of production
of particular variety of cloth that may be produced on the particular loom.
g. Margin & NDR:
i. Societies should maintain margin of 10% for working capital limits provided by cooperative
banks from out of their NDR.
ii. As the WCS are required to maintain a margin of 10% on Cash Credit borrowings, limits are
sanctioned upto 9 times of their ability to provide margin(NDR).
iii. The banks shall calculate the NDR on the basis of Balance sheet as on the preceding 31st
March.
7. Cover and margin for borrowings of WCS from DCCB:
a. Normal and special limits:
i. WCS should submit a monthly cover statement so as to reach the DCCB within one week of
the close of the month to which the cover statement relates.
ii. The Drawing Power for the month should be fixed at 90% of the available cover since the
WCS is required to maintain a margin of 10%.
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b. Items Eligible for Cover:
i. Fully paid yarn-in-stock with the society valued age-wise.
ii. Yarn with members issued for production of cloth on society's own account.
iii. Fully paid dyes and chemicals and other raw materials required for production of cloth.
iv. Advances towards wages made by the PWCS to their weaver members subject to the
following conditions:-
! Advance wages should not exceed 50 % of the value of knots of yarn issued to the
members in respect of ordinary cotton varieties and 25% of value of yarn issued in
respect of costly varieties of cloth viz. silk sarees, polyester, special varieties of cotton,
etc., and
! Overdue wage advances, if any, should be excluded from the advance wages worked
out in the above manner and shown as cover for borrowings.
v. Finished goods in stock valued age-wise: valuation of yarn/finished goods/ cloth for the
purpose of cover would be as under:-
Valuation at cost price

Age-wise classification yarn/cloth
Silk cloth Other cloth
Upto 12 months 100% 100%
Over 12 months and upto 24 months 90% 80%
Over 24 months 80% 60%
vi. Rebate claims due from government duly certified by the Department.
vii. Dues admitted and outstanding payment by the Apex/Regional WCS for cloth sold to it.
viii. Bills payable by the Apex/Regional WCS for cloth purchased by it from PWCS but not paid
for.
ix. Book debts arising from credit sales of cloth to other parties subject to the following
conditions:
 Demand bills should have been drawn by the society on the party to whom it has supplied
cloth against firm orders.
 Relative documents like railway receipts or lorry receipts should have been lodged with
the bank duly endorsed with instructions to release the documents only on payment and to
credit the proceeds of the bill of realisation to the cash credit account.
x. In case of usance documentary bills:
 Bill should be of usance not exceeding 90 days.
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 Bills should have been drawn by the society on the party to whom it has supplied cloth
against firm orders.
 Relative documents like railway receipts or lorry receipts should have been lodged with
the bank duly endorsed with instructions to release the documents on acceptance of the
bills by the drawee or his banker and to hold the bills till maturity and to credit the proceeds
of the bills on realisation to the cash credit account.
 Bills not accepted or paid for by the drawee and/or his banker on presentation for
acceptance or payment should be excluded from the cover and the society asked to make
good the shortfall in the cover immediately.
xi. Book debts comprising bills receivable upto 6 months, those over 6 months from Apex Society
and State Government but not exceeding 20 % of the previous year's sales turnover and sundry
debtors not outstanding for more than 3 months, may be accepted as cover for borrowing.
However they may not exceed 50 per cent of the total outstanding in the cash credit account of
the society at any point of time.
xii. Cover for drawals on the credit limits sanctioned by the NABARD will be the DCCB's non-
overdue outstandings against weavers' societies excluding the outstandings in unrenewed cash
credit accounts, the amounts due against societies in default and also the amounts received by
the concerned SCB/DCCB for Apex/Regional WCS and dues payable/receivable and pending
for adjustment for more than 3 months to the account of Apex/Regional/Primary WCS.
c. Supervisory Machinery:
i. As per the norms prescribed the DCCB have adequate supervisory machinery to supervise the
functioning of WCS. The norms fixed are as one Junior Supervisor for 10 WCS and one senior
Supervisor for 3 Junior Supervisors.
ii. It should be ensured that each PWCS has a defined exclusive area of operation and loom
numbering with a view to avoiding problems resulting from dual membership between
societies.
iii. The DCCB may restrain from financing new societies which do not have an exclusive non-
overlapping area of operation.
iv. It should be ensured that PWCS maintain the important books and registers, post the
transactions on a daily basis and extract balances on the same date.
d. Rate of interest:
i. The rate of interest for borrowings in respect of Handlooms and Powerlooms will be as per the
rate fixed by the NABARD from time to time.
ii. The SCB and the DCCBs shall add their margin and fix the rate of interest for their lending to
WCS.
st
iii. The rate of interest is applicable to the outstanding as on 31 March and for borrowings as well.
iv. Interest is payable half yearly or earlier when the outstanding in the loan account is repaid in
full in the following pattern:
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 SCB to NABARD (loan A/c) - September and March.
 DCCB to SCB (loan A/c) - August/September and February/March (as specified by SCB).
 WCS to DCCB (CC A/c) - Monthly.
v. Interest rate on the finance provided by SCB/DCCBs to PWCS from their own resources:
 WCS eligible for finance as per NABARD norms should be charged at the rate as per
NABARD refinance rate.
 WCS which do not qualify for NABARD limit for one reason or other and is financed
entirely from out of the own resources of the DCCB can be charged at the NABARD
refinance rate or at a reasonable rate of interest taking into account their cost of funds and
the risk involved in it.
e. Penal interest:
i. Each drawal is repayable within 12 months from the date of Hundi lodged for the drawal and in
case of default, additional interest at 2.5% per annum over and above the normal rate of
interest or such other rate as may be specified by the SCB will be charged from the date of
default to the date of clearance of such default.
ii. In the event of default in payment of interest or any portion thereof on due date, additional
interest at 2.5% per annum over and above the normal rate of interest or such other rate as may
be specified by the SCB shall be payable by the DCCB on such amounts from the date of
default till the date of its clearance.
f. Cover for borrowings of DCCBs from SCB:
i. The DCCB is eligible for drawals from the limit only in respect of its advances to the PWCS
(1) which are functioning as Production-cum-Sale Societies and (2) which are eligible for
limit, as per norms prescribed by NABARD from time to time.
ii. The DCCB shall ensure that its outstanding to the SCB under ST. Weavers Finance are
covered by Non-overdue outstanding against PWCS, distinctly under (a) Production Basis,
(b) Special Programmes, (c) Additional Limits. The DCCB has to watch the outstanding
against PWCS vis-à-vis borrowings from the SCB, on a day-to-day basis and should
regularize excess borrowings from SCB if any, immediately.
iii. In case of any deficit, the same shall be regularized within 30 days of such occurrence. If the
deficit persist beyond that will attract additional interest at 1% over and above the prescribed
rate.
g. Overdues: The following outstanding against WCS shall be treated as overdues for the purpose of
assessing Non-overdue Cover.
i. Outstanding against WCS which are not eligible for NABARD Refinance.
ii. Outstanding against WCS, whose limits have not been renewed for the current year.
357 - III
iii. Outstanding in excess of eligible drawing power/sanctioned limits, as per NABARD norms.
iv. Outstanding against WCS from whom stock statements have not been received.
v. Advances made to WCS from the own resources of the DCCB (a) against Reserve Fund and
(b) Others, viz., dues from Apex societies etc.
vi. Advances to WCS, which are purely Marketing Societies.
vii. Advances to WCS, which are having audit arrears for more than one year.
h. Submission of periodical returns:
Monthly Due date Quarterly Due date

NODC 10th Rebate dues 25th
Dues from Apex society 20th Interest subsidy 25th
Inspection of WCS 25th
i. Insuring Stocks: WCS shall insure their stocks in trade including yarn and cloth on looms at their
full value, against:
i. Fire and other risks
ii. Burglary
iii. Cyclone/flood (necessary only in the case of WCS situated in cyclone/flood prone areas)
iv. The insurance policy should be taken in the joint names of the WCS and the bank or with a
bank clause.
8. Application for Credit Limits:
a. Submission of Credit Limit Application: The validity period of the credit is April to March and
the time schedule for the submission of credit limit application shall be:
th
i. WCS to DCCB - 15 January
ii. DCCB to SCB - 15th February
th
iii. SCB to DH/NABARD- 28 February (as applicable)
iv. DH to NABARD- 15th March
Note: In states where MoU have been executed and Cooperative Societies Act has been amended, credit limit
application need not be routed through the Director of Handlooms.
b. PWCS to DCCB: PWCS based on its financial position as on 31st March preceding year and the
st st
production, sales, remittances etc. during the preceding year (from 1 January to 31 December)
may apply for credit limit. The application should be recommended by the Assistant Director of
Handlooms and should reach the DCCB latest by 15th January.
358 - III
c. DCCB to SCB:
i. The DCCB should process the application of PWCS and apply for Normal Credit Limit
(production basis and special programmes) to the SCB before 15th February.
ii. DCCBs while preparing the credit limit application should take care of the defects, if any,
communicated by the SCB/NABARD in the previous year application and avoid recurrence
of such defects and it should be also indicate the arrangements made in supervising the PWCS
in the absence of adequate supervisory machinery.
iii. As regards special programmes the DCCB should arrange to furnish specific
recommendation (by way of certificates) from the Assistant Director of Handlooms of the
circle concerned. The reasons for shortfalls, if any, in the achievement in earlier years, should
be given clearly. The first year programme should be based on the achievement in the earlier
years. The second year programme should be based on the achievement in the first year
programme.
iv. The DCCBs should also submit the following, along with the application for credit limits:
 Latest Balance sheet and Profit and Loss Account of the Bank.
 Audit certificate.
 Reserve Borrowing Power statement of the DCCB.
 Financial statement of the DCCB as on 31st December.
 Resolution of the Board of Directors (or) the Special Officer (Board of Management)
authorizing the Bank to obtain financial accommodation from the NABARD
 A certificate from the Assistant Director of Handlooms furnishing the consolidated
quantum of funds required for implementation under Special Programme.
 Certificate of the audit classification of PWCS to be financed by the DCCB.
 Statements (1 to 12-as applicable)
 Worksheet I, II and III.
 Annexure I and II.
 Write up on the Weavers/PWCS status in the district, along with the details of PWCS.
(viz.,) Active, Dormant, Liquidated PWCS and action plan for financing Individual
Weavers and Self Help Weavers Groups.
d. SCB to NABARD:
i. On receipt of the application from the DCCB, the SCB will scrutinize it and ensure that the
application and the statement enclosed are in accordance with the guidelines.
ii. The Apex Bank has to put up a Board Note furnishing the following particulars for approval:
 Particulars of credit limits applied for the current year on the basis of production,
under Special Programmes and additional limits, if any.
359 - III
 Operations in the CC limit sanctioned to DCCBs by the Apex Bank, indicating the
opening outstanding balance, drawals made during the previous year, repayments
during the previous year, outstanding at the end of the year and the maximum
outstanding reached during the year etc.
 Particulars of eligibility of the DCCB for the year under handloom and power looms,
with reference to production norms.
 Eligibility under Special Programme for financing activation of idle looms, admission
of new looms, new societies, renewal of dormant Societies, conversion from cotton to
polyester/silk looms year-wise for 2 years, on the basis of performance under Special
Programmes during the previous year.
 Additional limits against dues from Apex society, Stock of cloth and rebate dues from
Governments.
 Total eligibility of the DCCB under normal and additional limits.
 Whether the additional limit applied for is as per the norms.
 Suggesting that the Apex Bank may prefer a consolidated short term Weavers Credit
limit application on behalf of DCCB indicating the amount separately on production
basis, under Special Programme and additional limit in the forms prescribed by
NABARD.
e. Based on the particulars as above, a resolution is to be adopted by the Board of Management of the
Apex Bank indicating the amount and year under Section 21(1) (v) read with Section 21(4) of
NABARD Act, 1981 for financing Handloom (cotton/ silk/wool/ polyester) Weavers Coop.
Societies for production and Marketing activities and sanction of a consolidated limit from
NABARD for the purpose.
f. While applying to NABARD for credit limits, the Apex Bank has to furnish the following
documents/statements to the National Bank:
i. Application in the prescribed form on behalf of DCCB (Annexure ….)

ii. An attested copy of the resolution passed by the Board of Management of the Apex Bank as
indicated above.
iii. Reserve Borrowing Power statement of the Apex Bank.
iv. Latest audited Balance Sheet and the latest financial position of the Bank.
st
v. Statement of liquid assets as 31 December/latest.
vi. CCB's application copy.
g. In states where MoU have been executed and Cooperative Societies Act has been amended, credit
limit application need not be routed through the Director of Handlooms. In case of other states, the
consolidated credit limit application should be recommended by the Director of handlooms, as
hitherto.
360 - III
[A set of specimen application formats for enabling the DCCBs and SCBs to prepare and submit the
WCS credit limit application to NABARD is given in the Annexure to this Chapter.]
9. Sanction of credit Limits:
a. NABARD to SCB: On receipt of the sanction letter of the NABARD, the Apex Bank has to furnish
the following documents/certificates to the National Bank before availing drawals under the
sanctioned limit.
i. Letter of acceptance of the terms and conditions governing sanction.

ii. Demand Promissory Note duly executed by the SCB in favour of NABARD.
iii. Guarantee Deed executed by the government (if applicable).
iv. Mandate for debiting the Current account of SCB with RBI in the event of default in
repayment of principal or repayment of interest (if not already given).
b. SCB to DCCB: As soon as the credit limits are sanctioned and communicated to SCB on behalf of
DCCBs, the Apex Bank has to sanction CC limits based on the consolidated limit sanctioned on
behalf of the eligible DCCBs and communicate the same by a letter in duplicate to DCCBs. Along
with the sanction letter, the Apex Bank should also send 2 copies of the terms and conditions
governing operations in the CC limits. On receipt of sanction, the DCCB will submit the following
documents to the SCB before availing drawals under the sanctioned limit:
i. Duplicate copy of the sanction letter duly signed by the authorised official of the DCCB in
token of acceptance of terms and conditions.
ii. A copy of the terms and conditions duly signed on each page by the authorised officials of the
DCCB in token of having accepted the same.
iii. A Demand Promissory Note duly executed and signed by the authorised officials of the
DCCB.
iv. An attested copy of the resolution of the Board of management of the DCCB authorizing its
officials by name to give undertaking and to operate on the limits and to furnish security
certificates etc. and agreeing to hold promissory notes of PWCS on Apex Bank's behalf, duly
endorsed in SCB's favour.
v. Specimen signatures of the authorised officials of the DCCB who are authorised to operate on
the CC limits and execute the required documents/statements, duly attested by the Chief
Executive of the DCCB.
c. DCCB to PWCS: The DCCB will send Sanction letters to PWCS (which are eligible for
NABARD refinance and whose credit requirement is included in the credit limit application),
communicating the sanction of cash credit limit (not exceeding 9 times of NDR) with the terms and
conditions. The PWCS will execute a Demand Promissory Note to the DCCB for the limit
sanctioned.
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10. Operation in the limits:
a. DCCB to PWCS: The DCCB will allow drawals to the PWCS in the cash credit limit account to
the extent of difference between:
i. Total limit and outstanding in the limit.(or)

ii. NODC/Drawing Power and outstanding in the limit (or)
iii. NODC on production basis plus achievements under Special Programme and outstanding in
the limit, whichever is lower.
(It is desirable to get cover statements separately for normal and special programme limits)
b. SCB to DCCB:
i. While allowing the drawals to DCCBs against their CC limits sanctioned, the Apex Bank
should ensure that the DCCBs have preferred drawals separately for handlooms and power
looms.
ii. The DCCBs should submit the following documents and certificates along with each drawal
application to the Apex Bank.
 Non-overdue cover particulars in the form prescribed by the Apex Bank as at the close of
business on a date not earlier than 7 days prior to the date of drawal application. The
DCCB need not furnish the list of WCS and the outstanding against each of them at the
time of every drawal under normal limit.
 A certificate to the effect that the drawal applied for by the DCCB is within its Reserve
Borrowing Power, in the form prescribed.
 The cash reserve and liquid assets maintained as at the close of business on a Friday not
earlier than 13 days period to the date of application.
 In addition to the above, the DCCB has to furnish a certificate to the effect that separate
books of accounts are being maintained by the DCCB in respect of its advances for special
programmes.
 Certificate to the effect that the outstanding against the following categories of societies
have been excluded from cover for the drawals and are not being reimbursed from the
limit sanctioned by the SCB/NABARD, in the format prescribed.
 PWCS placed in 'D' Class in audit.
 PWCS which are having audit arrears for over 1 year.
 PWCS whose accounts with the Bank have remained inoperative for over 1 year
unless such Societies are under Special Programme of revival or reorganization.
 PWCS whose accumulated losses exceed the owned funds.
 PWCS which have been excluded by NABARD/SCB for purpose of reimbursement
from the credit limit sanctioned.
362 - III
 PWCS which have not been included in the credit limit application preferred to
NABARD by the DCCB.
 PWCS which are not eligible for sanction of limit as per norms prescribed by
NABARD/SCB from time to time.
 Outstanding in excess of eligible drawing power/sanctioned limits, as per NABARD
norms.
 Outstanding against WCS from whom stock statements have not been received.
 PWCS which are purely Marketing Societies.
 For Power looms: In addition to the above, (a) to (g) for drawal under power looms, the
following certificate are to be furnished by the DCCB.
 A certificate to the effect that the PWCS having power looms have obtained the
approval of the Textile commissioner and necessary license for operating such power
looms from the Central Government, State Government and Civil Authority as
indicated in the SCB's circular No._______, dated ________.
 A certificate to the effect that separate books of accounts are being maintained by the
DCCB in respect of its advances to PWCS having power looms.
 Security Certificate to the effect that,
- Sufficient securities have already been obtained by the bank from the Weavers
Cooperative Societies for the cash credit limit sanctioned and outstanding against
each one of them to cover the total loan of Rs. lakhs ( Rupees
……………….. ) drawn from the SCB including the present drawal of Rs.
lakhs (Rupees ………………… ) for financing Weavers Cooperative Societies.
- The security obtained by this bank from the Weavers Cooperative Societies bears
the first charge of the SCB.
- The pronotes of the Weavers Cooperative Societies are held in our custody on
behalf of SCB which will be endorsed in your favour as and when demanded.
 In respect of limits sanctioned on the basis of per loom scale of finance, the DCCB
should submit a certificate to SCB at the time of each drawal to the effect that it has
conducted verification of the looms working for each society under the programme
during the previous quarter and then the drawals against the limits have been
regulated based on the actual number of looms worked during the previous quarter.
 They will have to prefer a separate drawal application for drawals under additional
limit, subject to NODC or Drawing Power.
iii. The DCCB will be eligible for drawal to the extent of difference between:-
 Total limit and outstanding in the limit (or)
 NODC and outstanding in the limit (or)
 NODC on production basis plus achievements under Special Programme and
outstanding in the limit, whichever is lower.
iv. After scrutiny of the drawal application and the documents/ certificates submitted by DCCB,
363 - III
the Apex Bank will arrive at the eligibility amount of drawal as per the scrutiny sheet and put
up the same to the Executive concerned for sanction of the drawal.
v. On sanction of the drawal, the amount should be credited to the Current Account of the DCCB
concerned under advice to it.
vi. In case, the drawal is not sanctioned due to some reason or the other, the same should be
informed to the DCCB concerned immediately.
c. NABARD to SCB:
i. After allowing the drawals to DCCBs, the SCB may prefer reimbursement in the prescribed
format.
ii. The SCB is required to furnish the following particulars along with every drawal application
prepared to NABARD:
 We hereby certify that the drawal preferred and the refinance already availed are against
the loan provided to the eligible DCCBs for financing production and marketing of
handloom (Cotton/Silk/Wool/Polyester)/Power loom weavers' cooperative societies and
individuals and are covered by adequate non-overdue loans outstanding at the eligible
DCCBs level against Weavers societies/individuals.
 The aggregate amount of refinance, inclusive of present drawal preferred, is not more
than loan outstanding against Weavers Societies/Individuals at the level of eligible
DCCBs.
 The drawal of Rs.-------- now applied for is within our reserve borrowing power and while
allowing drawals to the eligible DCCBs we have ensured the drawals were within their
borrowing power.
 The pronotes executed by the eligible DCCBs in our favour are duly discharged in favour
of NABARD and are held by us as agent of NABARD.
iii. The drawal application and the above certificates should be signed by two authorised officials
of the SCB.
d. Monthly NODC Return to NABARD: The Apex Bank should submit a separate consolidated
NODC statement for normal and additional limits in the prescribed formats as on the last day of
th
each month so as to reach the NABARD before 20 of the succeeding month.
11. Adjustment of Payments to PWCS from Apex Society to Weavers' borrowings:-
a. The payments received from the Apex Society towards the cost of cloth procured from PWCS in
the DCCB's jurisdiction will be adjusted to the loan account of the DCCB with the SCB. The
DCCB, on receipt of advice from the SCB for such adjustments should credit the same to the
respective PWCS' Account with the DCCB immediately.
b. However, if there are no outstandings in the loan account of the DCCB, the payments received from
364 - III
Apex Society / Government will be credited to the centralized Current Account No. I of the DCCB
with the SCB.
c. Adjustments by the SCB of the amounts received from Apex Society /Government mentioned
above to normal limit or additional limit will be in the order of the due date of the borrowings of the
DCCB from the SCB.
12. Inspection of PWCS by DCCBs:
a. The DCCB should also furnish a statement as at the end of the December every year about the
number of Societies inspected etc., so as to reach the SCB before the end of the following January.
13. Right of the Apex Bank to recall the advance:
a. The SCB will have the right to recall the advance even before the due date and even before the limit
is fully utilized in the event of the credit limit being not fully utilized by the DCCBs and if any of
the terms and conditions stipulated by the SCB has not been adhered to by the DCCBs.
14. Government Guarantee:
a. The advances made by the DCCBs to PWCS may be covered under any of the following Guarantee
schemes. The advances granted by the Coop. Banks to Handloom WCS can be covered under
either of the first two schemes as mentioned below. Under both the Guarantee schemes, losses in
respect of non-payment of loans and defaults arising from looms of all types of industrial societies
are shared by the Central Government, state Government and the financing banks concerned in the
ratio of 50:40:10, provided the maximum aggregated amount payable by the Central Government
shall not exceed 5% of the total loans disbursed in the state and outstanding under the scheme on
th st
the preceding 30 June and 31 December. From 01.04.1979 onwards, Losses were shared by State
Govt. and the financing banks in the ratio of 90:10. (Apex Bank- 5% & DCCB 5%)
i. 90% Loss Guarantee Scheme: The loss Guarantee Scheme was formulated by Govt. of India
in 1956 with a view to provide guarantee cover to Coop. Banks to offset the losses arising out
of non-recovery of loans advanced by them to weavers societies. It covers all advances to
Handloom WCS under the Reserve Bank of India Scheme for weavers finance. It covers only
ultimate losses incurred by Coop. Banks up to the extent of 90%. The scheme is administered
through the State Government.
ii. 90% Default Guarantee scheme: It provides guarantee up to 90% in respect of default
arising from the loans of all types of Industrial Coop. Societies such as those undertaking
production and or sales activities, providing services, federal societies as well as processing
societies. The scheme is left to the option of the State Government to implement.
iii. Credit Guarantee Scheme: Advances granted by DCCBs to the PWCS working on
production-cum-sale basis can also be covered under the Credit Guarantee Scheme for small
scale industries of the Govt. of India. The Reserve Bank of India which is designated as
“Guarantee Organisation” has been administering the scheme on behalf of the GOI. The
365 - III
scheme provides for payment of 75% of the amount in default or the amount granted,
whichever is lower, subject to a ceiling per borrower. All the credit cooperative banks in India
are eligible institutes under the schemes and can avail of the guarantee facilities under the
scheme by executing the necessary agreement with the Guarantee organization.
iv. when the Guarantee can be invoked: The guarantee can be invoked only in respect of
individual losses arising out of non-recovery of loans advanced to the WCS in spite of the best
efforts taken by the DCCB concerned for the recovery of the loans and the invoking of
Government Guarantee for the loss is a step to be taken only extreme cases as a last resort.
v. If any loss has arisen in respect of the finance made available to a WCS in spite of all effective
steps taken, because of trade risks and circumstances beyond the control.
vi. The claims have to be prepared, in case of the WCS which are beyond revival and for which all
action had been taken by the banks as well as the Department Officers with facts and figures in
the proforma prescribed for reimbursement of losses.
15. Books and Registers required to be maintained:
a. At PWCS level: The PWCS shall maintain the following books and Registers post the transaction
on daily basis and extract balances on the same date:
i. Cash book
ii. Day book
iii. General Ledger
iv. Yarn/Dyes stock Register
v. Yarn/Dyes issue Register
vi. Members production/wages paid Register
vii. Sales/stock register
viii. Rebate due Register
ix. Dues from Apex Society/Emporium
x. Interest subsidy Register
xi. Sundry creditors/Debtors Register
xii. Membership Register
Note:The PWCS should submit the stock statement, Receipts and Disbursement statement, Profit and loss
account statement etc. to the DCCB every month on or before the prescribed due date. The PWCS should
operate the CC account as instructed by the DCCB in the sanction order.
b. At DCCB level: The DCCB shall maintain the following:
i. Application and sanctions Register: Application and sanctions Register, year- wise
indicating the PWCS-wise position of different limits sanctioned by the DCCB under
366 - III
NABARD refinance scheme and out of its own resources. These two lines of sanction and
their break-up into Normal, Special programmes and Additional Limits may be indicated. It is
desirable that particulars in respect of PWCS not eligible under NABARD scheme are
recorded separately.
ii. Cash Credit Ledger: The DCCB has to maintain a Cash Credit ledger at the branches/HO to
record the operations on the CC limit sanctioned to each PWCS. The operations on each type
of limit shall be recorded in separate folios. Where a PWCS is unable to submit cover
statements separately for normal and special limits, the DCCB may still maintain separate
folios and ensure that the total outstanding under the two limits do not exceed the drawing
power. However, a separate cover statement will have to be submitted in respect of the
additional limits sanctioned for meeting the slack season sales requirements.
iii. Books of accounts: Books of accounts to facilitate the furnishing of separate figures (purpose
wise outstandings, production particulars, utilisation etc.) in respect of
 Production by PWCS on looms which has been sanctioned on anticipated production
basis.
 First/second year production made by PWCS under the special programmes.
iv. Borrowings Register
v. Hundi Due date Register for borrowings from SCB
c. At SCB level: The following registers/records shall be maintained:
i. Weavers loan ledger

ii. Part payment Register
iii. Borrowings Register
iv. Due date Register for borrowings from NABARD
v. DCB Register
vi. Subsidiary Registers for month wise due dates and total liability
vii. Hundi due date Resister: After allowing drawals to DCCBs, the SCB will enter the
particulars of Hundi (DCCB wise) in the due register to watch their due dates. The Hundies
executed by the DCCBs to the SCB will be endorsed in favour of NABARD and held by the
SCB as its agent. On repayment of loan/s to NABARD, on behalf of the DCCBs, the Hundies
will be discharged and sent to the DCCB concerned.
367 - III
Annexure -1 to Chapter - 26
SPECIMEN FORMAT - I (used by SCB to NABARD)
(A specimen of Weavers credit limit applications and other related formats)
Note: In the states where MOU have been executed and Cooperative Societies Act had been amended, credit
limit application need not be routed through Director of Handlooms.
THE …………………. STATE APEX CO-OPERATIVE BANK LTD.,
HEAD OFFICE
C.No. /HFS/ Date:
The Chief General Manager,

National Bank for Agriculture
and Rural Development,
(Local regional Office)
Sir,
Sub: Application for credit limit under Section 21(i)(v) read with section 21(4) of NABARD Act, 1981, for
financing PWCS for production and marketing of handloom/ powerloom cloth for the year …… -
Sanctioning of Credit limit requested Reg.
Ref: NABARD's circular No. NB.PCD-Policy (Weavers)/…. dated …...
***
We are forwarding herewith the ST Weavers credit limit applications of … DCCBs, along with our
recommendations, for sanction Credit limit of Rs…… lakhs to our bank, under Section 21(1) (v) read with
section 21(4) of NABARD Act, 1981, on behalf of the DCCBs for financing Handloom/Power WCS for
production and marketing of handloom/ powerloom cloth for the year …...
We, the ….. State Apex Cooperative Bank Ltd, hereby apply for a consolidated STW Credit Limit of
Rs….. lakhs (Rupees ….. lakhs only) on behalf of the …. DCCBs, as per details given below, for financing
PWCS for the year …..
368 - III
(Rs. in lakh)
Credit limit applied by SCB
Sl. No. Name of the DCCB Handloom
Production Special Powerloom Total
Basis Programmes
1
2
3
4
5
6
7
TOTAL
We hereby forward the following documents to NABARD along with the limit application.
1) Annexure to the limit application (I to V)

2) Proforma Balance sheet (Financial Statement) of our bank as on …….
3) Liquid Assets Position as on ……..
4) Borrowing Power statement as on ……..
5) Resolution of Board of Directors of SCB to borrow from NABARD
6) Certificate by SCB indicating that it has obtained resolutions of Board of Directors of DCCBs to borrow
from it and also to seek refinance from NABARD
7) Applications of the DCCB
Hence, we request the NABARD to sanction STW Credit limit of Rs….. lakhs to our bank on behalf of
the DCCBs for the year …., at the earliest.
Yours faithfully,
GENERAL MANAGER
Encl: as above
Copy to
The Director of Handlooms and Textiles,
369 - III
THE ……. STATE APEX CO-OPERATIVE BANK LTD.
C.No. /HFS/ Date:
The Director of Handlooms and Textiles,
Sir,
Sub: Application for Credit Limit under Section 21(1)(v) read with Section 21(4) of NABARD Act, 1981
for financing Handloom/ Power loom Weavers Coop. Societies for production and marketing of Handloom /
Power loom cloth for the year …… Consolidated credit limit applied on behalf of … DCCBs Reg.
Ref: NABARD's circular No. NB.PCD-Policy (Weavers)/…. dated

******
We are forwarding herewith copy of the credit limit applications of …. DCCBs to NABARD for
sanction of a consolidated credit limit of Rs….. lakh to our bank on behalf of the DCCBs under Section
21(1)(v) read with Section 21(4) of NABARD Act, 1981 for financing Handloom/Power loom Weavers
Coop. Societies for production and marketing of Handloom/Power loom cloth for the year …...
We have forwarded one set of applications of the DCCBs along with our recommendations and other
enclosures to NABARD, RO, to speed up the process of limit sanction.
Along with the limit application we are forwarding the certified copy of the Resolution of Board of
Management of our Bank and other necessary statements, in support of the application.
We request the Director of Handlooms and Textiles to kindly send his recommendations on the
above credit limit application to NABARD, under copy to us, early.
Yours faithfully,
GENERAL MANAGER
Enc: As above.
Copy to
National Bank for Agriculture and
Rural Development,
(Local Regional Office)
370 - III
ANNEXURE (I)TO THE CREDIT LIMIT APPLICATION
Name of the DCCB :
Purpose : For financing Production & Marketing activities of PWCS
Limit applied : Rs. lakhs

(Rs in lakh)
I. A. ELIGIBILITY OF DCCB
1. a. Audit Classification for the year 20 - 20
b. Audit Marks
2. Whether the DCCB has complied with Sec.11(1) of
B.R.Act, 1949 (AACS)
3. % of Gross NPA under all loans and advances as on
31.03.20
4. % of Net NPA under all loans and advances as on
31.03.20
5. Whether the DCCB had earning profit for the year 20 -
20
6. Accumulated losses, if any
7. % of collection to demand under all loans and advances
as on 31.03.20
8. a. Owned funds as on 31.12.20
b. Reserve Borrowing Power 31.12.20
9. Whether the latest inspection compliance report sent to
NABARD
B UTILISATION OF CREDIT LIMIT SANCTIONED
FOR 20 - 20
Credit limit sanctioned for 20 - 20
Outstanding as on 01.04.20
Drawals availed by the CCB during the year
Repayments made by the CCB during the year
Outstanding as on 31.03.20
Maximum NODC
Maximum outstanding at SCB level
% of utilization
Average outstanding at SCB level
% of average utilization
Issues to PWCS by DCCB up to 31.12.20
Maximum outstanding at DCCB level
PWCS Overdues as on 31.12.20
371 - III
II PRIMARY WEAVERS COOP. SOCIETIES HL PL
No. of PWCS affiliated
No. of Borrowing PWCS
No. of ineligible PWCS
No. of PWCS audited up to 20 - 20
No. of PWCS working in profit
No. of PWCS working at loss
No. of dormant PWCS
No. of liquidated PWCS
Limit applied for No. of PWCS for 2009-10
Limit applied for No. of New PWCS
III. A. Credit Limit applied under Production Basis for 20 -20 :

(Rs. in lakhs)
Hand loom Power loom

Credit Limit applied by DCCB No. of No. of
Amount Amount
PWCS PWCS
As per Worksheet I (for enhancement of
credit limit)
As per Worksheet II (for renewal of
credit limit)
As per Worksheet III (for proportionate
credit limit)
Total
III. B. CREDIT LIMIT APPLIED UNDER SPECIAL PROGRAMME for 20 - 20 :

(Rs. in lakhs)
I YEAR II YEAR
Type of
Purpose Variety No. of No. of
Looms Amount Amount
Looms Looms
Activisation of HL Cotton
Idle Looms
Silk etc
Admission of HL Cotton
New Looms
(others if any) Silk etc
Total
Grand Total for I year & II year
372 - III
IV.A.Credit Limit eligible under Production Basis for 20 -20 :
(Rs. in lakhs)
Hand loom Power loom
Eligible Credit Limit arrived
as per norms No. of No. of
Amount Amount
PWCS PWCS
As per Worksheet I (for enhancement
of credit limit)
As per Worksheet II (for renewal of
credit limit)
As per Worksheet III (for proportionate
credit limit)
Total
IV. B. Eligible Limit arrived as per revised Per loom Scale of finance for 20 - 20 under
SPECIAL PROGRAMME:
(Rs. in lakhs)
I YEAR II YEAR
Type of
Purpose Variety No. of No. of
Looms Amount Amount
Looms Looms
Activisation of HL Cotton
Idle Looms
others
Admission of HL Cotton
New Looms
(others if any) others
Total
Grand Total for I year & II year
Whether the Special Programmes have been recommended by ADH: YES
V. ELIGIBLE CREDIT LIMIT FOR 20 -20

(Rs.in lakhs)
Purpose H.L. P.L.
Under Production Basis
Under Special Programmes
Total
REMARKS:
373 - III
THE ….. STATE APEX CO-OPERATIVE BANK LTD.,
SHORT TERM WEAVERS CREDIT LIMIT APPLICATION FOR 20 - 20
Annexure II
1 Name of the SCB:
2 Year of Audit:
3 Audit Class:
4 Audit Marks:
5 Whether complying with the Section11(1)
of B.R. Act 1949(AACS):
6 If not, date from when not complying:
7 Exemption valied upto:
8 If exemption expired status of Action Plan:
9 Extent of erosion in Deposits (%):
Gross NPA as %of loans as on 31 March
2008:
10 Net NPA as %of loans as on 31 March
2008:
Aggregate Maximum Maximum
limits outstanding outstanding
Year sanctioned reached expected to
to SCB by against be reached
NABARD limits during
( April to sanctioned 2009-10
March) (Rs in crore) (Rs in crore)
11 Operation of limits during last 3 years: (Rs in
crore)
For The …… State Apex Co-operative Bank Ltd.,
General Manager
374 - III
S.No
Name of the DCCB
Annexure III
General Manager
Year of audit
Audit class
Audit marks
Whether
complying with
Sec11(1) of BR act
1949 AACS
If not, date from

when not complying
375 - III
Exemption valid
upto
If exemption expires
status of action plan
Extent of erosion in
deposits (%)
THE …. STATE APEX CO-OPERATIVE BANK LIMITED;
SHORT TERM WEAVERS CREDIT LIMIT APPLICATION 20 - 20
Gross NPA as % of
loans as on 31st
march 20
% of recovery
as on 31.03.
( all loans)
S.No.
Name of DCCB
Annexure IV
General Manager
20 - 20 Limits sanctioned to
DCCB by SCB during
20 - 20 last 3 years
20 - 20 (April-March)
20 - 20 Maximum O/S reached
against Limits sanctioned
20 - 20 during last 3 years
20 - 20
20 - 20 Maximum O/S at DCCB

level against PWCS
20 - 20 /Individuals during last
20 - 20 3 years (up to Dec)
376 - III
PWCS
Limit proposed to be
Individuals sanctioned by DCCB to
Total
Maximum O/S expected to be
reached during 20 - 20
Limit likely to be sanctioned by

SCB to DCCB
THE …. STATE APEX CO-OPERATIVE BANK LIMITED;
SHORT TERM WEAVERS CREDIT LIMIT APPLICATION 20 - 20
Amount applied for by SCB from

NABARD
THE …. STATE APEX CO-OPERATIVE BANK LTD;
Annexure V
Total No. of DCCBs in the State :
Details of limits applied for in respect of DCCBs.
(Rs. in lakhs)
LIMIT APPLIED Recommendation
S.No. Name of the DCCB BY DCCBs of the SCB
No. of No. of
Amount Amount
PWCS PWCS
Total
General Manager
(Format Credit limit agreement to NABARD by SCB)

377 - III
THE ……. STATE APEX COOPERATIVE BANK LTD.
C.No. /HFS/ Date:

National Bank for Agriculture
and Rural Development,
(Regional Office)
Dear Sir,
In consideration of your agreeing to make to us loans and advances in your discretion, from time to time,
under Section 21(1)(v) read with Section 21(4) of the National Bank for Agriculture and Rural Development
Act, 1981, under the refinance scheme for financing the production and marketing activities of Primary
weavers' cooperative societies on the terms and conditions contained in the letter of sanction No. ……..
dated ….. and addressed to us by you, to the extent of a sum not exceeding Rs…. (Rupees …. only) for
which amount we have delivered to you Demand Promissory Note in your favour carrying interest at the rate
hereinafter mentioned, which advance shall be utilized for the purpose of financing the production and/or
marketing activities of the Primary Weavers' Cooperative Societies, directly by DCCBs and shall be
repayable on demand. We agree with and undertake to you as follows:
1. The terms and conditions set out in your above letter of sanction shall form part of this agreement.
2. We agree to abide by and observe and comply with stipulations/ instructions as contained in your
circular issued from time to time and any amendments or modifications thereto as may be advised by
from time to time.
3. The balance of the said advances at any time outstanding shall be repayable by us to you on demand in
accordance with the said scheme as may be amended by your from time to time.
4. Interest shall be payable by us to you on the said advances at ….% or as specified by National Bank from
time to time, with half-yearly rests on 30th September and 31st March or earlier when the entire balance
outstanding is repaid. The amount of such interest calculated on the daily balances may be debited to the
account of the said advances. We also agree that in the event of our committing default in repayment of
principal and interest or any part thereof on due dates, we shall be liable to pay to NABARD interest on
amount of default at …%p.a. for the period for which the default persists.
FOR THE ….. STATE APEX COOP. BANK LIMITED,
MANAGER ASST. GENERAL MANAGER
378 - III
5. As security for the said advances, we shall assign to you such bills of exchange and promissory notes as
are acceptable to you and are drawn on and payable in India and drawn or issued for the purpose of
financing the production and marketing activities of Primary Weavers' Cooperative Societies directly
by DCCBs and which bills of exchange and promissory notes shall be held by us as agent on your behalf
and shall mature within 12 months from the respective dates of their assignment by us to you, exclusive
of days of grace.
6. We undertake that each such bill or promissory note so assigned to you will be paid on its due date and in
default of payment by the principal debtor thereon, will be paid by us to you.
7. In case of default on our part in repayment of any loan or portion thereof or interest on the respective due
dates under the terms hereof, the National Bank for Agriculture and Rural Development may, but
without any obligation on its part so to do, request the RBI to debit our current account with the RBI for
the amount due to you and credit the same to your current account with the RBI. On receipt of such
requisition from you, the RBI, may without further notice to us, comply therewith and shall thereupon
be discharged of all its obligations to us in respect of the sums so debited to our current account with it.
8. We undertake that we will not assign to you any bill or promissory note in terms of this Agreement
unless we are satisfied that all parties liable thereon are financially sound, solvent and creditworthy and
that by such assignment and we certify the signatures of such persons thereon.
We agree that the fact of your not taking steps to enforce payment of such bills and promissory notes or
any of them against the principal debtor thereon shall in no way release us from our liability thereon and
we further agree that it shall be unnecessary for you to give any notice of dishonour.
9. We agree that we will, from time to time, while the advances continue and whenever required by you to
do so furnish you with true reports in such form as you may prescribe regarding the solvency of the
parties on each such bill or promissory note and agree to advise you promptly of any change in the
position of any such party which can reasonably be considered to affect your security hereunder.
10. We agree and undertake that the amounts of the loans or advances obtained by us from you, shall not, at
any time be more than the amounts of the eligible short term loans and advances granted by us to
DCCBs for financing the production and marketing activities of PWCS.
11. We further agree to maintain in your favour such margin as you may from time to time prescribe so that
the total amount at any time due to you towards principal, interest, charges and costs in respect of the
aforesaid loans and advances shall not exceed the outstanding balances in respect of the eligible short-
term loans and advances after deducting the amount of margin required to be maintained. Should there
be a shortfall in the margin stipulated by you pursuant to this clause, we shall, forthwith, on demand
from you, reduce the balance due to you by cash payment so as to make good the amount of margin
required to be maintained.
FOR THE ….. STATE APEX COOP. BANK LIMITED,

379 - III
12. We further agree that we will, from time to time, while these advances continue and whenever required
by you, furnish you such information in such form as you may specify and also maintain separate books
of account and records relating to the said advance.
13. We hereby agree to assign to the NABARD as and when required by it at our own expense our book
debts relating to the eligible short term loans and advances granted by us to the DCCBs or to vest in you
all the securities and security documents and the benefit of any personal guarantees obtained by us in
respect of the loans and advances granted to the DCCBs.
14. We hereby understand and agree that this Agreement and the said Demand Promissory Note for Rs….
(Rupees ….. only) shall operate as a continuing security for the loans and advances granted herein,
notwithstanding the existence of a credit balance at any time or any partial payment or fluctuations of
the account or withdrawal of any part of the security, that may be given by us to you.
15. If at any time you decide to increase the limit of the advances to us, we shall execute and deliver to you a
fresh demand promissory note for the additional limit as you may determine in addition to the one
delivered to you and held by you and the provisions of this agreement and the securities given hereunder
shall apply to such new promissory note also.
16. We agree that the said advances shall be utilized for the purpose for which they have been granted.
Yours faithfully,
For and on behalf of
THE ….. STATE APEX COOP. BANK LIMITED,
380 - III
FORMAT
PROMISSORY NOTE
Rs. …./-
On demand, We, The ….. State Apex Cooperative Bank Ltd., promise to pay to the National Bank for
Agriculture and Rural Development or order the sum of Rs….. (Rupees ….. only) with interest at …% or as
prescribed by National Bank for Agriculture and Rural Development per annum with half-yearly rests on
30th September/31st March for value received.
Dated at …….(place), this the …. (date)day of …..(month), 20...(year)

THE ……. STATE APEX COOPERATIVE BANK LIMITED,
MANAGER ASSISTANT GENERAL MANAGER
381 - III
SPECIMEN FORMAT - II (formats from DCCB to SCB)
(A specimen of Weavers credit limit application and other related formats) [FORMAT prescribed
by TNSCB for 2010-2011]
APPLICATION FOR SHORT TERM WEAVERS CREDIT LIMIT
The General Manager To

………………….. Dist. The Chief General Manager
Central Coop. Bank Ltd., National Bank for Agriculture
…………………….. And Rural Development,
Regional Office
THROUGH THE
(i) The State Apex Co-operative Bank Ltd.,

(ii) The Director of Handlooms and Textiles, (if applicable)
Sir,
We, …………………….. District Central Co-operative Bank Ltd., ………………… hereby apply
for short-term credit limit of Rs. ………………lakhs (Rupees………..
…………………………………………. only) on our behalf to the ….. State Apex Co-operative Bank Ltd.,
….., under Section 21(1)(v) read with Section 21(4) of the National Bank for Agriculture and Rural
Development Act, 1981 for the year 2010-2011 for financing Handloom/Powerloom Weavers Co-operative
Societies, Individuals and Self Help Weavers Groups for production and marketing activities.
The under noted documents and statements are enclosed herewith.
DOCUMENTS
(A) Audited Balance Sheet and the copy of the Audit Certificate of the DCCB for the year 2008 -2009
(B) NPA Certificate issued by the auditor for the year 2008 - 2009
(C) Trial Balance as on 31.12.2009
(D) Resolution of the Board of Directors (or) the Special Officer (Board of Management) authorizing the
Bank to obtain financial accommodation from the NABARD (Form prescribed).
(E) Statements/certificates (1 to 12-as applicable)
(F) Worksheet I, II and III.
(G) Annexure I and II.
(H) Write up on the Weavers/PWCS status in the district, along with the details of PWCS. (viz.,) Active,
382 - III
Dormant, Liquidated PWCS and action plan for financing Individual Weavers and Self Help Weavers
Groups.
We hereby certify that advances outstanding against PWCS under Cash Credit Limits sanctioned to
them for their production and marketing activities during the year 2009 -2010 were are at no times less than
the amount drawn from and outstanding to the NABARD against the credit limit sanctioned on our behalf
under Section 21(1)(v) read with Section 21(4) of the NABARD Act, 1981 and that the PWCS maintained
the prescribed margin for their borrowings from the DCCB.
Yours faithfully,
GENERAL MANAGER
(Seal of the Bank)
383 - III
………………………………. District Central Co-operative Bank Ltd.,
COPY OF THE BOARD RESOLUTION NO………….. DATED…………………..
Present: Shri ……………………………. President

And ……………………………..Directors
Subject Resolution
To consider on requesting the NABARD through Resolved to borrow during the year 20 -20 from
the ……. State Apex Co-operative Bank Limited, the ….. State Apex Co-operative Bank Limited,
….. to sanction Short term (Weavers) Credit Limit Rs.……….. lakhs for financing the production and
to the extent of Rs. ………….. lakhs for the year 20 marketing activities of (Cotton/Silk/Special
-20 for financing the production and marketing Cotton/Polyester handloom/Powerloom Weavers
activities of (Cotton/Silk/Special Co-operative Societies, Individual Weavers and
Cotton/Polyester) Handloom/Powerloom Co- Self Help Weavers Groups and to request the …..
operative Societies, Individual Weavers and Self State Apex Co-operative Bank Ltd., to apply to the
Help Weavers Groups under Section 21(1)(v) read NABARD for a credit limit for a like sum on our
with Section 21(4) of the NABARD Act, 1981. behalf under Section 21(1)(v) read with Section
21(4) of the NABARD Act, 1981.
Sd/-
President and …. Directors

(BOARD OF MANAGEMENT)
GENERAL MANAGER
384 - III
STATEMENT No. 1
Name of the DCCB :
Statement showing the Reserve Borrowing Power of the DCCB as on 31.12.2009
S.No. Particulars Amount in Lakhs
I OWN FUNDS
i) Paid up Share Capital
ii) Reserve Fund
iii) Other Reserves of permanent nature *
TOTAL (i + ii + iii)
II Maximum borrowing power of the bank-

@ 30 times of the owned fund III i) Deposits
ii) Borrowings
TOTAL (i + ii)
IV Reserve Borrowing Power (II – III)
V Share Capital investment with Apex Bank
For the ….. District Central Coop. Bank Ltd
Authorised Officer
* Other Reserves ACS Fund, Building Fund, Dividend equalization fund, Furniture & Fittings Redemption
fund, Machinery Redemption fund, Building Redemption fund and subsidies / Donations (Vehicle,
Computer from TNSC Bank, Building fund from ICDP/ Co-op. union)
The following items are not to be taken as other Reserves.

Share Capital suspense (loan waiver), NPA Reserve, OD interest Reserve, NSR Reserve, BDR/ Spl. BDR
Reserve, Risk fund, Cooperative Education/ Development fund and fund created for specific purpose.
385 - III
STATEMENT-2
OPERATIONS IN THE CASH CREDIT LIMIT SANCTIONED TO THE PWCS FOR THE
YEAR 2009 - 2010
1. Credit Limit sanctioned to PWCS under (Rs. in lakhs)
NABARD/SCB Credit Limit
a) Limit on Production Basis :
b) Limit under Special Programme :
c) Additional Limit, if any, sanctioned :
2. Outstandings under the above Cash Credit
Limits as on 31.12. 2009.
a) Under Production Limit :
b) Under Special Programme Limit :
c) Under Additional Limit :
3. Cash Credit Limits sanctioned by the DCCB
from its own funds (i.e. to PWCS which are
not eligible for NABARD Limit)
a) Limit On Production Basis :
b) Limit under Special Programmes :
c) Additional Limit, if any, sanctioned :
4. Outstanding under own funds limit
as on 31.12. 2009.
a) Under Production Limit :
b) Under Special Programme Limit :
c) Under Additional Limit :
Authorised Officer
386 - III
STATEMENT NO. 3
Particulars of PWCS financed by DCCB during 2009-2010 (Position as on 31.12.2009 )
Sl.
Particulars of the PWCS (Rs. in lakhs)
No.
1 No. of PWCS affiliated :
2 No. of PWCS financed :
3 No. of PWCS ineligible :
4 No. of New PWCS financed, if any :
5 Issues during the year :
6 Collection during the year :
7 Outstanding against PWCS :
8 Maximum outstanding of PWCS at DCCB level :
9 Demand for the year against PWCS :
10 Overdues against PWCS :
11 % of overdues to demand against PWCS :
12 No. of dormant PWCS :
13 Outstanding against dormant PWCS :
14 No. of liquidated PWCS :
15 Outstanding against liquidated PWCS :
Authorised Officer
387 - III
1
Sl.No\Particulars
2
Name of the Society
3
Registration No.
4
Date of Registration
5
Date of Commencement of Business
6
Paid-up Capital
7
Reserve Fund
8
Other Reserves
OF THE SOCIETY
9
Total Owned Funds (6+7+8)
388 - III
Investments in Shares, Buildings,
10
Plant and Machinery
Accumulated losses and intangible
11
Assets *, if any
NDR available with the Society
12
( 9 - 10 -11)
(HANDLOOM WCS / POWERLOOM WCS)
13
Period of Audit
14 Audit Classification ( A / B / C )
Net profit for the financial year
15
* - Amounts involved in frauds and stock deficit shall be treated as Intangible Assets.
ended 31.03.2009
Net loss for the financial year
16
ended 31.03.2009
POSITION AS ON 31st MARCH 2009, WORKING RESULTS
Accumulated loss, if any, as at the end of the

years and which are proposed to be financed for the financial year April 2010 to March 2011
17
Financial particulars of old Weavers Societies engaged in production activities for more than two
Authorised Officer
(Rs. in lakhs)
financial year ended 31.03.2009

Statement No. 4
STATEMENT NO. 4 Contd. (Rs.in lakhs)
Operations in the Cash Credit Limit sanctioned for the year 2009-2010 (as per DCCB Books)
( * * ) Receivables outstanding as on 31st

Aggregate drawals from 1st Jan.2009 to
( * ) Sales remittances (out of amount in

Col.27) made from 1st Jan.2009 to 31st
realised during the calendar year-2009
Total sales amount realised during the

( * * ) Receivables as on 31st Dec.2008
Maximum outstanding reached in the
Aggregate remittances made from 1st
calendar year 2009 [Col. 24 + 25 - 26]
Other borrowings/outstandings as on
Cash Credit A/c. during 1st Jan.2009
Eligibile for limit under work sheet

% of remittance to limit (Col.28 /
Outstanding as on 31st Dec.2008
Outstanding as on 31st Dec.2009
% of remittance to sales realised

Limit sanctioned for the year
Jan.2009 to 31st Dec.2009
( Col.28 / Col.27 x 100)

Sales during 2009
to 31st Dec.2009
31st Dec. 2009
Col.18 x 100)
I or II or III
(2009-2010)
31.12.2009
Dec. 2009
Dec.2009
18 19 20 21 22 23 24 25 26 27 28 29 30 31 32
1 Names of the societies should be furnished without using abbreviations and arranged in alphabetical order.
They should also be grouped under cotton, silk, polyester and powerloom in that order. The names of the
societies should be furnished in the same order in Statement No.4 and in worksheet.
2 Limit operative as on 31.12.2009 should be given under Col.18
3 ( * ) Only sales related remittances (exclude other remittances from govt. schemes, Interest subsidy, etc.)
4 ( * * ) Receivables - the sales amount due(cooptex/govt/others) & Rebate dues.
5 In Col.25, the amount collected during the calendar year 2009, out of the outstanding receivable dues as on
31.12.2008.
Authorised Officer
389 - III
1
Sl.No.
2
Name of the Society
Registration No.
3
Date of Registration
4
Date of Commencement of
5
Business
Paid-up Capital
6
Reserve Fund
7
Other Reserves
8
Total Owned Funds (6+7+8)
9
OF THE SOCIETY
Investments in Shares,
390 - III
10
Buildings, Plant and Machinery
Accumulated losses and
11
intangible Assets *, if any
12 NDR available with the Society
( 9 - 10 -11)
(HANDLOOM WCS / POWERLOOM WCS)
13
Period of Audit
Audit Classification
14
(A/B/C)
Net profit for the financial year
15
ended 31.03.2009
* - Amounts involved in frauds and stock deficit shall be treated as Intangible Assets.
Net loss for the financial year
16
ended 31.03.2009
which are proposed to be financed for the financial year April 2010 to March 2011
Financial particulars of NEW Weavers Societies and DORMANT Societies revitalized
POSITION AS ON 31st MARCH 2009, WORKING RESULTS
Accumulated loss, if any, as at

(Rs. in lakhs)
the end of the financial year

17
Statement No. 5
ended 31.03.2009
Authorised Officer
STATEMENT NO.6
(HANDLOOM / POWERLOOM WCS)
Statement showing the particulars of eligibility for cash credit limits in respect ofNew and Revitalised
societies proposed to be financed and listed in Statement No.5 during the ensuing financial year 2010-11)
No. of Looms working at present No. of looms proposed to be

admitted/activised
Name of the Society
(9 to 12)
(4 to 7)
Special Cotton
Special Cotton
Regn. No.
Polyester
Polyester
Cotton
Cotton
S.No.
Total
Total
Silk
Silk
1 2 3 4 5 6 7 8 9 10 11 12 13
NB:- The names of PWCS should be furnished in full without using abbreviations and
arranged in alphabetical order as in Statement No.5.
Authorised Officer
391 - III
STATEMENT NO. 6 Contd
(Rs.in lakhs)
Total number of looms proposed to be financed Amount eligible for cash credit limit on the
basis of Per Loom Scale of Finance
Total (14 to 17)
Total (19 to 22)

Special Cotton
Special Cotton
Polyester
Polyester
Cotton
Cotton
Silk
Silk
14 15 16 17 18 19 20 21 22 23
NB:- The names of PWCS should be furnished in full without using abbreviations and
arranged in alphabetical order. Also see notes given in Statement No.5.
Authorised Officer
392 - III
STATEMENT No.7
Special Programmes to be implemented for the first time in 2010-2011 ( I Year Programme)
(Handloom/Powerloom)
(Rs. in lakhs)
No. of Looms proposed to be financed
Programme No. of
PWCS Special Amount
Cotton Silk Polyester
Cotton required *
1. Activisation of Idle Looms
2. Admission of New Looms
3. Financing of New Societies
4. Revival of Dormant
Societies
5. Conversion of Cotton
Looms into
i. Silk Looms
ii. Polyester Looms
iii. Special Cotton Looms
* Amount required has be arrived as follows:

1. For Sl.No.1, 2, 3 & 4 above, No. of looms for each variety multiplied by Perloom scale
of finance fixed
2. For Sl.No.5, No. of looms for each variety multiplied by the difference between the scale fixed
for that variety and for the cotton variety (i.e. for silk looms, the difference amount between
the scale fixed for silk and cotton multiplied by the No. of looms proposed to be financed).
Authorised Officer
393 - III
STATEMENT No.8
Special programme implemented in 2009-10 for which II Year finance is applied on per loom scale for
the year 2010-2011 (Handloom/Powerloom)
Amount required for II year finance

Limit sanctioned Looms achieved Looms proposed to be
under I Year finance under I Year finance financed under II
during 2009- as on 31.12.2009 Year finance during
2010 2010-2011
Programme Looms Special Cotton Looms Looms
Special Cotton
Special Cotton
No. of PWCS
No. of PWCS
No. of PWCS
Polyester
Polyester
Polyester
Cotton
Cotton
Cotton
Silk
Silk
Silk
1. Activisation of
Idle Looms
2. Admission of
New Looms
3. Financing of
New Societies
4. Conversion of
Cotton Looms
into
i. Silk Looms
ii. Polyester
Looms
iii. Special
Cotton
Looms
Authorised Officer
394 - III
STATEMENT No.9
CERTIFICATE ON FUNCTIONING OF LOOMS UNDER SPECIAL PROGRAMMES

The introduction of new looms/activisation of dormant looms in individual societies during the year
2009-2010 was verified by us. The society-wise position of introduced/activised looms during the
year 2009-2010 as revealed in our verification are as under
(Rs. in lakhs)
NO. OF
LOOMS
TYPE OF LOOMS WORKING
FOR
Year of Working I/ II
Value of Production
Name of the Society
Part of the Year

Special Cotton
Polyester
Full Year
Remarks
Cotton
S.No.
Silk
For The ………. Dist. Central Co-operative Bank Limited
AUTHORISED OFFICER
395 - III
STATEMENT No.10
CERTIFICATE FROM DEPARTMENT OF HANDLOOMS AND TEXTILES
Special Programme for admission of new looms/activisation of idle looms during the year 2010-2011
Admission of New looms

Name of the Society No. of looms
I year II year Total
Activation of Idle looms

Name of the Society No. of looms
I year II year Total
396 - III
Statement No. 10 (Continued)
Certified that:-
 the idle looms proposed to be activated during the year 2010-2011 indicated in the statement are in
good working condition.
 the Activisation Programme indicated in the statement would be accomplished during the year 2010-
2011 and Programme of Activisation would be closely monitored by the Department.
 the looms in the statement had remained idle for want of adequate finance.
 the programme for admission of new looms for the year 2010-2011 to the extent indicated in the
statement would be ensured by the Department and provision of working capital as per Per-loom
scale of finance is recommended for sanction.
 the financial requirements applied by the PWCS will be fully utilized during the year concerned.
 the Department is satisfied about the programme of the Societies and that the stocks produced by the
additional members would be marketed through Co-optex/own marketing arrangement. The
programme for admission would be seen by the Department.
Circle Deputy Director of Handlooms &Textiles

Assistant Director of Handlooms & Textiles
397 - III
Statement No.11
PARTICULARS OF PWCS ( as on 31.12.2009 )
(Rs. in lakhs)
Whether the WCS have paid

Limit sanctioned for the
No. of looms working
Cover deficit, if any,
Manager / Secretary
Name of the PWCS
CC a/c Outstanding
Overdues, if any,
Cover available
year 2009-10
Regn. No.
S.No.
Note : (1) Particulars to be provided to all the affiliated Handloom and Powerloom WCS (Active
/ Dormant / Liquidated)
Authorised Officer
398 - III
Statement No.12
PARTICULARS OF SHWG
(Rs.in lakhs)
NO. OF
LOOMS
TYPE OF
LIMIT SANCTIONED FOR

WORKING
WHETHER HANDLOOM
LOOMS
SANCTIONED FOR THE

LIMIT PROPSED TO BE
FOR
NAME OF THE SHWG
DURING THE YEAR
REMITTED DURING
CLOTH PRODUCED
TOTAL MEMBERS
THE YEAR 2009-10

OR POWERLOOM
NABARD/TNSCB
TOTAL AMOUNT
TOTAL SALES
YEAR 2010-11
RESOURCES
DCCBs OWN
REFINANCE
REGN NO.
THE YEAR
DURING
S.No.
Note :(1) The above figures should agree with figures given in statements / Annexure to the
application
(2) Particulars to be provided to all the affiliated SHWG
Authorised Officer
399 - III
WORK SHEET - I
ELIGIBILITY OF PWCS FOR SANCTION OF ENHANCED CREDIT LIMIT UNDER
PRODUCTION BASIS FOR THE YEAR 2010-2011
(i.e. PWCS WHICH HAVE BEEN AUDITED UPTO 2007-2008 AND HAVE REMITTED
NOT LESS THAN 60% OF SALES OR 75% OF THE LIMIT SANCTIONED FOR 2009-2010
WHICHEVER IS HIGHER, ARE ELIGIBLE FOR ENHANCED CREDIT LIMIT, SUBJECT TO 9
TIMES OF NDR)
(Rs. in lakhs)
Average of 3 years net

Net production during
Limit sanctioned for
Special Programme)
2008 and 2009 net p

Name of the Society
whichever is higher
50% of anticipated
production minus
production under
2009-2010 @ @
average of 2007,
(i.e. 50% Col.9)

9 times of NDR
production (i.e.
production for
roduction) * *
Col.6 or Col.7
2009 (i.e. total
Anticipated
production
2010-2011
NDR @
Sl.No.
(i.e.
1 2 3 4 5 6 7 8 9 10
Furnish the particulars of Handloom WCS first and then Powerloom WCS
@ - particulars as in Column 12 of Statement No.4

@ @ - particulars as in Column 18 of Statement No.4
* * While arriving at the average production, the production figures furnished in the earlier credit
applications should be verified.
Authorised Officer
400 - III
S.No.
Name of the Society
OF NABARD
Authorised Officer
Sales realised
11
during 2009 *
Sales remittance
WORK SHEET - I (Contd)
made into CC Account
12
during 2009 * *
13
60% of Col.11

14 75% of Col.5
ELIGIBILITY AS PER REMITTANCE NORMS
* - particulars as in Column 27 of Statement No.4

* * - particulars as in Column 28 of Statement No.4
Col.13 or Col.14
15
401 - III
whichever is higher
Whether Col.12 is equal to

(or) more than Col.15.
16
Indicate "Yes/No"
If Col.16 is "Yes" then
eligible limit as per NABARD
17
norms (Col.4 or Col.10

whichever is less)
Limit applied by the
18
CCB (Production purpose)
Limit applied by the CCB

19
(For Special Programmes)

Total Limit (Col.18+Col.19)
(Rs. in lakhs)
20
[should not exceed Col.4]

WORK SHEET - II
ELIGIBILITY OF PWCS UNDER RENEWAL OF CREDIT LIMIT FOR THE YEAR 2010-2011
(i.e. PWCS WHICH HAVE BEEN AUDITED UPTO 2007-2008 AND HAVE REMITTED THE
AMOUNT EQUAL TO ATLEAST EITHER 50% OF SALES (OR) 60% OF THE LIMIT SANCTIONED
FOR 2009-2010 ARE ELIGIBLE FOR RENEWAL OF PREVIOUS YEAR (2009-2010) PRODUCTION
LIMIT SUBJECT TO 9 TIMES OF NDR
(Rs. in lakhs)
ELIGIBILITY AS PER PRODUCTION NORMS
OF NABARD
Anticipated production
averages of 2007, 2008
Average of 3 years net
Net production during
Special Programme)
Name of the Society
whichever is higher
50% of anticipated
for 2010-2011 (i.e.
production minus
production under
2009-2010 @ @
production) * *
(i.e. 50% Col.9)

9 times of NDR
production (i.e.
120% of Col.8)
Col.6 or Col.7
2009 (i.e. total
and 2009 net
production
NDR @
Sl.No.
1 2 3 4 5 6 7 8 9 10
Furnish the particulars of Handloom WCS first and then Powerloom WCS
@ - particulars as in Column 12 of Statement No.4 , @ @ - particulars as in Column 18 of Statement No.4
* * While arriving at the average production, the production figures furnished in the earlier credit
applications should be verified.
Authorised Officer
402 - III
S.No.
Name of the Society
OF NABARD
Sales realised
11
during 2009 *
Authorised Officer
Sales remittance made
into CC account
12
during 2009 * *
WORK SHEET - II ( Contd )
% of remittance to
sales realised (i.e. %
13
of Col.12 to Col.11)
Minimum 50%

14 % of remittance to limit
ELIGIBILITY AS PER REMITTANCE NORMS
sanctioned (i.e. % of Col.12

to Col.5) Minimum 60%
403 - III
Whether, either Col.13 is
15
equal to or more than 50%

or Col.14 is equal to or
more than 60% (indicate
Yes/No)
16
If col.15 is Yes, then Eligible limit

as per NABARD Norms (i.e. Col.4
or 5 or 10 whichever is lower)
17

(Production Purpose)
18
Limit applied by the CCB (for

Special Programme)
19
Total Limit applied by the CCB

20
(Col.17 + Col.18) (should not

(Rs. in lakhs)
exceed Col.4)
WORK SHEET - III
HANDLOOM
WCS/POWERLOOM WCS
ELIGIBILITY OF PWCS FOR RENEWAL OF PROPORTIONATE PREVIOUS YEAR (2009-2010)
LIMIT
(i.e. PWCS WHICH HAVE BEEN AUDITED UPTO 2007-2008 AND WHICH HAVE REMITTED 30%
TO 49% OF SALES (OR) 40% TO 59% OF THE LIMIT SANCTIONED FOR 2009-2010 ALONE ARE
ELIGIBLE FOR RENEWAL OF PROPORTIONATE PREVIOUS YEAR (2009-2010) LIMIT,
SUBJECT TO 9 TIMES OF NDR)
(Rs. in lakhs)
ELIGIBILITY AS PER REMITTANCE
Net [production during 2009

NORMS OF NABARD
(i.e. total production minus

production under special
sales (i.e. % of Col.8 to

Col.7) Minimum 30%
Sales remittance made
Col.5) Minimum 40%

Name of the Society
into CC A/c. during
% of remittance to
% of remittance to
2009-2010 @ @
(i.e. % of Col.8 to
limit sanctioned
9 times of NDR
Sales realised
programmes)
during the
year 2009
@
2009 * *
Sl.No.
NDR
1 2 3 4 5 6 7 8 9 10
@ - particulars as in Column 12 of Statement No.4 , @ @ - particulars as in Column 18 of Statement No.4

Authorised Officer
404 - III
S.No.
Name of the Society
Authorised Officer
11
Sales
(Col.5 X Col.9/50)
Limit sanctioned
12
WORK SHEET - III ( Contd)
(Col.5 X
FALL IN REMITTANCE TO
Col.10/60)
Sales/Limit
sanctioned

13
Col.11 or
Col.12 whichever
is higher
ELIGIBILITY WITH REFERENCE TO SHORT
405 - III
Col.13 or Col.4 ELIGIBLE
whichever LIMIT AS
14
is lower PER
NABAR

15
(Production purpose)
Limit applied by the

16
CCB (for Special

Programme)
Total limit applied

by the CCB (Col.15
17
+ Col.16) should
(Rs. In lakhs)
not exceed Col.4

ANNEXURE - I
I. Name of the DCCB:

II. Particulars of the DCCB as on 31.03.2009
A) Financial Position of the DCCB : (Rs. in Lakhs)
i. Share Capital :
ii. Reserves :
iii. Other Reserves (permanent nature) :
iv. Owned Funds :
v. Deposits :
vi. Borrowings :
vii. Investments :
viii. Profit :
ix. Loss, if any :
x. Accumulated loss, if any :
B) Audit particulars of the DCCB
i. Year of Audit :
ii. Audit Class :
iii. Audit Marks :
iv. Whether complying with Sec.11(1) of B.R. Act 1949 (AACS) :
v. If not, date from when not complying :
vi. Exemption valid up to :
vii. If exemption expired, status of action plan :
viii. Extent of erosion in deposits (%) :
c) Non-performing Assets (as per audit certificate) :
i Gross NPA of the DCCB :
ii. % of Gross NPA under all loans and advances :
iii. Net NPA of the DCCB :
iv. % of Net NPA under all loans and advances :
D) Demand, Collection & Balance
i. Total demand for the year (of all loans) :
ii. Total collection for the year :
iii. % of collection to total demand :
iv. Total Overdues (D i D ii) :
406 - III
Annexure I (contd)
III. Inspection of the DCCB : By By

NABARD TNSC Bank
i Latest Inspection (for the year ended) :
ii Date of Inspection :
iii Compliance Report sent by the DCCB to :

NABARD/TNSCB on
IV. Lending Programme 2010 - 2011 (proposal)
: No. of PWCS Amount
(Rs.in lakhs)
i) a) Normal production basis - HANDLOOM :
b) Normal production basis - POWERLOOM :
ii) a) Special Programme I year :
b) Special Programme II year :
iii) In respect of Individuals/Self Help :
Weavers Groups(please specify)
iv) Total
V. Arrangement for supervision over PWCS/SHWG PWCS SHWG
i. No. of PWCS/ SHWG affiliated to the DCCB :
ii. No. of borrowing PWCS/ SHWG :
iii. Supervisory staff available
a) No. of Junior Supervisors :
b) No. of Senior Supervisors :
iv. Action taken to strengthen the Supervisory :
Machinery, if inadequate
Authorised Officer
407 - III
ANNEXURE - II
DATA ON LIMIT SANCTIONED & UTILISED BY THE DCCB/PWCS AND QUANTUM OF

CREDIT LIMIT APPLIED FOR FINANCING PWCS/INDIVIDUALS/SELFHELP WEAVERS
GROUPS BY THE DCCB FOR THE YEAR 2010-11
(Rs.in lakhs)
Limits sanctioned to DCCB Maximum O/s. reached at Limits sanctioned Maximum O/s. at
by SCB during last 3 years SCB level during last 3 t o P W C S b y DCCB level
(April-March) years DCCB during last a g a i n s t
3 years (April- PWCS/Individuals
March) during last 3 years
December 2009)
December 2009)
December 2009)
2009-10 (Upto
2009-10 (Upto
2009-10 (Upto
2007-08
2008-09
2009-10
2007-08
2008-09
2007-08
2008-09
2007-08
2008-09
1 2 3 4 5 6 7 8 9 10 11 12
(Seal of the Bank)
Authorised Officer
408 - III
ANNEXURE II (contd)
DATA ON LIMIT SANCTIONED & UTILISED BY THE DCCB/PWCS AND QUANTUM OF CREDIT
LIMIT APPLIED FOR FINANCING PWCS/INDIVIDUALS/SELFHELP WEAVERS GROUPS BY
THE DCCB FOR THE YEAR 2010-11
(Rs.in lakhs)
Limit proposed to be sanctioned

by DCCB to
(Handloom - Production Purpose)
(Handloom - Special Programme)
Total Limit applied by the CCB

(Col.18 + Col.19 + Col.20)

reached during 2010-11
Weavers Groups
Maximum O/s.
expected to be
(Powerloom)
Individuals
Self Help
PWCS
Total
13 * 14 15 16 17 18 * * 19 20 21
WS I - WS I -
WS II - WS II -
WS III - WS III -
* Total - * Total -
Authorised Officer
409 - III
THE ……. STATE APEX CO-OPERATIVE BANK LTD.
TERMS AND CONDITIONS GOVERNING SANCTION OF

SHORT TERM CREDIT LIMIT FOR THE YEAR 2009-2010 TO
DCCBs FOR FINANCING PRIMARY HANDLOOM AND
POWERLOOM WEAVERS CO-OPERATIVE SOCIETIES.
PART A
GENERAL CONDITIONS APPLICABLE FOR NORMAL (INCLUDING SPECIAL

PROGRAMMES LIMIT) AND ADDITIONAL CREDIT LIMITS.
1. NATURE OF LIMIT
a. The limit is reimbursement in nature and is available for operation as a revolving limit, i.e. the
District Central Coop. Bank (DCCB) can draw and repay as many times as required provided the
outstandings in the account do not exceed the sanctioned credit limit or Non Over Due Cover
available.
b. The credit limit sanctioned for 2009-2010 is inclusive of the outstandings in respect of the limit
sanctioned during the year 2008-2009.
2. TENURE OF LIMIT
The limit is available for operation during the year 2009-2010 i.e. from 01.04.2009 to 31.03.2010.
3. PURPOSE-WISE BREAK-UP OF LIMITS
a. The consolidated limit (NABARD+SCB) sanctioned to the DCCB is in reimbursement of DCCB's

advances to PWCS under Normal Production Programme and Special programmes, as under:
i) Production Basis : Handloom & Powerloom

ii) Special Programmes : Handloom
Special Programmes will have to be financed under per loom scale basis, as per the scales of finance
fixed for the year 2009-2010.
The limit sanctioned for Special Programmes will be allowed to be availed only on the basis of actual
implementation of the programme up to the end of the previous month.
b. The DCCB should furnish the progress in regard to implementation of Special Programmes,
purpose-wise, along with drawal applications as well as with the monthly NODC Returns, as per
Proforma prescribed by our bank.
410 - III
4. ELIGIBILITY FOR DRAWAL
a. The DCCB is eligible for drawals from the limit only in respect of its advances to the PWCS (1)
which are functioning as Production-cum-Sale Societies and (2) which are eligible for limit, as per
norms prescribed by NABARD from time to time.
b. If it is found at any time during the currency or after the operative period of the limit that the DCCB
has used the funds for financing the societies which are not functioning in the manner indicated in
NABARD's refinance policy and hence deemed ineligible, the DCCB shall be liable to pay to
NABARD/SCB on demand interest @ 2% over and above the rate actually charged under the
sanction, on the amount misutilised, for the full year. Besides, the banks which are found to misuse
the limits availed from NABARD/SCB are liable to be denied credit limits for the subsequent
years.
5. RATE OF INTEREST
a. Interest on the outstandings in respect of Handlooms and Powerlooms will be charged, as detailed
below:
Purpose SCB to DCCB DCCB to PWCS
Handlooms & Powerlooms ….%p.a. ….%p.a.
The above rate is applicable to the outstandings as on 01.04.2009 and for borrowings from 01.04.2009
as well.
b. The rate of interest is subject to change without notice as per directives of RBI/NABARD and as
per SCB's instructions with prospective as well as retrospective effect. The DCCB is requested to
indicate this fact in its sanction orders to the PWCS.
c. Interest is payable by the DCCB, half-yearly as on the last working day of August and February or
when the outstanding under the limit is brought to 'NIL', whichever is earlier. The DCCB should
provide sufficient balance in its I A/c. with the SCB for meeting the interest commitments as on the
last working day of August and February.
6. OUTSTANDING TO SCB TO BE SUPPORTED BY NON-OVERDUE COVER
a. The DCCB shall ensure that its outstandings to the SCB under S.T. Weavers Finance are covered
by Non-overdue outstandings against PWCS, distinctly under (a) Production Basis, (b) Special
Programmes, (c) Additional Limits. The DCCB has to watch the outstandings against PWCS
vis-à-vis borrowings from the SCB, on a day-to-day basis and should regularize excess
borrowings from SCB if any, immediately.
b. In case of any deficit, the same shall be regularized within 30 days of such occurrence. If the deficit
persist beyond that will attract additional interest at 1% over and above the prescribed rate.
411 - III
7. SUBMISSION OF MONTHLY NODC RETURNS
a. The DCCB shall furnish a monthly NODC Return as on the last day of every month, giving the
particulars of outstandings against PWCS, the overdues there against (separately for production
basis, special programmes and for additional limit against pledge of stocks), so as to reach us on or
before the 10th of the succeeding month in the format prescribed.
b. The drawals under the limits will not be allowed after 10th of every month, unless the latest monthly
NODC Return is received.
8. OVERDUES
The following outstandings against WCS shall be treated as overdues for the purpose of assessing Non-
overdue Cover.
a. Outstanding against WCS which are not eligible for NABARD Refinance.
b. Outstanding against WCS, whose limits have not been renewed for the current year 2009-2010.
c. Outstanding in excess of eligible drawing power/sanctioned limits, as per NABARD norms.
d. Outstandings against WCS from whom stock statements have not been received. (For example,
for NODC Statement for the month of April 2009, stock statement as on last Friday of April 2009,
due in May 2009 should have been received).
e. Advances made to WCS from the own resources of the DCCB (a) against Reserve Fund and (b)
Others, viz., dues from COOPTEX etc.
f. Advances to WCS, which are purely Marketing Societies.
g. Advances to WCS, which are having audit arrears for more than one year (i.e. WCS whose
accounts are not audited up to 2006-2007).
9. RIGHT TO SET-OFF DRAWAL PROCEEDS TO OVERDUES/DEFAULT
In case of overdues and defaults to the SCB by the DCCB in other loan accounts/cash credits, 25% of
drawal proceeds under this account will be adjusted to such overdues/defaults.
10. ADJUSTMENT OF PAYMENTS TO PWCS BY APEX SOCIETY TO WEAVER'S

BORROWINGS
a. The payments received from the Apex Society / Emporium towards the cost of cloth procured from
PWCS in the DCCB's jurisdiction will be adjusted to the loan account of the DCCB with us.
Similarly, rebate dues received from Government on behalf of PWCS will also be adjusted at our
level to the loan account of the DCCB with us. The DCCB, on receipt of advice from us for such
412 - III
adjustments, should credit the same to the respective PWCS' A/c. with the DCCB, immediately.
b. However, if there are no outstandings in the loan account of the DCCB, the payments received
from Apex Society /Government will be credited to the Centralized Current A/c. No. I of the DCCB
with us.
c. Adjustments by us of the amounts received from Apex Society /Government mentioned above to
normal limit or additional limit will be in the order of the due date of the borrowings of the DCCB
from our Bank.
11. MAINTENANCE OF BOOKS OF ACCOUNTS BY THE DCCB
A. As security for the advances made to the PWCS, the DCCB must obtain demand promissory note
from each PWCS for the limit allowed to them and the same will have to be produced at the time of
inspection by SCB/NABARD along with the terms and conditions of sanction of limit to the
PWCS.
B. The DCCB should maintain necessary books of accounts separately to facilitate the furnishing of
separate figures to the SCB/NABARD in respect of:
a. Production by PWCS on looms for which limit has been sanctioned on anticipated production
basis.
b. I & II year production made by PWCS under the following Special Programmes:
i) Activation of idle looms

ii) Admission of new looms
iii) Conversion from Cotton to Special Cotton/Silk/Polyester Looms
iv) Financing of new societies
v) Revival of dormant societies
c. Additional limit against pledge of stock dues from Apex Society /Government rebate to enable
the DCCB to furnish purpose-wise outstandings, production, particulars, utilization etc., to
the SCB/NABARD.
12. DCCB TO HAVE ADEQUATE SUPERVISION MACHINERY
A. The DCCB should have adequate supervision machinery, as per the Government of India
norms viz., one Junior Supervisor for every 10 PWCS and 1 Senior Supervisor for every 3
Junior Supervisors.
The Supervisory Machinery indicated above should be maintained throughout the year,
exclusively for monitoring the WCS.
413 - III
B. The DCCB will exercise close supervision over the working of the PWCS on a continuing basis
with a view to ensuring that:
i. The PWCS produce cloth at least to the level of anticipated production for 2009-10, as
indicated in its limit application.
ii. The Special Programmes sanctioned for the year 2009-2010 are implemented by WCS in full.
The DCCB has to ensure that the funds sanctioned for Special Programmes are utilized for the
purpose and without any diversion. The DCCB may seek and utilize the services of the Asst.
Director of Handlooms in the implementation of Special Programmes.
iii. The PWCS remit the entire sale proceeds to the Cash Credit Account with the DCCB.
iv. The drawals allowed are utilized by the Societies for the legitimate business needs of the
PWCS and that no diversion of funds is made.
v. The PWCS do not lock up their working capital in:
a. Overdue sets
b. Cash Advances to members disproportionate to the sets outstandings; and
c. Credit Sales.
vi. The PWCS write the books of account on day-to-day basis, post stock registers regularly and
ensure adequacy of cover for the borrowings from the DCCB.
vii. The stocks under hypothecation are verified by the officials of the DCCB/Department,
periodically.
viii. The amounts shown as dues under rebate claims and dues from Apex Society are correct and
are backed by necessary acknowledgements by Apex Society /Certificate from Local
Assistance Director of Handlooms and Textiles; and
ix. The Societies maintain 10% margin for their borrowings from the DCCB.
13. RIGHT TO CONDUCT INSPECTION
The NABARD and the SCB will have right to inspect the books of accounts of the DCCB as well as that
of PWCS financed out of the credit limit. The DCCB should stipulate the condition regarding the right
of inspection by NABARD and SCB in the sanction order to PWCS and get the acceptance from them.
14. MONTHLY RETURNS TO BE FURNISHED BY THE DCCB INDICATING THE DUES TO

PWCS FROM APEX SOCIETY AGAINST PROCUREMENT OF CLOTH
i. The DCCB should obtain a monthly return from all the PWCS indicating the dues to them from
Apex Weavers Coop. Society, in respect of cloth procured by Apex Society from them and should
send a consolidated return to us for all the Societies, with age-wise classification of the above dues.
ii. The return as at the end of each month should reach us on or before 20th of the succeeding month
as per proforma prescribed.
414 - III
15. QUARTERLY RETURN TO BE FURNISHED BY THE DCCB INDICATING THE REBATE
DUES TO PWCS FROM THE GOVERNMENT
The DCCB should obtain a quarterly return from all the WCS functioning in the area of the DCCB
indicating the rebate dues to them from the Government as at the end of each calendar quarter and
should send a consolidated statement indicating the rebate dues from the Government to all the WCS
with age-wise classification, as per Proforma prescribed so as to reach us on or before 25th of the
month succeeding every quarter.
16. QUARTERLY RETURN TO BE FURNISHED BY THE DCCB INDICATING THE INTEREST

SUBSIDY DUES TO THE WCS IN RESPECT OF THEIR BORROWINGS FROM THE DCCB
th
The DCCB shall furnish a quarterly return as at the end of each calendar quarter, on or before the 25 of
the month succeeding each quarter, indicating age-wise amount claimed as interest subsidy by WCS
and outstanding as at the end of each quarter, as per Proforma prescribed.
17. RIGHT OF SCB TO RECALL/STOP THE ADVANCES
a. The advances made under this sanction order are repayable on demand by the DCCB. But, the
SCB without prejudice to its right to recall the advances at any time may not ordinarily exercise this
right for a period of 12 months from the date of advance for normal limit.
b. It will be open to the SCB to recall any loan (or) any portion thereof, if any of the conditions laid
down herein is violated (or) without assigning any reason.
c. The SCB reserves itself the right to stop making further advance, if necessary, even if the credit
limit sanctioned is not fully drawn.
d. The SCB shall also be constrained to stop drawals under this limit in case the DCCB commits
default in repayment of principal, payment of interest and / or any other dues under any line of
credit sanctioned.
18. RIGHT TO DEBIT DCCB's CURRENT A/C. FOR THE DCCB's DUES TO SCB
In the event of default by the DCCB in (1) repaying the principal or paying interest; (2) in regularizing
the deficit in maintenance of NODC, the SCB shall, without prejudice to its other rights and remedies,
be entitled to debit the sums due to it to the Current Account of the DCCB, on the respective due dates
without any further notice.
19. INSPECTION OF WCS BY THE OFFICIALS OF DCCBs
a. The DCCB should inspect the PWCS financed by them at least once in a year (Calendar year
basis) and should notify the defects, etc., observed in such inspection to the Societies concerned
and should take necessary follow-up action for rectification of defects, etc.
b. The DCCB shall furnish a quarterly return as at the end of each calendar quarter, on or before the
th
25 of the month succeeding each quarter about the number of societies inspected, follow-up
action for rectification of defects, etc.
415 - III
20. DURATION OF EACH DRAWAL AND PENAL INTEREST FOR DUE DATE DEFAULT
a. Each drawal is repayable within 12 months from the date of Hundi lodged for the drawal and in
case of default, additional interest at 2.5% per annum over and above the normal rate of interest or
such other rate as may be specified by the SCB will be charged from the date of default to the date of
clearance of such default.
b. In the event of default in payment of interest or any portion thereof on due date, additional interest
at 2.5% per annum over and above the normal rate of interest or such other rate as may be specified
by the SCB shall be payable by the DCCB on such amounts from the date of default till the date of
its clearance.
21. AVAILING OF DRAWALS UNDER NORMAL LIMIT AND DOCUMENTS TO BE LODGED
Along with each drawal application, the DCCB shall furnish the following particulars:
i. Non-overdue Cover particulars, in the form prescribed, as at the close of business on a date
not earlier than 7 days prior to the date of drawal application. The DCCB need not furnish the
list of WCS and the outstanding against each of them at the time of every drawal under normal
limit.
ii. A certificate to the effect that the drawal applied for by the DCCB is, within its reserve borrowing
power, in the form prescribed.
iii. The Cash Reserve and Liquid Assets maintained as at the close of business on a Friday not
earlier than 13 days prior to the date of application.
iv. The particulars relating to the achievement of Special Programmes at the end of the month
preceding the date of drawal application.
v. A certificate to the effect that the outstandings against the following categories of WCS have been
excluded from cover for the drawals and are not being reimbursed from the limit sanctioned by the
SCB/NABARD, in the format prescribed.
a. PWCS placed in 'D' Class in audit.

b. PWCS which are having audit arrears for over 1 year; (i.e. WCS whose accounts are not
audited up to 2006-2007).
c. PWCS whose accounts with the Bank have remained inoperative for over 1 year unless such
Societies are under Special Programme of revival or reorganization.
d. PWCS whose accumulated losses exceed the owned funds.
e. PWCS which have been excluded by NABARD/SCB for purpose of reimbursement from the
credit limit sanctioned.
f. PWCS which have not been included in the credit limit application preferred to NABARD by
the DCCB.
g. PWCS which are not eligible for sanction of limit as per norms prescribed by NABARD/SCB
from time to time.
416 - III
h. Outstanding in excess of eligible drawing power / sanctioned limit, as per NABARD norms.
i. Outstanding against WCS from whom stock statements have not been received.
j. PWCS which are purely Marketing Societies.
vi. A security certificate to the effect that
a. the pronotes of WCS are held in our custody on behalf of SCB as collateral security which
will be endorsed in favour of SCB as and when demanded.
b. the security obtained from the WCS bears the first charge of the SCB
c. sufficient securities have already been obtained by the DCCB from the WCS for the cash
credit limit sanctioned and outstanding against each one of them to cover the total loan amount
drawn from the SCB.
FOR POWERLOOMS
In addition to the above, for availing drawals under power looms, the following certificates are to be
furnished by the DCCB.
i. A Certificate to the effect that the PWCS having power looms, have obtained the approval of the
Textiles Commissioner and necessary license for operating such power looms from the Central
Government, State Government and Local Authority.
ii. A Certificate to the effect that separate books of accounts are being maintained by the DCCB in
respect of its advances to Powerloom PWCS.
22. DCCBs NOT COMPLYING WITH SECTION 11(1) OF B.R.ACT, 1949
In case DCCB concerned is found to be not complying with Section 11(1) of the Banking Regulation
Act, 1949 (AACS) after sanction of credit limits, further drawals will be allowed under the credit limit
sanctioned to it/on its behalf, only against unconditional default guarantee of the State Government
concerned or against the pledge of Government Securities held in the name of the SCB on the lines of
SAO financing till the expiry date of the operative period of the said limit. The rate of interest as
applicable to the S.T. Weavers Credit Limits sanctioned would continue to be charged for such advances
against Government Securities and Banks will also have to comply with operational disciplines as are
normally applicable to the respective S.T. Credit Limits.
23. COVER FOR BORROWINGS BT PWCS FROMM DCCB
Not less than 90% of the aggregate value of:-
a. fully paid yarn-in-stock with the society valued age-wise.
b. yarn with members issued for production of cloth on Society's own account.
c. fully paid dyes and chemicals and other raw materials required for production of cloth.
417 - III
d. advances/wages made by the PWCS to their weaver members subject to the following conditions:
i) advance wages should not exceed 50% of the value of knots of yarn issued to the members in
respect of ordinary cotton varieties and 25% of value of yarn issued in respect of costly
varieties of cloth vi., silk sarees, polyester, special varieties of cotton etc., and
ii) Overdue wage advances, if any, should be excluded from the advance wages worked out in the
above manner and shown as cover for borrowings.
e. Finished goods in stock valued age-wise: Valuation of yarn/finished goods/cloth for the purpose of
cover to be made as under:-
Valuation at cost price
Age-wise Classification of yarn/cloth
Silk cloth Other cloth
Up to 12 months 100.00% 100%
Over 12 months & up to 24 months 90.00% 80%
Over 24 months 80.00% 60%
f. Rebate claims due from Government duly certified by the Department.
g. Dues admitted and outstanding payment by the Apex/Regional WCS for cloth sold to it.
h. Bills payable by the Apex/Regional WCS for cloth purchased by it from PWCS but not paid for.
i. Book debts arising from credit sales of cloth to other parties subject to the following conditions:
a) Demand bills should have been drawn by the Society on the party to whom it has supplied
cloth against firm orders.
b) Relative documents like railway receipts or lorry receipts should have been lodged with the
bank duly endorsed with instructions to release the documents only on payment and to credit
the proceeds of the bill of realization to the cash credit account.
j. In case of usance documentary bills:
i. Bill should be of usance not exceeding 90 days.

ii. Bills should have been drawn by the society on the party to whom it has supplied cloth against
firm orders.
iii. Relative documents like railway receipts or lorry receipts would have been lodged with the
bank duly endorsed with instructions to release the documents on acceptance of the bills by the
drawee or his banker and to hold the bills till maturity and to credit the proceeds of the bills on
realization to the cash credit account.
iv. Bills not accepted or paid for by the drawee and / or his banker on presentation for acceptance
or payment should be excluded from the cover and society asked to make good the shortfall in
the cover immediately.
418 - III
k. Book debts comprising bills receivable up to 6 months, those over 6 months from Apex Society and
State Government but not exceeding 20% of the previous year's sales turnover and sundry debtors
outstanding for not more than 3 months, may be accepted as cover for borrowing. However they
may not exceed 50% of the total outstanding in the cash credit account of the society at any point of
time.
l. Cover for drawals on the credit limits sanctioned by the NABARD/TNSCB will be the CCB's non-
overdue out standings against weavers' societies excluding outstanding against WCS which are not
eligible for NABARD refinance, the out standings in unrenewed cash credit accounts, the amounts
due against societies in default and also the amounts received by the concerned SCB/DCCB for
Apex/Regional WCS and dues payable/receivable and pending for adjustment for more than 3
months to the account of Apex/Regional/Primary WCS.
24. INSURANCE COVER
The DCCB shall ensure that the stocks with the societies are covered by the adequate insurance policies.
25. ADDITIONAL LIMITS
In respect of additional limits, sanctioned to facilitate production by the societies during the slack sales
season, the DCCB shall ensure that it sanctions such additional limits for a period of only 6 months
during the year and that the outstanding in the additional limits accounts of each society is fully
recovered on within 6 months from the date of sanction of the limit to the society.
The outstanding in the account after completion of 6 months from the date of sanction of the limit shall
be deemed to have become overdue. The amount of overdue shall immediately be recovered out of cash
remittance / remittance by the apex weaver's cooperative society. Such overdue shall not be reckoned
for the purpose of cover for borrowing from SCB.
It may also be ensured that the additional limit together with the normal limits sanctioned to each
society shall not exceed 75% of the anticipated production for the current year.
26. OPERATION OF ACCOUNT WITH SCB BY THE DCCB
The DCCB would avail full refinance against the outstanding borrowing of the PWCS on a continuous
basis.
27. RIGHT TO MODIFY THE TERMS AND CONDITIONS
The SCB reserves to itself the right to alter/modify the terms and conditions governing the sanction of
this limit during the currency of the limit. Such modifications would be communicated in the form of
Circulars/Letters and these instructions will have the same effect as the terms and conditions indicated
herein.
419 - III
PART-B
SPECIAL TERMS AND CONDITIONS FOR IMPLEMENTATIONS OF SPECIAL

PROGRAMMES
I. DCCB TO MONITOR THE IMPLEMENTATION OF SPECIAL PROGRAMME
The DCCB will take the following safeguards in regard to implementation of Special Programmes.
i. The DCCB should draw up a month-wise schedule for the implementation of Special Programmes,
WCS-wise, in consultation with the WCS concerned and the Assistant Director of Handlooms and
Textiles. The DCCB should draw the I Year Programme in such a manner that the entire I Year
Special Programmes is completed before 31.12.2009.
ii. It will not be proper for the DCCB to release the entire funds required for implementing the Special
Programmes for the 1st year in one lump sum. The DCCB will have to release Working Capital
every month for implementation of Special Programmes on the basis of actual number of looms to
be activised/admitted, etc. in each month by WCS.
iii. The implementation of the Special Programmes should be closely monitored by the DCCB, with a
view to ensuring that the entire Special Programmes (I & II Year Programmes) approved by
NABARD is achieved by 31.12.2009 to be eligible for sanction of limit for next year.
iv. The DCCB shall verify on a quarterly basis the number of looms actually working with the WCS,
as revealed by the Production Records of the WCS.
v. The drawing power of the WCS under these limits for the succeeding quarter shall be determined
with reference to the actual number of looms found working during the previous quarter in the
WCS during the verification.
vi. Where the outstanding of the WCS is in excess of the eligibility as worked out on the above basis,
the amount overdrawn should be recovered by the DCCB immediately out of remittances received
in cash/remittances from Apex Society through the SCB.
vii. The DCCB shall submit a Certificate to the SCB at the time of each drawal to the effect that it had
conducted verification of the looms working for each WCS under the programmes during the
previous half-year (September/March) and that the drawals against the limits are being regulated
based on the actual number of looms worked for the WCS during the previous half-year
(September/March).
II. PWCS TO MAINTAIN SEPARATE PRODUCTION DETAILS OF SPECIAL

PROGRAMMES:
The DCCB will ensure that all the PWCS implementing Special Programmes, maintain details of 1st
year and 2nd year production particulars separately for the looms financed under Special Programmes to
facilitate segregation of figures of Production by looms under (1) Special Programmes and (2)
Production Basis.
420 - III
(ST weavers Drawal Application format)
THE ……… DISTRICT CENTRAL COOPERATIVE BANK LTD;
RC. No. DATE:
To
The Managing Director,
The …… State Apex Cooperative Bank Ltd,
ST Weavers Drawal
Sir,
Sub: Revolving Credit Limit Limit sanctioned for financing Weavers Cooperative Societies
under Section 21(1)(v) read with Sec.21(4) of NABARD Act 1981 Disbursement of Drawal
requested Reg.
***
We enclose herewith a Hundi and Schedule for Rs. …...... lakhs (Rupees ……. Only) duly executed in your
favour towards the drawal applied for.
The following particulars are enclosed along with the drawal application:
1. Certificate for drawal of loan

2. Security Certificate
3. Non-overdue cover statement as on ----
4. Statement of Cash Reserve and Liquid Assets as on ----
We request that the drawal may kindly be disbursed and the proceeds credited to our Current account with
you.
Yours faithfully,
AUTHOURISED OFFICER
421 - III
THE …………… DISTRICT CENTRAL COOPERATIVE BANK LTD;
……………
CERTIFICATE FOR DRAWAL UNDER WEAVERS CREDIT LIMIT

The Reserve Borrowing Power of our bank as on …….. stood at Rs. ….. lakhs and we certify that the
present drawal is within our Reserve Borrowing Power.
We certify that the advance now applied is for recoupment of our advance already made to the Primary
Weavers Cooperative Societies eligible under Section 21(1)(v) read with Sec.21(4) of NABARD Act 1981
for production and marketing activities.
We certify that the outstanding against the weavers cooperative societies under the limit which have been
renewed for the current year are not less than the amount drawn and outstanding with the SCB including the
amount applied for now.
We certify that the weavers cooperative societies are maintaining the margin of 10% and the non-overdue
cover is arrived in the form and manner indicated in the NABARD's policy circular communicated.
We certify that the outstanding against the following categories of WCS have been excluded from cover for
the drawals and are not being reimbursed from the limit sanctioned by the SCB/NABARD.
a. PWCS placed in 'D' Class in audit.

b. PWCS which are having audit arrears for over 1 year.
c. PWCS whose accounts with the Bank have remained inoperative for over 1 year unless such Societies
are under Special Programme of revival or reorganization.
d. PWCS whose accumulated losses exceed the owned funds.
e. PWCS which have been excluded by NABARD/SCB for purpose of reimbursement from the credit
limit sanctioned.
f. PWCS which have not been included in the credit limit application preferred to NABARD by the
DCCB.
g. PWCS which are not eligible for sanction of limit as per norms prescribed by NABARD/SCB from time
to time.
h. Outstanding in excess of eligible drawing power/sanctioned limits, as per NABARD norms.
i. Outstanding against WCS from whom stock statements have not been received.
j. PWCS which are purely Marketing Societies.
Further,
We certify that the figures of non-overdue cover furnished are those relating to the date as appearing in the
Register maintained by the bank and there is enough non-overdue cover for the outstanding already due to
SCB and the amount now applied for.
422 - III
We certify that the outstanding against weavers cooperative societies shown for drawal against limit
sanctioned by the NABARD/SCB in this application do not include loans disbursed from the own resources
of the DCCB (a) against Reserve Fund and (b) Others, viz., dues from Apex Society etc.
We certify that the stock of cloth and dues reckoned for as cover for additional limit have been excluded
while working out cover for the borrowing on the regular limit.
We certify that the weavers cooperative societies having power looms in respect of which loans were issued
have obtained the approval of the textile Commissioner and necessary licenses for operating such power
looms from the central government / state government and civil authority.
We certify that the pronotes of weavers' cooperative societies are held in our custody on behalf your bank as
collateral security which will be endorsed in your favour as and when demanded.
We certify that the stocks under hypothecation are verified by the officials of the DCCB periodically.
We certify that the amounts shown as dues under rebate claims and dues from Apex society are correct and
are backed by necessary acknowledgements by Apex society / Certificate from Local Assistance Director of
Handlooms and Textiles.
We certify that the stocks with the societies are covered by the Insurance policies.
We certify that the signature in the Hundi enclosed with the drawal application is the genuine signature of the
officer, who is authorised by our Board of Management, who continue to be in office and not disqualified
under the provisions of the State Cooperative Societies Act.
We certify that the separate books of accounts are being maintained in respect of limit sanctioned under
Hand loom, Power loom and Special Programme.
We are obtaining a quarterly certificate from the supervisors regarding working of looms under Special
Programme and the drawal against the Special Programme limit are being regulated based on the actual
number of looms working in the societies.
For THE ……… DISTRICT CENTRAL COOPERATIVE BANK LTD
AUTHOURISED OFFICER
423 - III
SECURITY CERTIFICATE
(Advances for financing Primary Weavers Cooperative Societies)
I … (Name) , … (designation) of the ……… District Central Cooperative Bank Ltd, ….. hereby
certify under the authority vested in me by Resolution No. … dated ………….. of the proceedings of the
Board of directors of the bank that,
1. Sufficient securities have already been obtained by the bank from the Weavers Cooperative Societies for
the cash credit limit sanctioned and outstanding against each one of them to cover the total loan of Rs. ….
lakhs ( Rupees ………………………….. ) drawn from the …… State Apex Cooperative Bank Ltd,
including the present drawal of Rs. …..lakhs (Rupees ………………………. ) for financing Weavers
Cooperative Societies.
2. The security obtained by this bank from the Weavers Cooperative Societies bears the first charge of the
…… State Apex Cooperative Bank Ltd.
3. The pronotes of the Weavers Cooperative Societies are held in our custody on behalf of …… State Apex
Cooperative Bank Ltd, which will be endorsed in your favour as and when demanded.
For THE ……… DISTRICT CENTRAL COOPERATIVE BANK LTD
AUTHOURISED OFFICER
424 - III
[Hundi format]
ST WEAVERS
Twelve months after date without grace period, We the --- District Central Cooperative Bank Limited, ---
promise to pay to the ……. State Apex Cooperative Bank Limited or order the sum of Rs. (Rupees … )
with interest at -- or as prescribed by the ….. State Apex Cooperative Bank per annum with Half - Yearly
rests on the 31st August and 28/29th February for value received.
Dated at ---(place) this --(date) day of ------(month & year)

The --- District Central Cooperative Bank Limited, ---.
Signature :
Name :
Bank
Son of : Seal
Designation :
Witnesses : (1) (2)
Signature :
Name :
Designation :
Pay the National Bank for Agriculture and Rural Development
For the ……. State Apex Cooperative Bank Limited
Date : Authorised officer Authorised officer
425 - III
[SCHEDULE format]
STW 21(1)(v)/21(4)
To
The ….. State Apex Cooperative Bank Limited;

……….
We, the --- District Central Cooperative Bank Limited, --- hereby certify that the promissory notes / bills
specified in the schedules hereto executed endorsed by us in your favour are payable in India and were drawn
/ issued for the purpose of financing the production and / or marketing activities of Primary Weavers
Cooperative Societies and are as such eligible for purchase or rediscount by the National Bank for
Agriculture and Rural Development under Section 21(1)(v)/21(4) of NABARD Act 1981 and that our
signature(s) on such promissory notes / bills is / are our genuine signature(s) and that we further agree that on
the faith of the correctness of the contents of this certificate, you will endorse the said promissory notes / bills
to the National Bank for Agriculture and Rural Development as security for the advance to you under
Section 21(1) of NABARD Act 1981.
SCHEDULE
Amount
Sl.No. Date Name of the Drawer/ maker Usance
Rs.
The --- District Central Twelve
Cooperative Bank Ltd; months
--- after date
Total Rs. ( Rupees …… only )
Dated at --- this - day of -----

The --- District Central Cooperative Bank Limited, ---.
Signature :
Name :
Designation :
426 - III
……………
Statement showing the Particulars of Cash Reserve and other assets maintained as on ……….
(Rs. in lakhs)
A Liabilities in India (DTL)

1. Demand
2. Time
3. TOTAL (A.1 + A. 2)
B Assets in India ( Cash Reserve)

1. Cash in hand
2.Balance with SBI
3. Balance with other banks
4. Balance with TNSCB C a/c
5. TOTAL ( B. 1 to B. 4)
6. 3% of A. 3
7. Difference ( B.5 B.6)
C Other Eligible Liquid Assets

1. Balance of all types other than B. 4 with SCB
2. Other eligible funds with DCCB
3. Gold
4. Unencumbered approved securities
5. Surplus Cash (B. 7)
6.TOTAL (C.1 to C. 5)
7.Liquid assets to be maintained 25% of A.3
8. Difference ( C.6 C.7)
Certified that the figures furnished are as per the liquid assets register maintained by the bank.
AUTHORISED OFFICER
427 - III
CHAPTER-27
NON-AGRICULTURAL CREDIT
1. General: Every State Coop. Bank shall have a diversified portfolio of advances. In addition to
Agricultural Advances, Banks may provide credit for Non-Agricultural purposes. The Non
Agricultural Advances are: a). Direct finance b). Refinance and c). Consortium Finance.
a. Direct finance: Under Direct finance, the SCBs may sanction Non Agricultural Advances from
their own funds directly to:
i. Coop. Apex Institutions in the State.

ii. Other Coop. Societies for various purposes.
iii. Retail lending to customers.
b. Refinance: Under Refinance, the SCBs may sanction Cash Credit limits to DCCBs to advance the
Coop. Societies/ Primaries in the Districts for:
i. Employees' Coop. Societies.

ii. issue of jewel Loans by PACS.
iii. issue of Jewel Loans by DCCBs through its Branches.
iv. Sugar Mills / Spinning Mills.
v. any other purpose, specified by each Bank.
c. Consortium Finance: Under Consortium Finance, the SCB may be a Consortium member with
other Banks.
(Note: Separate chapters for Retail Lending, Direct Finance to Apex Institution and Consortium Advances
are provided elsewhere in this manual).
d. All the above Advances are from the own funds of the SCB and are not eligible for NABARD
refinance. However, the above Advances are subject to the exposure norms proscribed by
NABARD. In this chapter, we study about the Non-agricultural advances under refinance to
DCCBs from the own funds of the SCB.These Cash Credit limits are sanctioned / renewed every
year (April to March).
2. Non-Agricultural Cash Credit Limit proposal:
a. The SCBs for sanction of Cash Credit Limits to DCCBs for the above Non Agricultural purposes
require the following documents from the DCCBs:
i. Application for the limit in the prescribed format.

ii. A copy of latest audited Balance Sheet and Profit and Loss Account.
428 - III
iii. A copy of latest Financial Statement
iv. Statement of resources and deployment of funds in Loans and Advances as at the end of
October / November
v. Statement of Non-agricultural advances and borrowings as on the last Friday of
October/November
vi. Board Resolution of the DCCBs;
vii. Utilization certificate for the limit sanctioned for the previous year
viii. Statement showing the Reserve Borrowing Power of the DCCB.
b. The SCB will have to study in detail all the financial statements/particulars received from the
DCCBs along with its limit application to ascertain:
i. Ability of the DCCBs to meet the Total Borrowings from the Net tangible assets (Net tangible
assets = total assets less accumulated losses less overdues for which reserve has to be created)
ii. Ability of the DCCBs to repay Short-Term borrowings from out of Current Assets.
iii. Ascertain total Internal Lendable Resources of the DCCBs
iv. Ascertain the Net ILR available for lending for non-agricultural purposes
v. Ascertain the total limits sanctioned by the DCCBs to PACS for various purposes
vi. Ascertain the details of various limits already availed by the DCCBs from the SCB.
vii. Ensure that the total limits sanctioned by the DCCB for non-agricultural purposes does not
exceed its net ILR.
viii. Ascertain whether the DCCB has involved its Net ILR in such a way to cover all the non-
agricultural lending areas (if there is a big gap between the Net ILR available and its actual
deployment, then it will amount to deployment of sizable portion of its Net ILR in ST
agricultural lendings (or) in the maintenance of CRR and SLR over and above the optimum
level.
c. The Board Resolution of the DCCB should contain the following:
i. Request to the SCB for a CC Limit, specifying the amount applied for and the purpose
ii. The names of officials of the DCCB, with their designation, authorized to operate the CC
iii. Account with the SCB with their specimen signatures duly attested by the CEO.
iv. To execute the DPN and other loan documents by the authorized officials
v. To create a charge on the pronotes, executed by the Societies in favour of the DCCB or
repledge or hypothecate the goods/debts and empowering the authorized officials to create
such charge.
vi. To accept and abide by the terms and conditions imposed by the SCB at the time of and
subsequent to sanction of the limits.
vii. Undertaking that the total borrowing including the present borrowing will be within the
Reserve Borrowing Power of the DCCB.
429 - III
3. Sanction of Cash Credit Limits for Non-Agricultural purposes:
a. On receipt of the prescribed limit application duly filled in along with all the required financial and
other particulars as well as documents from the DCCBs, the SCB shall examine the limit
application in detail and assess the eligible amount of CC limit based on the:
i. total limits sanctioned by the DCCB to the Societies for this specific purpose,
ii. total non-overdue outstanding against the Societies under the said limit,
iii. limit sanctioned by the SCB for the same purpose during the previous year
iv. maximum and minimum outstandings reached in the said CC Limit with the SCB during the
previous year and
v. average utilization of the limit by the DCCB.
A General format of the scrutiny sheet for assessment of credit limit for non-agricultural
advances is given in Annexure-I to this Chapter.
b. After assessment of the amount of CC limit for each Non Agricultural purpose, the same should
be got approved along with the terms and conditions governing the sanction and operation of the
specific Cash Credit Limit.
c. On approval of the proposal to sanction the specific Cash Credit Limit to the DCCB by the Board of
Management, the SCB shall issue a letter of sanction to the concerned DCCB along with two
copies of the terms and conditions governing the CC Limit. The DCCB should be advised to return
one copy of the Terms and Conditions duly signed on its each page by the officials authorized to
execute all the documents as a token of acceptance and also to operate the said CC Account.
d. Terms and Conditions:
i. Period of limit: One year

ii. Rate of Interest: As fixed by the SCB from time to time.
iii. Penal Interest / Additional Interest: Penal Interest at 2% per annum shall be charged by the
SCB on the excess drawals (over and above its eligibility) availed by the DCCB from the date
of such availment till date of regularization of the account. Penal Interest at 2% per annum
shall be charged on unrenewed limit.
e. Returns/Statement to be submitted by the DCCB:
i. The DCCB shall furnish the following statements/Returns to the SCB as per the periodicity
prescribed by the SCB.
 Weekly/Fortnightly Stock Statements (wherever applicable - like in the case of CC Limit
for financing Sugar/Spinning Mills)
 NODC return as on the last Friday of each month in the format prescribed by the SCB.
430 - III
 A weekly certificate as at the close of business on every Friday, furnishing the particulars
such as Limits sanctioned purpose by the DCCBs for all Non-Agricultural purposes,
Amounts outstanding against the Societies under such limits and Refinance limit (purpose
wise) sanctioned by the SCB and the outstandings under each limit.
4. Accounting Procedures:
a. G. L. Account: In the case of Non-agricultural advances to DCCBs under various Cash Credit
Limits, a single head of account under the style “Non-Agricultural Cash Credit Advances” shall be
maintained in the General Ledger (G.L.). All disbursements made against drawals under various
CC Limits shall be debited as a single item to the above G.L. account. The total repayments made
under various accounts by DCCBs shall be credited to the above account.
b. Ledger :
i. Cash Credit ledgers shall be maintained purpose-wise and DCCB-wise. In addition to the
particulars of limit sanctioned, date of sanction, etc. the due dates of each drawal shall be
entered to monitor the repayment on due date.
ii. The debit and credit vouchers shall be posted in the appropriate ledger Bank-wise and
purpose-wise. The Closing Balance and the products are arrived at, at the end of the date.
iii. Interest to be charged to DCCB concerned shall be calculated on the basis of daily products in
this ledger on quarterly basis. In case of Cooperative Banks which are computerized, interest
will be calculated at the end of every month automatically by the system.
iv. At the end of each purpose-wise CC Limit ledger, Total Liability column is maintained. The
total disbursements made to and repayments from all DCCBs against their limits sanctioned
for a particular purpose are posted daily then and there and the consolidated balance is arrived
at the end of the day.
v. The total amount of all outstanding balances of all DCCBs under a particular purpose should
tally with the balance in the Total Liability column.
c. Total Liability Register :
i. The Total Liability Register is maintained to know the total outstanding balance of all CC
Limits sanctioned to DCCBs for various purposes.
ii. The debit and credit vouchers pertaining to all CC Limits will be posted daily and the balance
will be arrived at, at the end of the day.
iii. The outstanding balance as shown by this Register should tally with the balance in the G. L.
head of account “Non-Agricultural Cash Credit Advances”. This Register enables the Bank to
know the total outstanding balance under various Non-agricultural CC Limits on any day.
d. Drawing Power Register :
i. In the case of CC Limits granted for financing Sugar Mills, Spinning Mills, etc. periodical
431 - III
Stock Statements should be obtained. The particulars of drawing power as assessed from the
Stock Statement should be entered in this Register. The important particulars, among other
things that should be entered in this Register are, aggregate value of eligible securities/stocks,
rate of margin, amount of margin, drawing power, validity period, highest debit balance
during the validity period, the details of limit sanctioned, Government guarantee available, if
any, Insurance cover etc. On the basis of the drawing power arrived, the drawals should be
allowed against the sanctioned limits.
e. Due Date Register :
i. A due date register shall be maintained to ensure that the Periodical Stock Statement, NODC
and other statements / periodicals are received on or before the due date.
f. NODC Register :
i. In the case of CC Limits sanctioned against Non-overdue Cover (NODC), periodical NODC
statement should be obtained from DCCBs. The details of outstandings, overdues, non-
overdue cover, issues, recoveries etc. as on the last Friday of the month at the DCCB as well as
Apex Bank level will be recorded in this Register to ensure that the outstandings at any point of
time have not exceeded the NODC position at DCCB level.
5. General Terms and Conditions for sanction of Cash Credit Limits for various non-Agricultural
purposes:
a. Nature of Limits: The Apex bank sanctions Cash Credit Limits to the Dist. Central Coop. Bank as
refinance limit in respect of their advances to various institutions viz. PACS/Coop. Spinning Mills/
Coop. Sugar Mills/Marketing Societies/wholesale stores/Employees Societies etc. borrowing for
non-agricultural purposes.
b. Extent of Refinance: The DCCB is eligible to obtain refinance from the Apex Bank to the extent
of outstanding against the borrowing institution(s) or the respective drawing power(s) / Non
overdue cover of the borrowing institutions or the limit sanctioned by the Apex Bank, whichever is
less.
c. Repledge or Rehypothecation of Stocks:The DCCB will have to rehypothecate/repledge the

stocks hypothecated/pledged to it by the borrowing institution to the Apex Bank as security for the
refinance facility availed by it. The DCCB will incorporate in its terms and conditions to the
borrowing institutions that the stocks hypothecated / pledged to the borrowing institutions are
subject to re hypothecation/repledge to the Apex Bank.
d. Cover: As indicated in special conditions stipulated separately for each purpose. The DCCB
should compare the value of stocks acquired by the borrowing Societies with the drawals made in
Cash Credit Account during the month and the remittances to the Cash Credit Account with the
value of sales effected during the month. There should be reasonable correlation between the
432 - III
amount drawn and purchased and also between the sales and remittances. The DCCB should insist
on the borrowing Societies for remitting the entire sale proceeds into its Cash Credit Account.
e. Insurance: The DCCB should ensure that the borrowing Societies insure their stocks under
hypothecation's / pledge preferable on a declaration basis for the full value of stocks hypothecated /
pledged to it against the risks of fire and burglary. The policy should be in the joint names of the
DCCB and the Society and lodged with the DCCB. The details of the insurance policies in force
must also be furnished in the Stock Statement.
f. Drawal Applications to be Signed by the Authorised Officials: Only the Authorised Officials of
the DCCB should sign the drawal applications preferred by the DCCB. To facilitate this, the Board
of Management of the DCCB should authorise officials, by name, to sign the drawal applications
and the DCCB should send us a true copy of the resolution together with the specimen signatures of
the officials empowered duly attested by an official whose specimen signature is already on our
record.
g. Right to Adjust the Drawal Proceeds in the Event of Due Date Default / Overdues to the State
Cooperative Bank in Other Accounts: In the event of due date default / overdues by the DCCB
under other loan or accounts, the Apex Bank reserves the right to adjust the entire proceeds of
drawal applied for by the DCCB under this account to the due date default / overdues under other
accounts.
h. Verification of Stocks: The DCCB should verify the stocks under: Hypothecation / Pledge once in
6 months and send us a report about the results of such verification to the SCB.
i. Inspection of the Borrowing Units: The DCCB should conduct a full pledged inspection on the
working of the Societies financed by it and of the books of accounts at least once a year. The defects
pointed out should be promptly communicated to the borrowing Societies and rectification thereof
should be obtained. A copy of the inspection report should be sent to the SCB.
j. Introduction of Systems and Procedures in the Borrowings Societies: The DCCB should
ensure that the borrowing Societies introduce systems, to see that the cheques are issued by them
after satisfying that such issuance of cheques by them would not result in outstandings exceeding
the drawing power fixed.
k. Preparation of Quarterly Trading and Profit and Loss Account and Balance Sheet and
Quarterly Returns of the Borrowing Units:
i. The DCCB should ensure that the borrowing Societies write their Books of Accounts, Post
Stock Registers, etc., up-to-date. The DCCB should further ensure that the borrowing
institutions prepare Trading and Profit and Loss account and Balance Sheet as at the end of
each quarter and obtain such financial statements as quarterly returns within one month from
the completion of each quarter.
ii. In the case of Cooperative Stores / Societies coming under centrally sponsored scheme, the
433 - III
DCCB should ensure that the Societies send the quarterly management report and Balance
Sheet to the Government of India within one month after completion of each quarter. The
DCCB shall also obtain the quarterly Balance Sheet as a quarterly return from such Societies.
l. Audit Position of the Borrowing Societies: The DCCB shall closely watch the progress made by
the borrowing Societies in completing the audit for their accounts. The DCCB shall hold quarterly
review meetings regarding the audit position and progress in audit along with the Dist. Coop. Audit
Officer and representatives of the borrowing Societies. The DCCB shall take necessary steps to
ensure that the Audit Certificate of the borrowings Societies are issued within a period of 6 months
from the date of closure of the financial year.
m. Inspection of Societies Financed by the DCCB by RBI / NABARD and Apex Bank
Officials:The Officials of the Apex Bank and the RBI / NABARD reserve the right to inspect the
books of accounts of the DCCB and its borrowings Societies and to verify the stocks hypothecated
/ pledged to the DCCB. The DCCB should incorporate this condition in its sanction order to the
borrowing Societies and obtain their concurrence.
n. Right to Alter or Amend the Terms and Conditions: The SCB has right to alter, amend, modify
any of the above terms and conditions or stipulate any new condition. Such condition would be
communicated through circulars / letters and these conditions will have the same effect as the
conditions stipulated herein.
o. Right to Recall the Advance: The Apex Bank reserves the right to recall the advances made to the
DCCB if the DCCB fails to adhere to any of the terms and conditions stipulated therein, or any
other condition that may be stipulated in future in regard to relevant Cash Credit Limit, in part or
full. The Apex Bank also reserves the right to recall / reduce the limit sanctioned to the DCCB if the
same is not utilized or utilized very sparingly. Further the Apex Bank reserves the right to recall /
reduce limit sanctioned to the DCCB according to the funds availability with the Apex Bank.
i. Each SCB has to formulate its own set of general guidelines with regard to reimbursement of
Cash Credit for various Non-Agricultural purposes.
ii. Further, in the year 2001, NABARD also took initiatives to include 'Rural Housing' as an
eligible activity for refinance facility from NABARD under Section 25 of the NABARD Act.
6. Operational Procedures:
i. On Receipt of the Stock Statement / NODC returns, the DCCB shall scrutinise the same with a
view to satisfying that the items shown as cover are admissible as per terms of sanction. It should
further ensure that the stocks have been valued at cost price or market price, whichever is lower.
The DCCB shall fix drawing power and send a communication to the borrowing Societies. The
DCCB may further advise the borrowing institutions to ensure that the outstandings under the Cash
Credit Limit do not exceed the drawing power fixed by the DCCB / Non Overdue Outstandings
against the members of the Societies.
ii. If the outstanding against the borrowing Societies is more than the drawing power fixed / non
overdue outstandings against members of the borrowing Societies, further drawals should not be
434 - III
allowed by the DCCBs and the borrowing institutions should be asked to regularise such excess
drawals further drawals in the account should be allowed by the DCCBs only after the deficit is
regularised.
iii. If there are outstandings to the Apex Bank beyond the drawing power / non overdue outstandings
of the borrowing institutions such excess outstandings shall be charged with a penal interest fixed
by the Bank over and above the normal rate fixed for the Cash Credit Account.
iv. All the Documents for Purchase of Goods by the PACS / Borrowing units shall be routed through
the DCCB.
v. Every drawal availed of from the Apex Bank should be repaid by the DCCB within 12 months from
the date of drawal and if any outstanding remains beyond the prescribed period the same will be
construed as overdue and the DCCB is liable to pay penal interest for such overdue as fixed by the
Bank from time to time.
vi. Each drawals on the limit, sanctioned should be, in the form prescribed, duly filled in and signed
with the particulars of outstanding against borrowing institutions together with the respective
drawing power / non-overdue outstandings against Societies or members overdues and Non
Overdue Outstandings as the case may be, the amount already drawn from the Apex Bank under
Cash Credit Accounts and the statement showing the Cash Reserve and the Liquid Assets
particulars of the DCCB as at the close of business on the Friday prior to the date of drawal
application.
7. The following Annexure/s are appended to this Chapter:
a. Annexure/s
Annexure 1 : General Format of the scrutiny sheet for assessment of Credit

Limit for non-Agricultural advances.
435 - III
GENERAL FORMAT OF THE SCRUTINY SHEET FOR ASSESSMENT OF CASH
CREDIT LIMITS FOR NON - AGRICULTURAL PURPOSES
1. Name of the DCCB :

2. Date of Credit Application :
3. CC Limit applied for :
4. Purpose for which the CC limit is applied :
5. Whether all the requisite enclosures to the :
application are received
6. Whether the Board Resolution is complete :
in all aspects (or as required)
7. Date of the Board Resolution :
8. DETAILS OF LIMITS APPLIED FOR:

The details of Cash Credit Limits applied for by the Central Coop. Bank for various Non-Agricultural
purposes for the year ……… are furnished below:
Sl.No. A/c. No. Purpose Limit Applied for the year
i)
ii)
iii)
iv)
v)
vi)
vii)
viii)
9. Details of limits sanctioned for the previous year and Utilisation of the limits by the DCCB:
The details of various Cash Credit Limits sanctioned to the DCCB for the previous year and the
maximum utilization against each limit are furnished hereunder:
436 - III
(Rs. in Lakhs)
Utilisation % of utilization Max.

Sl A/c Purpose Limit Average O/s. at bank
at bank level of limits O/s reached
No No Sanctioned O/s level as on
Max. Min Max. Min at CCB level
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11
1.
2.
3.
4.
5.
6.
TOTAL
10. The details of Financial Position of the CCB:
(Rs. in lakhs)
1. Share Capital :
2. Reserves :
3. Deposits :
4. Borrowings :
5. Investments :
6. Advances :
7. Working Capital :
8. Profit :
9. Dividend Declared :
11. Assessment of Lendable Resources of the DCCB:
I. A. Total Internal Resources of the Bank:
i) Owned Funds (ie., Paid-up Share Capital and all Reserves)

excluding Agricultural Credit Stabilization Fund :
ii) Deposits (Net of Loans against Deposits) :
iii) Total owned resources (i) + (ii) :
437 - III
B. Commitments on Internal Resources :
i) Share Capital invested in TNSCB :
ii)Investments in Shares of other institutions :
iii)
CRR and Liquid Assets required to be maintained :
iv)Investments in Fixed Assets such as Building
(including advances to construction wing for
construction of building, furniture, etc.) :
v) Loss :
vi) Total commitments :
C. Internal Resources available for lending A(iii) B(vi) :
II. Commitments on the ILR (Legitimate):
i) Involvement of the CCB in Concessional Finance :
ii) Amount outstanding against liquidated Societies :
iii) Amount of advances to Societies which are
ineligible for NABARD Refinance :
iv) Overdues :
v) Total commitments :
III. Balance of Resources available for Non-Agricultural Lending I (c) - II (v)
12. Sectoral Deployment of Non-Agricultural Advances by the CCBs as on ................in areas wherein ….
................SCB refinance obtained.
(Rs. in lakhs)
Sl. No. Purpose Amount % of each loan to total O/s.

01.
02.
03.
04.
05.
06.
07.
Total
13. Projected requirements of credit in certain sectors where, refinance is being provided by Apex Bank:
438 - III
Existing O/s. at CCB Likely O/s. in 20….
Sl. No. Purpose Increase
Level
01.
02.
03.
04.
05.
06.
07.
Total
(Rs. in lakhs)
14. Increase in Deposits likely in the ensuing year:
i) Existing :
ii) Increase expected at ____ %
iii)LESS: _____ % for CRR and SLR
iv) Balance available for lending :
v) Resources available for lending on existing :
Deposits at ____ %
vi) Increase in Deposit Resources available for lending :
15. Refinance support required :
i) Increase in Non-Agricultural Advances as per Sl.No.13 :

ii) LESS: Increase in Deposits as per Sl.No.14 (vi) :
iii) Balance of Additional Refinance required from :
SCB
iv) ADD:Borrowings from SCB under Non- :
Agricultural advances as on __________
Total :
v) Refinance support required from SCB for the :
year …….. (iii) + (iv)
439 - III
16. CC Limits eligible (Rs. in lakhs)
Limit recommended
Sl. Purpose for sanction for the year….
No. A/c.
Limit applied
No.
for
Eligibility Recommended
01.
02.
03.
04.
05.
06.
07.
08. Total
440 - III
CHAPTER 28
CREDIT MONITORING ARRANGEMENT (CMA)
1. General:
a. The Credit Authorisation Scheme (CAS) was reviewed from time to time and the cut off points for
credit limits requiring prior authorisation of NABARD, were raised periodically, both for Working
Capital and term loans.
b. The exposure norms were also prescribed and reviewed periodically. Over the last few years of
liberalised economy and the reforms ushered in by the Government of India, it was being
increasingly observed that the Commercial Banks were operating with greater autonomy and
operational flexibility. In the case of Cooperative Banks also, there has been a steady increase in
their deposit resources. Therefore, they had been representing in various fora that they needed to be
permitted to operate with greater autonomy to withstand the increasing competition among banks
brought about by the Financial Sector Reforms.
c. It was, therefore, increasingly felt that in view of the comfortable resource position of Cooperative
Banks and the Banking Sector becoming increasingly competitive, these banks should be given
autonomy of operations for which purpose; Credit Authorisation Scheme may have to be dispensed
with.
d. The External Expert Committee on the Supervisory Role of NABARD had also recommended for
abolition of Credit Authorisation Scheme as it could never be a substitute for an efficient and
adequate credit appraisal system within the financing bank.
e. In the above context, a proposal was made to RBI in February 2000 for replacement of CAS by
CMA, which was approved by RBI and with effect from 24 April, 2000 the Credit Authorisation
Scheme was replaced by Credit Monitoring Arrangements (CMA).
2. Credit Monitoring Arrangement (CMA) Operations:
a. With the replacement of CAS with CMA, prior authorisation of NABARD for sanction of Working
Capital Credit Limits and Term Loans to Non-Credit Cooperative Societies and to the units outside
the Cooperative fold, above the prescribed cut off points, has been withdrawn. However,
NABARD will continue to lay down the broad parameters of credit dispensation for major sectors /
sub sectors and watch the observance of these norms, through periodical monitoring studies and
statutory inspections.
3. Mechanism of CMA:
a. Under the Credit Monitoring Arrangement, NABARD's intervention is envisaged in the following
areas:
441 - III
i. The banks should restrict their lending only to the permitted sectors / industries.
ii. The banks should not sanction any loans for activities in the real estate.
iii. Lending to infrastructural activities, where budgetary support from the Central / State Govt. is
available would not be sanctioned.
iv. Since Sugar is a commodity governed by Selective Credit Control Norms of Reserve Bank of
India, NABARD will continue to review and lay down the broad guidelines regarding the
policy for financing of Block Capital and Working Capital needs of sugar mills by
Cooperative Banks from time to time.
v. The sanction of Cleans Limits for financing the preseasonal exposure of the sugar mills will
continue to be reviewed by NABARD from time to time.
vi. NABARD will continue to prescribe prudential norms in terms of exposure to individual unit /
sectors etc.
vii. NABARD would require banks to continue to seek its prior permission for participating in
certain areas like financing of Central / State purchase / procurement schemes.
4. Revision of exposure norms and Monitoring & Reporting procedures:
a. As per NABARD Circular letter No. NB. PCD(CAS)/171/A.75/1998-99 dated 16 May 1998 read
with Circular letter No. NB.PCD.CAS/1193/A.75/1997-98 dated 19 September 1997 NABARD
advised sector-wise and unit-wise exposure norms in respect of loans by the State Cooperative
Banks and District Central Cooperative Banks. As per Circular letter No.
NB.PCD.CMA/1393/A.75/2000-01 dated 23 September 2000 NABARD communicated the
salient features of the policy governing Credit Monitoring Arrangements (CMA). The policy in
this regard has since been reviewed by the Board of Supervision (for SCBs, DCCBs and RRBs)
and it has been decided to rationalize and simplify the norms and procedures so as to provide
flexibility and operational freedom to cooperative banks, based on the financial position and
operational competence of the banks. The salient features of the policy are indicated in the circular
No. 68/008/10/2008 of NABARD.
5. CMA Returns/Reports:
a. As per existing instructions, SCBs and DCCBs are required to furnish to the Regional Offices of
NABARD quarterly returns, CMA-I to V so as to reach them within one month from the end of
each quarter.
b. CMA Returns:
i. CMA I Return: relates to working capital limits sanctioned to Non-credit Coop. Societies.
ii. CMA II Return: relates to Block capital facilities including non-fund based facilities like
Letter of credit, Bank Guarantee etc. sanctioned to Non-Credit Coop. Societies.
iii. CMA III Return: relates to working capital limits to the units outside coop. fold.
iv. CMA IV Return: relates to Block capital facilities including non-fund based facilities
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sanctioned to units outside the coop. fold.
v. CMA V Return: relates to exposure of Bank credit facilities to various sectors/sub-sectors,
consisting of all loans/limits sanctioned by a bank including financing of individuals, Sole
Prop; Partnership Firms and all other unincorporated bodies/concerns.
c. Sanctions made by the banks under refinance schemes from NABARD/other financial
institutions/term lending institutions are excluded.
d. Post Sanction Scrutiny under CMA: Post sanction scrutiny has been introduced in respect of
comparatively bigger accounts. For this purpose, all sanction/renewals of credit limits to
borrowers enjoying the following facilities will be subjected to post sanction scrutiny.
i. Working Capital: All sanctions/renewals of credit limits to borrower enjoying fund based
working capital facilities (including credit limits against the pledge and hypothecation of
stocks, stores and spares, gunny bags, clean limits, if any) except the credit limits for financing
PDS and other Central/State Govt. purchase /procurement schemes for Rs.20.00 Crores and
above by SCBs and Rs.10.00 crores and above by DCCBs in respect of Non-Credit Coop.
Societies and Rs.2.00 crores and above by SCBs and Rs.0.50 crores and above by DCCBs in
respect of units outside the Coop. fold and sanction of any additional credit limit to the existing
borrowers which would take their total limits to these levels would be reported by banks in
CMA Return I & III.Such sanction will be accompanied by the latest audited balance sheet of
the borrower, a copy of the memorandum /appraisal note put up to the Board indicating the
assessment of working capital and the need therefore as also the Credit Risk Analysis.
ii. Block Capital: All block capital sanction by SCB/DCCB beyond the prescribed ceiling i.e.
Rs.5 crores and above to SCBs and Rs.2.5 crores and above for DCCBs in respect of Non-
credit Coop. Societies and Rs.1.00 crore and above by SCBs and Rs.0.25 crores and above by
DCCBs in respect of units outside the coop. fold, would be reported by Bank in CMA Return
II & IV. Such sanction would be accompanied by a copy of the latest audited balance sheet of
the borrowers and a copy of the memorandum/appraisal note put up to the Board, along with
the report on Technical Feasibility and financial viability of the project, as also the credit risk
analysis.
iii. The Bank would be advised by NABARD about the irregularities observed during the post
sanction. The basic aim of post sanction scrutiny would be to improve the quality of lendings.
If it is found that a Bank is not observing the basic discrepancies persistently, banks may be
advised to refer all larger loan proposals to NABARD for prior authorisation.
6. High Value Advances-Sugar, Spinning etc.:
a. Within the Cooperative fold, the activities of Cooperative Banks coming under the purview of
CMA comprise loans and advances to Processing Societies, Marketing Societies, Marketing- cum-
Processing Societies and Consumer Societies. Within these categories, the clientele of banks
availing various Working Capital facilities (such as Cash Credit (pledge / hypothecation / clean
limits) include Sugar Factories, Spinning Mills, Consumer Cooperative Stores, Marketing
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Federations for distribution of fertilisers / procurement of agricultural produce, societies procuring
minor forest produce, Milk Cooperatives, Cotton Federations, etc. In the area of Block Capital
Finance, Cooperative Banks for financing new Cooperative Societies like Sugar Factories and
Spinning Mills. They also finance expansion / diversification of existing Cooperatives
AgroProcessing units and extend nonfunded accommodations such as issue of guarantees to the
above clients.
b. Outside the Cooperative fold, the clientele of Cooperative Banks availing Working Capital / Term
Loan nonfunded accommodations usually comprise Small Scale Industries (both incorporated as
well as unincorporated), business houses including Partnership Firms and Sole Proprietors,
Professional, etc.
c. Normally the following Cash Credit Limits are being sanctioned by SCB / DCCBs to Non-Credit
Cooperative Societies.
i. Cash Credit (Clean) Limit The Cooperative institutions like Marketing Societies Cooperative
Consumer Stores require a certain amount of Cash Credit (clean) limit to have flexibility in
their operations. Further, the Sugar Mills also seek clean limits for meeting their financial
needs for pre seasonal expenses like advance payments to sugarcane harvesters, transporters
of sugarcane and repairs and maintenance of plant and machinery before the commencement
of the sugar season.
ii. Cash Credit (hypothecation) Limit the Cash Credit (hypothecation) limit is sanctioned by the
SCB / DCCBs to the NonCredit Cooperative Societies against the stocks of fertilisers, cotton
bales, food grains, minor forest produce, milk products, etc., for the Societies dealing in the
above commodities the CC (hypothecation) is their main source of Working Capital. The
Sugar Mills on the other hand obtain the CC (hypothecation) limit against the stocks of stores
and spares to sustain operation of their plants and machinery, while pledge limits are obtained
against stocks of sugar.
iii. Cash Credit (pledge) Limit The above limit is mainly availed of by the Spinning Societies for
availing of the Working Capital against the stocks of yarn produced by them. This limit also
forms the major source of Working Capital to Sugar Mills.
7. Appraisal of High Value Advances:
a. With the withdrawal of CAS, the Cooperative Banks would be required to evaluate credit risks
themselves, and take micro credit decisions, based on commercial judgement. The banks should
also review the quality of their lending to NonCredit Cooperative Societies and individuals / units
outside the Cooperative fold on a quarterly basis and submit a Memorandum thereon to their
Board. Such a review may cover, interalia, details of sectoral / subsectoral credit limits / loans
sanctioned, comments on operations on the major account, adequacy of margin, utilisation of the
limit, end use of credit, irregularities, if any, in the operations of the unit or any unanticipated
problems faced by the unit etc., together with the banks' sectoral exposure and any other relevant
issue.
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8. Sanction of Loans and Advances - Operational Guidelines:
a. Working Capital Limits:
i. The limits for financing PDS and other Central State Govt. purchase / procurement schemes
beyond the prescribed cut-off points as specified in the Requirements of Prior Authorization
would continue to be authorised by NABARD in consultation with Reserve Bank of India, as
hitherto.
ii. In the case of advances against commodities covered by the Selective Credit Control
Directives of RBI, it should be ensured that the relevant provisions relating to the margins etc.
are strictly compiled with.
iii. In respect of the industries where norms relating to inventory and receivables have been laid
down, credit limits should be determined in accordance with such norms and in tune with past
trends. Where deviations from norms / past trends are warranted, the banks should ensure that
these are justified on merits and the reasons for such deviations incorporated in the Sanction
Memoranda / Appraisal Notes placed before the Competent Authority for sanction.
iv. The CC pledge / hypothecation limits to Sugar Mills will be sanctioned as per the instructions
issued by RBI /NABARD from time to time.
v. The banks are not expected to sanction clean limits along with CC pledge / hypothecation limit
to Cooperative Processing Societies / Marketing Societies. Clean limits, when sanctioned,
should not exceed the owned funds of the borrowing unit and twice the owned funds in the case
of pure marketing societies against govt. guarantee by SCBs)
vi. The ceilings for sanction of clean limits for financing the pre seasonal expenses of the sugar
factories will be as per the instructions issued by NABARD from time to time.
vii. In the case of the borrowing units being financed by a consortium of banks, the reporting of
sanctions to NABARD may be done by the leader bank / concerned Cooperative Bank, which
is a member of the consortium.
9. Financing Units with negative net worth / other irregularities:
a. The banks should insist on drawing and implementation of a time bound realistic programme for
bringing back such units to normalcy / viability in operations, monitor such programmes closely,
and pending such revival any fresh finance should be subject to closer scrutiny and case by case
review / approval by the Board / Competent Authority. Further any credit facility to such units
should be subject to obtention of state govt. Default Guarantee for NonCredit Cooperative
Societies / Govt. owned units, and against adequate collateral security for the units outside the
Cooperative fold.
b. State Govt. Default Guarantee In respect of Sugar Mill having negative net worth, the condition of
State Government's irrevocable default guarantee in favour of the financing bank would have to be
obtained and adhered to strictly. The negative net worth is a sign of weak financial position of the
Sugar Mills and denotes complete erosion of owned funds of such units. As a result, these Sugar
Mills are not in a position to provide requisite margin on pledge / hypothecation limits. In order to
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safeguard the interest of the financing bank, collateral security in the form of State Government
guarantee is considered essential, besides the primary security in the form of sugar stock. This
would also signify intention of continuing involvement of the State Govt. in the well being of such
units.
10. Block Capital / Term Loans:
a. The Cooperative Banks are not, normally, expected to sanction Term Loans beyond the prescribed
levels. In the case of new Cooperative Sugar Mills, the project cost should be as per the normative
cost, as may be approved from time to time by Ministry of Consumer Affairs, Govt. of India and
Debt Equity Ratio of 60:40 should be followed. The debt portion sharing by Cooperative Banks
should not be more than 60% and the remaining by Term Lending Institutions / Commercial Banks,
with project appraisal by the participating TLI / Commercial Bank, or an institute / Consultant
approved by them. Participation of Commercial Banks / TLIs in the financing of new SSKs is
considered necessary to take advantage of their appraisal and monitoring expertise.
b. Sanction of bridge loans for financing units pending release of term loan by TLIs, should not be
resorted to. Further financing of new cooperative Sugar Mills should invariably be supported by
the default guarantee of the State Govt. All block capital facilities should be in compliance with the
exposure norms and other prudent banking norms and practices and all Term Financing should be
within the Long Term Net Lendable Resources of the financing banks. All sanctions by SCBs /
DCCBs beyond the prescribed ceilings even if they are in consortium with TLIs / Commercial
Banks within the ratio of 60:40, would be subjected to post sanction scrutiny by NABARD.
c. Normally, in the case of sugar finance, the banks should not grant terms loan facility for clearing
short margins and / or payment of other short term liabilities in arrears, such as cane growers dues,
harvesting and transportation charges or any other dues. In case, such term loans are considered
absolutely necessary to be sanctioned to enable the sugar factories to clear such liabilities, the
financing bank should ensure that a time bound rehabilitation plan is drawn by such mills securing
commitment from TLIs / other financing banks and State Govt. Repayments period is fixed as per
realistic cash flow. Fresh irregularities / short margin / liabilities are not allowed to be created. As
the facility is covered by State Govt. default guarantee, each proposal is critically assessed and
approved by the Board of Directors of the banks.
11. Rephasement Products: All rephasement / extension of set aside proposals may be considered by
banks on merits of each case within the exposure limit of the individual unit and with the approval of
Competent Authority.
12. Credit dispensation to certain activities: Considering their resource pattern, priorities and the
expertise available, the banks are not expected to grant credit facilities for certain activities /
institutions, such as real estate, housing (except to the extent permitted by RBI), infrastructure, power
schemes / projects especially where State Govt.'s budgetary support is available, NBFCs, etc.
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13. Exposure Norms:
a. The exposure norms shall be uniform for both SCBs and DCCBs irrespective of whether the unit
financed is within the cooperative fold or outside the cooperative fold.
b. The norm shall not apply to the loan sanctioned / outstanding to PACS, and other credit societies
and agricultural advances.
c. The unit-wise exposure norm shall be linked to Capital Fund, while sector-wise exposure norms
shall be linked to the Lendable Resources as on 31 March of the latest audited Balance Sheet of the
bank, based on the 'rating' of banks given by NABARD after the inspection of banks conducted
under Section 35 (6) of B.R. Act, 1949 (AACS).
d. Capital Fund shall comprise paid up capital and free reserves. Reserves created by way of
revaluation of Fixed Assets, etc., if any, should not be included for the purpose.
e. Lendable Resources shall be computed as the sum of share capital reserves including provisions
and excluding the balance under Agricultural Credit Stabilisation Fund (ACSF), deposits and
borrowings less sum of optimum liquid assets (35%) of TDL, Fixed Assets, accumulated losses
and any other commitments except loans and advances.
f. The term 'individuals' shall include individual partners, sole proprietors, partnership firms and
unincorporated bodies.
g. The exposure shall include funded credit limits like working capital limits, short term/temporary
loans and block capital facilities like term loans, interim/bridge loans granted by the banks either
from out of their own resources or out of the refinance assistance availed of by them from higher
financing agencies. It shall also include non-funded financial accommodations like guarantees,
letter of credit, etc.
h. The sanctioned limit or loan outstanding whichever is higher, shall be reckoned for arriving at the
exposure in the case of cash credit limits. In the case of term loan, outstanding amount may be
reckoned for the purpose of exposure. However, in the case of non-funded credit limits, only 50%
of such limits or the outstanding loan amount whichever is higher, may be taken into account for
the purpose.
i. Borrowers for whom credit limits are allocated directly by the RBI for the purposes like food credit
limits, etc. will be outside the purview of exposure limit.
j. The ceiling on financing of individuals shall be Rs.60 lakh for banks having 'A' rating, Rs.40 lakh
for banks having 'B' rating and Rs.25 lakh for banks having 'C' or 'D' rating as per the latest
inspection conducted by NABARD.
k. There may be certain circumstances requiring SCBs/DCCBs to extend financial assistance to

certain units/ sectors in excess of the cut-off limits indicated above. In such cases, the banks may,
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with relevant details, seek specific relaxations from NABARD. NABARD may, in exceptional
cases, permit banks to extend such finance exceeding the exposure limits, based on merits of the
individual case.
l. The banks are required to evaluate the credit risks themselves, especially when extending financial
assistance to bigger borrowers and take their own credit decisions, based on commercial judgment
and market information. For the purpose of containing the credit risk, it is desirable, if the bank
restricts its exposure to a single unit within the 'net owned funds' of the unit concerned. Banks may
take steps to achieve this norm over a period of 3 to 5 years, especially when financial assistance is
extended to units exceeding Rs.20 crore.
m. The exposure limit shall be as under:
NABARD's Unit-wise exposure as Sector-wise exposure

Inspection Rating % to Capital Fund as % to Lendable Resources
A 60 50
B 50 40
C 45 35
D 40 30
14. Sanction of Credit limits to Co-operative Sugar Mills:
a. The State / Central Cooperative Banks may, sanction / renew Cash Credit (Pledge) limits to the
Cooperative / Government owned Sugar Mills for the sugar season on the basis of realistic
assessment, risk & sensitivity analysis, and their market risk perception subject to the following
conditions / guidelines.
i. Compliance with exposure norms The prevailing exposure norms, as prescribed vide circular
No. NB.PCD.CAS/1193/A-75/1997-98 dated September 1997 and NB.PCD.CAS/171/A-
75/1998-99 dated 16 May 1998 should be complied with by the State / Central Cooperative
Banks with effect from 01 July 2001. In the context of the huge carryover of stocks with Sugar
Mills resulting in overextended exposures of the banks to the sugar industry, banks are further
advised to take the following steps to ensure compliance with the exposure norms:
! The Working Capital Limits may be linked to the realistic production programme and
would be subject to exposure norms and financing in consortium with other banks where
such norms are exceeding the exposure ceilings.
! Before renewing / enhancing credit limits to mills having irregular accounts, banks may
insist on such Sugar Mills to draw and implement a time bound programme for regaining
normalcy / viability in operations and, monitor such programmes closely. Pending such
revival, any fresh finance should be subject to closer scrutiny and case by case approval by
the Bank's Board / Competent Authority. Further, any credit facility to such units should be
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subject to obtention of State government default guarantee.
! Sugar Mills with negative net worth The present stipulation which subjects the sanction /
renewal of limits to mills having Negative Net Worth have to obtain of unconditional
irrevocable State Government Default Guarantee in favour of the financing Cooperative
Bank should continue. In this connection, it is clarified that a letter of comfort may not be
legally valid and cannot substitute a Guarantee.
ii. Fixation of credit limits Fixation of Cash Credit (pledge) Limits will continue to be made on
the basis of valuation of anticipated realistic peak level stocks, likely to be reached by a factory
during the relevant crushing period and valued on the basis of levy price fixed by the
Government for levy sugar and, at the average price realized in the preceding three months
(moving average) or the current market price, whichever is lower, for free sale sugar
(including buffer stocks), in the prescribed proportion. Besides working out drawing power
net of margins, drawals in the account should be regulated with reference to the actual cash
deficit of the concerned mills worked out on a monthly cash flow or drawing power whichever
is lower. Banks may also bifurcate the CC (pledge) Limit into peak season and slack season
limits.
iii. Payment of cane price to cane grower Initial drawals under the CC (Pledge) limit for cane
payments should be restricted to SMP and higher cane payments could be permitted out of the
surplus left after other current dues such as average conversion costs, liabilities under term
loan instalments / other loan instalments, tax liabilities, statutory bonus to employees interest
due and payable etc., have been met or out of subsidy provided by the State Government.
iv. Margins Margins on free sale sugar will be decided by the banks based on their commercial
judgement. However, for the present, the prescribed margin requirement at 10% of the value
of levy sugar and Zero margins on buffer stocks have been continued.
v. Cash Credit (Hypothecation) Limits - CC (Hypothecation) limits for Stores and Spares
(including Gunny Bags) could be sanctioned / renewed by banks upto 120% of the average
maximum utilisation of the limits during the preceding three years or Rs. 2.00 Crores,
whichever is less or as may be specified by NABARD, from time to time.
15. Terms and conditions for sanction of working Capital to Co-operative Sugar Mills:
a. The financing bank should ensure that all the preliminary formalities in regard to eligibility of the
unit for availing finance from the bank / eligibility of the bank to finance the unit are complied with
by it, such as:
i. Necessary provisions in the bye-laws of the unit regarding validity of the purpose for which
the borrowing unit has sought bank finance and its eligibility to avail the same from the bank.
ii. Adequacy of borrowing powers with the unit.
iii. Regular and timely payment of dues to Government / other authorities by the unit.
iv. Passing necessary resolutions by the Board of Directors of the bank for sanctioning the facility
to the unit and, of the unit to obtain the proposed finance from the bank.
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b. Drawals under the sanctioned CC (Pledge) limits could be allowed to the Sugar Mills by the banks
only after ensuring effective custody of sugar stocks. The stock movements should be monitored
effectively with reference to periodical stock statements. Godowns where sugar stocks are stored
be properly maintained and stocks in custody of banks should be insured against all anticipated
risks.
c. The guidelines / Instructions prescribed in the NABARD circular letter No. NB.PCD.CAS/ 983 /
A.75/97-98 dated August 1997 with respect to the following should be followed by the banks
i. Monitoring of cane payments by the Sugar Mills.

ii. Utilization of cash incentives for liquidation of term loans.
iii. Instructions regarding transfer of borrowal account
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CHAPTER 29
CONSORTIUM ADVANCES
1. General:
a. Consortium Advance is an arrangement between two or more Banks joining together to finance the
credit requirements of a single borrower, generally a corporate client through a common appraisal
with common documentation against a common security charged in their favour on pari passu
basis.
b. Consortium banks follow joint supervision, monitoring and follow up exercises in credit
management.Coop. Banks may enter into the consortium advance to provide finance to sugar mills/
spinning mills/ any big industry in the coop. sector.
c. A consortium arrangement will have a leader bank to head the consortium. Normally the bank
having the largest share in the consortium will be the leader bank (called as 'A' Bank). However,
for the sake of convenience the DCCB of the concerned district in which the borrowing unit is
situated may act as the consortium leader.
d. As per the present RBI guidelines, where the total credit limits to a single borrower/ unit exceeds
Rs.50 crores, it is obligatory to form consortium of Banks to finance such borrower. Even if the
total fund based credit to a single borrower is less than Rs.50 crores, the Banks will be free to form a
consortium at their discretions.
e. RBI has not prescribed ceiling on the number of banks in a consortium. However it is ideal to have
5 to 10 banks as consortium members.
f. As per the Circular No. 68/DoS 10/2008 12.05.2008 (Ref. No. NB.DoS/CMA/768/A.75/2008-09)
the exposure limit of a cooperative bank to the borrowing unit shall as under:
NABARD's Unit-wise exposure as Sector-wise Exposure as
Inspection Rating % to Capital Fund % to Lendable Resources
A 60 50
B 50 40
C 45 35
D 40 30
g. To ensure meaningful participation in the consortium, share of a bank as a member of the

consortium should be a minimum of 5% of the fund based credit limit or Rs.1 crore whichever is
higher.
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h. No bank outside the consortium should extend any additional banking facilities or open Current
Account or extend bill limits, guarantees / acceptances, letter of credit, etc. to the borrowing unit
without the concurrence of the existing consortium members.
i. The bank having the next highest share shall be the second leader Bank (called as 'B' Bank).
2. Role of Leader Bank in Consortium:
a. The Leader Bank performs the duties of appraisal of the credit, circulation of appraisal note to other
member banks, approval of credit, conducting periodical review meetings, joint documentation,
periodical joint inspection and exchange of information on the borrowing unit as detailed below:
i. Arranging for the joint appraisal of the loan proposal by all the member banks. It has to prepare
the joint appraisal memoranda, circulate it among member banks and finalise the assessment
after deliberation.
ii. Determination of the quantum of finance by the members.
iii. Reporting to RBI, NABARD under CMA for credit authorization
iv. Syndicating the credit limit determined among participating banks.
v. Finalising the security documents to be obtained from the borrower.
vi. Convening a meeting of the member banks for the execution of the common documents and
completing other formalities like registration of charges with the appropriate authority.
b. In addition to the application and connected documents to be executed by the borrower, the leader
Bank shall arrange for execution of:
i. common loan agreement mentioning the share of advance of each member, Rate of Interest,
margin, repayment schedule, creation of security, insurance and realisation of security.
ii. Joint Equitable Mortgage of the existing assets and assets to be created out of term loans.
iii. Joint Deed of pledge or hypothecation for the total limit in favour of all the participating banks
providing equal or pro-rata rights on the charge.
c. Holding the charge, securities, mortgage / title deeds, etc. on its own behalf and also on behalf of the
other members.
d. Conducting inspection of securities charged to the consortium either by themselves or jointly with
other members of the consortium.
e. Liaison/Corresponding with the all India Financial Institutions or the State Level Financial
Institutions on matter of mutual interest between Consortium Banks and the Term Lending
Institutions.
f. For various services rendered, the lead bank may charge a suitable fee (say 0.25% of the limits per
annum, to be borne by the borrowers).
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3. Role of participating Banks:
a. The duties of the participating banks are:
i. To participate in the Consortium Meetings and contribute their expertise for the common good
of the Consortium.
ii. to accept and follow the decisions of the consortium on any matter relating to the credit/
borrowing unit.
iii. To advise their firm decision on the extent of participation.
iv. Not to arbitrarily vary the quantum of participation or the margin or the interest rate etc.
without specific reference to consortium and without ascertaining the views of other Banks.
v. Not to recall the advance by an unilateral decision.
vi. To carry out the inspection of stocks as agreed and forward the inspection reports to the leader
and other Consortium Banks.
vii. To advise any adverse features noticed by them to other banks / Leader Bank.
viii. To take up a share in the annual or adhoc increase in proportion to the original share allotted to
them.
ix. Not to show any indulgence to the borrower with a view to soliciting a major share of the other
remunerative business of the borrowers which will jeopardize the interest of other members.
x. To seek their legitimate share in the ancillary business offered by the borrower.
xi. To depute to the consortium meetings Executives / Officers who would be able to take spot
decision, where necessary.
4. Borrower's Role in a Consortium:
a. To provide the necessary applications, financial papers, etc. to all the members so that the loan
proposal can be processed quickly.
b. To register / cause to be registered all the charges created with the appropriate authorities as
required.
c. To submit stock statements and other prescribed Statements/ periodicals to the banks without
delay.
d. To help the banks in the inspection of stocks, verification of the security charge to the Banks etc.
e. To distribute the availment under the Cash Credit and other ancillary business equitable among all
the participating banks without preferring one or few banks to the exclusion of others.
f. The borrower has to abide by the decision taken by the consortium.
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5. Consortium Meetings:
a. The Leader Bank should convene the consortium meeting at least once in a quarter to:
i. discuss/review of technical / financial performance of the unit/projects.

ii. review of operations in the Cash Credit Account with reference to physical performance,
remittances of sale proceeds, drawing power, outstanding, cover deficits if any.
iii. collecting the share of members, delay in claiming the member share, change in sharing of
assistance.
b. Annual Consortium Meeting may be held to consider renewal / enhancement in the credit limits
and for including of new members or exit of any existing member for revising the share of the
member banks, etc.,
c. The meetings should be attended by all member banks represented by senior officials having
authority to commit the bank on its share of any enhancement in limits. The relative appraisal note
has to be circulated to member banks 10 days in advance of the meeting. After the meeting, the lead
bank has to circulate the minutes of the meeting among the members within 15 days. The collective
decision taken by the Consortium Banks should be honoured within 30 days. Formal sanction of
limits should be conveyed by the member banks to the Leader Bank within two months after the 'in
principle' commitment is given.
6. Admission of New Members:
a. If a member bank is unable to take up its enhanced shares of credit, such enhanced shares could be
reallocated among the other existing / willing members. In case other existing member banks are
also unable to take up such enhanced share, a new bank may be admitted into the Consortium with
the consent of the borrower.
7. Exit of a Member from the Consortium:
a. A member bank may be permitted to leave a Consortium after expiry of at least two years from the
date of its joining the consortium with the consent of the existing member banks and of the new
bank willing to take up its share by joining the Consortium.
b. The bank permitted to leave the Consortium sells its debts at a discount and furnish an
unconditional undertaking that the repayment of its dues would be deferred till the dues of other
members are repaid in full.
8. Other Activities of the members in Consortium:
a. The following maximum time frames have been prescribed for taking decisions in respect of
consortium advances.
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i. Proposals for renewal of existing credit limits : 45 days
ii. Proposals for sanction of adhoc credit facilities : 30 days
b. The decision of the Consortium regarding the quantum of the credit will be binding on the lead
Bank and other member Banks.
c. The lead bank may sanction an additional credit upto a predetermined percentage in emergent
situations / contingencies which should be immediately shared prorata with other members.
d. The terms and conditions finalized at the Consortium Meeting should be applied uniformly by all
member Banks.
e. All member banks should issue a letter of authority in favour of the Leader Bank to make available
their share of the entire / enhanced limit, if their decision is not advised to the Leader Bank in time.
f. The Leader Bank should disburse the funds in accordance with the immediate needs of the
borrower. The member banks should reimburse the amount immediately on receipt of the advice
from the Leader Bank. If there is delay beyond one week in providing reimbursement, the member
bank concerned has to pay a penal interest @2% per annum for the entire period of delay. After the
first disbursement as above, the borrower would operate his accounts with different member banks
according to his requirements within the limits allocated to them.
g. The security documents should be obtained by the leader bank.
h. Rate of Interest including penal rates for various types of credit, waiver of penal interest or varying
the margin stipulated may be left to the discussion of the member banks.
i. The decision on all matters should be taken with the consent of all the members. If there is any
disagreement, decision of the consortium leader and the 'B' bank having the next highest fund based
share will be final.
j. The member banks may exchange information on monthly basis regarding the operation and
outstanding of the limits with them.
k. The member banks may also circulate among themselves the outcome of the inspection undertaken
by them and suggest the steps that may be taken to rectify deficiencies, if any.
9. Documentation: The following set of documents (as evolved by IBA) is to be executed and obtained:
a. Resolutions passed by the Board of Directors of the Borrower.
b. Resolution passed by the Board of Directors of the Bank having the second largest share (called 'B'
Bank)
c. Resolution passed by the Board of Directors of other Member Banks (called C,D and E Banks)
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d. Letter of Authority to be given by the C Bank, D Bank, and E Bank to the Leader Bank (called A
Bank)
e. Letter of Authority to be given by C Bank, D Bank and E Bank to B Bank.
f. Working Capital consortium agreement.
g. Joint Deed of pledge/ hypothecation
h. Inter-Se Agreement entered into between the member Banks.
i. Revival letter for purpose of limitations
j. Letter of Undertaking from the borrower for creating a second mortgage on the Fixed Assets.
k. Letter of Authority to Leader Bank to make the first disbursement on behalf of the consortium
members.
l. Pari passu agreement executed by borrowing unit to Banks.
m. Government Guarantee.
10. Annexure/s:
a. The following Annexures are enclosed to this Chapter:
Annexure 1 : Specimen of 'Terms and Conditions covering the Cash Credit Account - Sugar
Mills for the Sugar Season under Consortium basis along with DCCBs
Annexure 1(a) : Checklist of documents required
Annexure 2 : Specimen of Appraisal Note for sugar mill finance under consortium
Annexure 3 : Specimen of Sugar Mills Cash Credit (Pledge) Limit Terms and Conditions
Annexure 4 : Specimen of “Deed of Pledge”
Annexure 5 : Specimen of 'Pari Passu Agreement'
Annexure 6 : Specimen of 'Inter Se Agreement'
Annexure 7 : Specimen of 'Operation of CC Account Procedures in Consortium
Advances to Sugar Mills.
Annexure 8 : Specimen of 'Disbursement Note'
Annexure 9 : Specimen of formats to avail reimbursement from Member Banks by the
Leader Bank
Annexure 10 : Specimen of Weekly Statement from the Leader Bank to all Member Banks under
Consortium.
456 - III
Annexure-1 to Chatper-29
Specimen of 'Terms and Conditions covering the Cash Credit Account - Sugar Mills for the
Sugar Season under Consortium basis along with DCCBs:
1. Nature of the Limit:
It is a Cash Credit / Hypothecation / pledge limit to Sugar Mills for the sugar year __________ under
consortium arrangements with DCCB/ _____________.
2. Validity of the Limit:
The limit is valid upto _____________.
3. Cover:
The Sugar Mills should incorporate the condition that the stocks of sugar is subject to hypothecation /
pledge to the leader DCCB and Member Banks.
4. Margin:
! The Sugar Mills should maintain 10% margin on the value of sugar not released for sale by
Government under pledge i.e. levy sugar.
! The Sugar Mills should maintain 15% margin on free sale sugar.
! The margin is liable for change on the basis of the directives issued by the RBI / NABARD, from
time to time.
5. Valuations:
The Sugar Mills should ensure to value the levy sugar stocks at levy price fixed by the Government and
free sugar stocks at the average price realized during the preceding 90 days (moving average) or current
market price excluding excise duty whichever is lower or as stipulated from time to time.
6. Extent of Finance to the Sugar Mills:
! The Sugar Mills may obtain finance from the Leader Bank / Member Banks to the extent of
drawing power fixed by the Leader Bank (CCB)
! The Sugar Mills should regulate its borrowings with the Leader Bank / Member Banks with
reference to the drawing power fixed and excess drawals, if any, should be regularized then and
there.
7. Procedure for Drawal of Funds from the Leader Bank:
! A Board Resolution for the requirement of limit and a pronote for the same amount may be
furnished at the beginning of the sugar year.
457 - III
! The Sugar mills while applying for drawals on the sanctioned limit, should send an application for
the amount applied for in the form prescribed with the particulars of stock held together with the
respective drawing power, amount already drawn under the Cash Credit Account and the statement
showing the Net Disposable Resources (NRD) position of unit, cash flow statement, estimates of
production and working results of the unit, month wise closing stock position of borrowing unit as
at the close of business on the Friday prior to the date of drawal application. Drawals in the Cash
Credit Account should be for a minimum of Rs.1.00 lakh and drawals in excess thereof should be in
multiples of Rs.1.00 lakh. Repayment under the Cash Credit Account shall be in multiples of
Rs.1.00 lakh only.
! Drawals would be allowed on the basis of drawing power fixed as per latest stock statement
available with the Bank.
! The Leader Bank will get reimbursement from other member banks within a reasonable time and
the transactions would be made with Apex Bank as usual. The outstandings of sugar mills at any
time with the Leader Bank / member Bank should be as per the ratio of limits sanctioned.
! Drawals and Repayments should not be accepted on the same day.
! The drawal applications preferred by the Sugar Mills should be signed only by the Officials
authorized by the Board of Management of the Sugar Mills. to facilitate this, the Board of
Management of the Sugar Mills should authorize officials by name to sign the drawal applications
and the Sugar Mills should send a true copy of the Resolution together with the specimen
signatures of the officials empowered duly attested by the Special Officer / Chief Executive /
Administrator.
! It should be ensured to maintain two separate accounts one for payment of cane and the other for
operational expenditure and statutory dues as per the NABARD's directives. The Sugar Mills
should give suitable undertaking to ensure prompt and regular payment to the cane growers by
furnishing a certificate along with each and every drawal.
! The drawal proceeds will be credited into Current Account maintained by the Mills with the
financing Bank / Leader Bank.
8. Custody of Goods:
! The stocks of sugar under pledge shall be in the joint custody of the Mills and Leader / member
Bank. However the / Leader DCCB will hold the keys on behalf of other Member Banks for
operational convenience.
! The Godown Keeper or the Leader Banks' representative shall maintain necessary records
regarding receipt, release and custody of sugar bags. The Delivery Order issued by Bank(s) shall
also be preserved by the Bank representative.
! The Sugar Mills should furnish a necessary Board Resolution for executing the above undertaking
before making drawals under the present limit.
9. Stock Statement:
The sugar mills should submit weekly stock statement relating to the stocks of sugar under pledge on
458 - III
every Friday indicating the value of stocks held at the beginning of the week, value of stocks produced
during the week, value of stocks sold during the week and value of stocks held at the end of the week, in
respect of both levy and free sale sugar (quantity and value to be furnished separately)
10. Signing of Stock Statement by Authorised Official:
1. The Stock Statement shall be signed only by the Officers of the Mill, who are empowered to sign
the stock statement by the Board of Management of the Mill. The stock statement should also be
countersigned by the godown keeper of consortium bankers' viz., DCCB.
2. The Sugar Mills should obtain and forward to the Bank a true copy of the Resolution passed by the
Board of Management of the Mill authorizing the Officers by name to sign the stock statements
together with the specimen signatures of the officers of the Mill empowered to sign the stock
statement, duly attested.
3. The Sugar Mills shall furnish to the Bank the specimen signature of consortium Banks (CCB)
authorized to sign on behalf of the respective Bank duly attested by the Administrator / Managing
Director.
11. Penal Interest for Excess Drawals:
If as per the weekly certificate, any excess drawal is noticed, sugar mills is liable to pay penal interest at
2% p.a.
12. Routing of documents for Purchase of Goods:
13. Ensuing Correlativity between Purchase and Sale of Stocks and withdrawals and Prepayments in
the Cash Credit Account:
The borrowing unit should compare the value of stocks acquired with the drawal made in the Cash
Credit Account with the value of sales effected during the month. There should be reasonable
correlation between the amount drawn and purchases and also between the sales and remittances, the
sugar mills should remit the entire sale proceeds into its Cash Credit Account.
14. Inspection of Sugar Mills by Apex Bank Officials:
The officials of the Apex Bank / NABARD reserve the right to inspect the Books of Accounts of the
sugar mills and to verify the stocks pledged by the Sugar Mills.
15. Preparation Of Quarterly Trading And Profit And Loss Account And Balance Sheet By The
Sugar Mills:
The Sugar Mills should ensure to write their books and accounts, post-stock register, etc. upto date. The
Sugar mill will prepare Trading and Profit and Loss Account and Balance Sheet as at the end of each
quarter and send the copies of such documents to Apex Bank within one month from the completion of
each quarter.
459 - III
16. Audit Positions of the Sugar Mills:
The Sugar Mills should ensure to upto date the audit position and report the progress in audit. Audit
certificates of the sugar mills are to be issued within a period of 6 months from the date of closure of the
respective financial year.
17. Avoidance Of Diversion Of Working Capital:
The sugar mills should ensure that the working capital provided should not be diverted for acquisition
of capital assets, etc.
18. Insurance:
The Sugar Mills should insure their stocks under pledge preferable on a declaration basis for the full
value of stocks pledged against the risk of fire, flood and burglary. The policy should be in the joint
names of all Consortium Bankers and the Sugar Mills with Bank's clause and lodged with the
Consortium Bankers. The details of the insurance policies in force must also be furnished to Apex Bank
in the stock statement.
1. Interest will be charged by the Leader Bank / Member Bank / Apex Bank on the daily
outstanding in the Cash Credit Account on monthly basis (applying discounting factor)
2. The Leader Bank is empowered to charge a service charge from the other member Banks at the rate
of 0.10% p.a. as the Leader Bank acts as the custodian on behalf of the member Banks.
20. Credit Monitoring Arrangements:
The sanction of CC limit by forming consortium is based on the Credit Monitoring Arrangements
(CMA) of NABARD.
21. Right To Recall The Advance:
The Leader Bank / member Bank reserves the right to recall the advances made to the sugar mills fails to
adhere to any of the terms and conditions stipulated herein, or any other conditions that may be
stipulated in future in regard to relevant Cash Credit Limit, in part or full.
22. Execution of Documents:
The sugar mills should arrange to execute the necessary documents / certificates with the bankers of the
consortium viz, leader DST, Central Cooperative Bank and Member Bank for the limit sanctioned.
460 - III
The following documents have to be executed under consortium arrangements as per formats /
specimen already supplied.
a. Pledge Deed: To be executed over Rs.10/- (Non Judicial Stamp Paper) signed by borrowing unit /
sugar mills.
b. Paripassu Agreement: Executed over Rs.100/- (Non Judicial Stamp Paper) signed by sugar mills,
Leader Bank and all member Banks.
c. Inter Se Agreement: (Between Banks only) Executed under Rs.10/- (Non Judicial Stamp Paper)
signed by Leader Bank and all member Banks.
d. Paripassu Letter: Since it is a letter, stamp paper is not necessary and it is prepared by each and
every Bank and shared between leader / member Banks. The copies of items No.(a) to (c) have to be
given to the member Banks. Paripassu letter (original) should be shared between member Banks. If
the requirement of sugar mill is enhanced all documents in respect of consortium arrangements
have to be executed afresh for the enhanced total amount or the documents have to be executed for
the additional amount separately. It is to be noted that the document executed is to be covered for
the total amount of limit sanctioned to the sugar mills.
23. Quarterly Consortium Meeting:
The sugar mill has to ensure that the quarterly consortium meeting is convened regularly and
proceedings should be forwarded to member Banks including Apex Bank.
24. Submission of Government Guarantee:
The mill will have to obtain unconditional irrevocable default guarantees from the state Government for
the principal and accrued interest on the advances from the Banks for the limits sanctioned by them in
case the mills was having negative networth and account irregular during the previous year.
25. Remittance to the Cash Credit Account:
It should be ensured that the recoveries effected by the Sugar Mills should be appropriated on the share
of the each Bank under Consortium Agreements.
26. Invoking of Dues:
In the absence of non remittance into the CC accounts, the Leader Banks / member Banks have the right
to invoke the Assets pledged by the Sugar Mills for the CC limit sanctioned for the year __________.
The Necessary assets in respect of the limit sanctioned will have to be earmarked as securities to the
Apex Bank.
27. Right to Alter or Amend the Terms and Conditions:
The Apex Bank reserves the right to alter, amend, modify any of the above terms and conditions or
stipulate any new conditions. Such conditions would be communicated through circulars / letters and
these conditions will have the same effect as the conditions stipulated herein.
461 - III
Annexure 1(a) to Chapter-29
CHECKLIST OF DOCUMENTS REQUIRED
1. Cash Credit Application
2. NDR position as on 31st March_______
3. Audited Balance Sheet and Profit and Loss account for the previous year, proforma balance sheet
and profit and loss account for the current year.
4. Statement of month end closing stock position of the borrowing unit in quantity and value for the
previous year and projection for the current year.
5. Statement of monthly operations on the working capital limits sanctioned to the unit during the
previous year.
6. Project Report/Cost Analysis.
7. Statement of projections.
8. Cash flow statement (monthly actuals) for previous year/season.
9. Cash flow projections (monthly) for the ensuing years.
10. Board Resolution.
462 - III
Specimen of 'APPRAISAL NOTE' (Sugar Mill)
01. Name of the Unit :

02. Address :
03. Constitution :
04. Capacity : TCD (Tons crushing per day)
05. Type of Assistance : Working Capital
06. Details of Proposals
I. Security Sugar Stock:
PREVIOUS SEASON Present

Sl. No. Particulars Request
Estimates Actual
01 Cane Area Registered *
02 Cane Crushing (Lks Tons) 03 Date of
Starting of crushing
04 Date of Completion crushing 05 No. of
days crushed
06 Recovery %
07 Sugar Produced in Qtls 08 Peak Stock
(Qtls) 09 Peak Stock (Value) 10
Margin
08 Bank Finance (as per peak level stock)
09 Bank Finance (as per Cash Flow)
10 Bank Finance (as per application)
11 Fair & Remunerative Price
12 SAP
II. Security Stores & Spares:

a. Stock Value
b. Margin
c. Cover / Drawing Power
d. Bank Finance
463 - III
III. Security - Molasses:
Estimates Actual
01. Production (Qty)
02. Stock (Qty)
03. Rate
04. Stock Value
05. Margin
06. Cover / D.P.
07. Bank Finance
IV. Security Spirit:

Estimates Actual
01. Production (Lakhs Ltrs)
02. Stock (Lakhs Ltrs)
03. Rate
04. Stock Value
05. Margin
06. Cover / D.P.
07. Bank Finance
V. Financial Position:
As on
Sl. No. Particulars
Previous year 31st March Current Year 31st Marc
01 Share Capital
02 Reserves
03 Net Profit / Loss
04 Accumulated Loss
05 NDR
06 Current Liabilities
07 Cane Dues
464 - III
Performance and Financial Ratios:
31.03..... 31.03…….. *31.03…..
As on (Audited) (Projection) (Estimate) #
Net Sales
Operating Profit
Net other Income
Profit before Tax
PBT / Net Sales
Profit After Tax
Net Cash actuals for the year
Paid up Capital
Tangible Networth
Total outside Liabilities / TNW
Gross Fixed Assets
Net Working Capital
Current Ratio
VI Operations in Cash Credit Account:
Sl. No. Particulars PREVIOUS SEASON

Estimates Actual
01. Sales
02. Opening Balance
03. Drawals
04. Repayment
05. Closing Balance
VII Cost of Production:
Sl. No. Particulars PREVIOUS SEASON

Projections
Estimates Actual
01 Sugar / Ton
02 Molasses
03 Spirit
VIII. Compliance with Terms and Conditions of Financial Assistance:
465 - III
IX. Consortium Meeting and Documentation:
Consortium Meeting was held on __________; Documents were executed on ________
X. Inspection:
Inspection was held on _____________. Defects communicated on ____________
Rectification Report obtained on ______________
Observations / Recommendations:
Sugar Production:
! As per the application, the Sugar Mill could not crush the quantity estimated during the last season /
exceeded the crushing quantity estimated (due to non availability of cane / diversion of cane)
! The recovery percentage was lower / higher than the estimated rate (extended crushing / good
quality of cane). The stock value as estimated by the Sugar Mills has not reached:
a. Due to fall in market price
b. Lesser recovery
c. Not able to reach the peak level stock as projected.
On account of the reasons given above the sugar mill could not achieve the estimates / exceeded the
estimates and as such the projections appear to be unrealistic / realistic. The sugar mill has given
reasons justifying the projection to enable the Bank to consider the present request.
Cash Flow Statement:
As per projected cash flow statement, the maximum deficit in cash is Rs.___________ which is not
correct/ correct due to
a. cane payment is not correct

b. sales arrived is not correct
c. other payments are not correct
d. other income are not correct
e. any other observations
Financial Position:
From the details of the financial position given above:
a. The Sugar mill has earned a profit / incurred loss of Rs.
b. The accumulated loss has increased / decreased to Rs.
466 - III
c. The networth of the Mills is positive / negative by Rs.
d. The NDR of the Mills is Rs.
e. The Current Liabilities position has increased / decreased by Rs.
f. The cane dues is at Rs. Lakhs
g. The borrowing power as per byelaw is Rs.__________ and borrowing outstanding as on

_________ is within the borrowing power.
Operations in Cash Credit:
As per the data given by the sugar mills, the sugar mill has reached / not reached the production level
and also achieved not achieve the sales estimated during the last season. As per the operations in the Cash
Credit Account, the entire proceeds of sales has been credited / not credited. The drawals in the Cash Credit
Account has exceeded the remittances an account of sales realization was far below the cost of manufacture.
The outstanding in the Cash Credit Account
a. Within the DP / limit
b. Has exceeded the DP temporarily / continuously
c. The cover deficit occurred from month.
Cost of Production:
The sugar mill has estimated the cost of sugar production at Rs. Per Ton. However the actual cost of
production of Sugar / ton is at Rs. On account of payment of SAP, labour cost, overheads, etc.
Compliance with the Terms and Conditions of Sanction:
As per the terms and conditions of sanction the sugar mill has to arrange for
a. Government Guarantee - GG was made available after long delay And GG was
submitted in the month of deed of guarantee
executed/ not executed.
b. Submission of Stock Statement - The Sugar Mill was regular / Occasional delays in
submission
c. Submission of financial statement - The sugar mill has submitted technical / Financial
informations quarterly / annual basis.
d. Insurance - The sugar mill has insured the security given and also
ensured periodical renewal.
467 - III
e. Inspection & Compliance - As per the inspection undertaken by the leader /
member banks, the mill has submitted the
compliance.
f. Maintenance of Accounts - As per the NABARD guidelines, the sugar mill is

maintaining two separate A/cs, viz.,
i. Cane Payments
ii. Other Expenditure
g. Stock cover / DP - The Sugar Mill has adequate cover for the drawals /
exceeded the DP and also having cover deficit.
In the light of the above, the sugar mills request for financial assistance may be considered as follows:
a. Against Sugar Stock - Rs. Lakhs (being the maximum stock / deficit in cash
flow / amount applied for)
b. Against Stores & Spares - Rs. Lakhs
c. Against Molasses stocks - Rs. Lakhs
d. Against Spirit - Rs. Lakhs
The above sanction may be considered subject to the various terms and conditions as given in the Annexure
and also subject to execution of documents, Obtention of government guarantee on or before __________.
The financial assistance may be extended under consortium with the existing banks new banks to be
considered in the consortium meeting.
AUTHORISED OFFICER
468 - III
Annexure 1(a) to Chapter 29
CHECKLIST OF DOCUMENTS REQUIRED
1. Cash Credit Application

2. NDR position as on 31st March ________
3. Audited Balance Sheet and Profit and Loss account for the previous year, proforma balance sheet and
profit and loss account for the current year.
4. Statement of month end closing stock position of the borrowing unit in quantity and value for the
previous year and projection for the current year
5. Statement of monthly operations on the working capital limits sanctioned to the unit during the
previous year.
6. Project Report/ Cost Analysis
7. Statement of projections.
8. Cash flow statement (monthly actuals) for previous year/season
9. Cash flow projections (monthly) for the ensuing years.
10. Board Resolution.
469 - III
Annexure 3 to Chapter-29
Specimen of “Sugar Mills Cash Credit (Pledge) Limit”: Terms and Conditions
1. The working Capital facility sanctioned is a Cash Credit Limit secured by pledge of stocks.
2. The advance is repayable on demand. The Cash Credit Limit is valid for 1 year from ____ to ___.
3. The Cash Credit Limit is secured by pledge of stock of sugar belonging to the sugar mills.
4. The sugar mills shall furnish irrevocable government guarantee.
5. The Sugar mills should maintain a margin of 10% of the levy sugar or the margin flexed by the RBI from
time to time and 15% on the free sale sugar.
6. The levy sugar shall be valued at the price fixed by the Government of India and the free sale sugar shall
be fixed at the quarterly moving average rate or the current market price whichever is less.
7. The sugar mills shall insure the stock against fire, riot, flood risks, civil commotion and strike in the
joint names of the bank and the sugar mills.
8. The Cash Credit Limit shall be at a specified interest rate, which is subject to revision from time to time.
Any irregularities such as cover deficit, outstanding in excess of the sanctioned limit, non submission
of statements etc will entail charging of penal interest at the rate of 2% p.a. over and above the normal
rate of interest.
9. The sugar mill shall furnish weekly stock statements in the format prescribed to the Leader Bank and
member banks promptly.
10. The sugar mill shall arrange to execute the documents under single window concept of lending to the
Leader Bank.
11. The sugar mill shall not resort to outside borrowings / banking or maintain accounts with any other bank
without the written consent of the consortium. The sugar mill shall not without the bank's consent in
writing invest by way of Share Capital in or advance funds to or place deposits with any other concern.
12. The Cash Credit Limit will be operated separately for cane payments (for SMP only) and general
account as per the NABARD guidelines. The sugar mill shall not make any payment in excess of SMP
towards cane supply without the consent of the consortium.
13. The member banks of the consortium or their representatives may inspect the sugar mill once a month.
The sugar mill shall maintain proper books of accounts and make them available for inspection by
financing banks / NABARD / RBI.
14. The sugar mill shall arrange to submit statements / details on the financial / technical performance of the
mills periodically (Monthly / Quarterly) and also as per the request made by the bank. The sugar mill
shall also furnish the Audited Financial Statements to the Leader Bank within 6 months from the close
470 - III
of the financial year.
15. The stocks of sugar under pledge shall be under the custody of the Leader Bank and the sugar mill shall
bear the expenses of the godown keeper posted by the bank. The sugar mill shall release the sugar stock
only after getting written clearance from the bank.
16. The sugar mill shall participate in the consortium meeting convened by the Leader Bank and furnish the
required particulars for the same.
17. The sugar mill remits the entire sales realisation into the Cash Credit account with the Leader Bank and
on no account any amount shall be diverted to any other purpose.
Accepted
Chief Executive
. . . . . . . . . . . . . . . . . . . . . . . . . . Coop. Sugar Mills Limited.
471 - III
Annexure 4 to Chapter-29
(To be executed in Rs.10/- Stamped paper)
Specimen of 'DEED OF PLEDGE'
This Deed of Pledge is executed by the . . . . . . . . . . . . . . . . . . . . . . . Coop. Sugar Mills . . . . . . . . . . . . . . . . . . . . . . .

(hereinafter called the 'Borrower') in favour of the . . . . . . . . . . . . . . . . . . . . . . . Dist. Central Cooperative Bank . .
. . . . . . . . . . . . . . . . . . . . . (hereinafter called the Bank).
Now this DEED OF PLEDGE witnesseth as follows:

The Borrower has executed this Deed of Pledge in consideration of the Bank allowing or having allowed
Cash Credit Advance against stocks of sugar to the borrower for Rs. . . . . . . . . . . . . . . . . . . . . . . . lakhs, to be in
force upto _______, the date permitted by Bank in accordance with terms of this Pledge Deed, repayable on
demand and thus hereby pledge and create a charge, in favour of the Bank as collateral security, for the due
payment of the amount remaining outstanding in the said Cash Credit Account with accrued interest upto
date and that might accrue hereafter, on the goods held, in terms of this Pledge Deed, as per schedule
attached herewith, and on the goods that might hereafter be manufactured by or be deposited with and held in
possession of which particulars will be furnished to the Bank as and held in possession of which the
borrower undertakes to hold, as bank's agents for and on behalf of bank as security for cash credit advance
allowed and for due payment of the amount remaining outstanding in the said Cash Credit Account with
interest that might have accrued or that are likely to accrue, and in the event of the said goods or any portion
thereof being sold and delivered, the proceeds realized from such sales or disposals shall be received by
borrower as bank's agents and shall be handed over or paid to the bank as and when received or whenever
demanded.
The Borrower shall hold these pledged goods described in the appended schedule as agents as security for
the Cash Credit Account as long as there is any amount due to the Bank and in the event of the Borrower
failing to repay or reimburse to Bank, the aggregate amount that has been accrued or may hereafter accrue in
the said Cash Credit Account, on demand, the borrower hereby agrees to deliver or give possession of the
said Cash Credit Account, on demand, the borrower hereby agrees to deliver or give possession of the said
goods to the bank at any time without raising any objection, to enable the bank to sell or in any other way to
dispose of or deal with the goods with the object of realising the whole or any part of the amount of the said
Cash Credit Account as if the bank were the absolute owner thereof. The Bank and its Officers shall be
entitled at any time and without notice to borrower but at borrower's risk and expenses, and if so required as
Attorneys for borrower, name to enter and remain at any place where the pledged goods shall be stored and to
take possession of, recover and receive the same and / or appoint any officer of the Bank as Receiver of the
pledged goods and / or sell by public auction or private contract, otherwise dispose of or deal with any right
aforesaid without being bound to exercise any of these powers or without being liable for any loss in exercise
of the powers thereof and without prejudice to the Bank's rights and remedies of suit against the borrower
and to apply the net proceeds of such sale in or towards liquidation of the balance due to the Bank and the
borrower hereby agrees to accept the Bank's account of sales, or realization and to pay any shortfall or
deficiency therein shown.
472 - III
The borrower hereby agrees to pay interest at --- % per annum daily balances with quarterly rests, that may
be calculated and charged in the Bank's favour, due upon the said Cash Credit Account, until the same is fully
liquidated, as and when the Bank demand it. The amount due in respect of the said Cash Credit Account shall
be repaid by the borrower on or before --- and the Bank shall not be bound to allow or continue the cash credit
advance to any further extent for any further time which the Bank shall in its absolute discretion deem fit to
do so.
The borrower hereby guarantees that the advances allowed to them shall in no case exceed 90% in case of
levy sugar and 85% in case of free sale sugar of the cost value of the goods hereby pledged to the Bank. The
borrower hereby also undertakes that in case at any time pledged goods held by them decline in value or
deteriorate in the price and the margin falls short. They will forthwith pledge other goods or property of the
sufficient value or pay in cash to square up the short margin and put their account in order at any time.
The borrower hereby likewise undertakes and agrees to convey to Bank the Paripassu charge on all the
property, assets or goodwill of the Borrower including the uncalled share capital, if any. The goods hereby
pledged to the Bank shall also be a security to bank for the payment on demand of all other amounts or dues,
which are now or shall at any time be due to the Bank from the Borrower on any other account.
The borrower hereby agrees to submit every week a Statement of the Goods so pledged by them in the Form
prescribed by bank or that might be prescribed by bank in future duly certified by the Officers of the
Borrower authorized in this behalf. The borrower hereby also agrees that the bank or its officers or its agents
will be entitled to enter upon and remain in any place where the pledged good are stored in order to inspect or
to take inventory of the goods or in other similar way to deal with the goods without notice to borrower and to
have undeterred access to borrower's books of account or borrower's stock.
The borrower further agrees that the pledged goods and all sale realizations and insurance proceeds thereof
shall be held as the Bank's exclusive property specially appropriated to this security and the borrower
undertakes not to create any mortgage, charge, lien or encumbrance affecting the same or any part thereof
nor do anything which would prejudice this security, and shall not part with the pledged goods have by way
of sale in ordinary course of the business nor shall any sale be made after prohibition in writing from the
Bank against selling.
The borrower hereby declares that all the pledged goods are the absolute property of the borrower at the sole
disposal and free from any prior charge or encumbrance and that all future goods and property so pledged
shall be likewise unencumbered and that the borrower have not done or knowingly suffered or been party or
privy to anything whereby the borrower are anyway prevented from pledging the goods in the manner
aforesaid and that the borrower will do and execute at its costs all such acts and things to further and more
particularly assure the pledged goods or any part thereof to the Bank as shall be required by the Bank for
giving better effect to these presents. The borrower authorises and irrevocably appoints the Bank and / or
their Officers as Attorney for and in the name of the borrower to act on its behalf and to execute and to do any
act, assurance and things which ought to execute and do under these presents and generally to use the name
of the borrower in exercise of the powers hereby conferred.
(Signature of the authorized official of
Sugar Mills with designation and seal)
473 - III
SCHEDULE
Pledged goods held in trust as collateral security for advances made as per this agreement and in terms of this
agreement.
Kind of goods Quantity Market Value

1 2 3
SUGAR (As per the details furnished in weekly

stock statement)
For and on behalf of the

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sugar Mill.
(AUTHORISED SIGNATORY)
474 - III
To be stamped as an Agreement Rs.100/-
Specimen of 'PARI PASSU AGREEMENT'
This Agreement made on this . . . . . . . . . . . . . . . . . . . . . . . day of Two thousand . . . . . . . . . . . . . . . . . . . . . . . at . . . . . . .

. . . . . . . . . . . . . . . . among the . . . . . . . . . . . . . . . . . . . . . . .
1. A Coop. Society registered under the State Cooperative Societies Act (in case of cooperative sugar
mills)
2. A Company incorporated under the Company's Act 1956, having its Registered Office at . . . . . . . . . . . . . . .
. . . . . . . . (hereinafter called the borrower) of the one part. (in case of Government owned mills)
The . . . . . . . . . . . . . . . . . . . . . . . District Central Coop. Bank . . . . . . . . . . . . . . . . . . . . . . . a Coop. Society

registered under the State Co operative Societies Act, having its office at . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . of the second part.
The . . . . . . . . . . . . . . . . . . . . . . . Dist. Central Coop. Bank . . . . . . . . . . . . . . . . . . . . . a Co operative Society

registered under the State Co operative Societies Act, having its Office at . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . of the third part.
The __________ State Apex Coop. Bank Ltd., _________ a Co- operative Society registered under the
State Co-operative Societies Act, having its Office at ____________________________________ of
the fourth part; hereinafter called 'The Banks'.
In this agreement, the terms, 'Borrower' The . . . . . . . . . . . . . . . . . . . . . . . DCCB, The . . . . . . . . . . . . . . . . . . . . . . .

DCCB, The . . . . . . . . . . . . . . . . . . . . . . . DCCB and the __________ State Apex Coop. Bank Ltd., shall
wherever the context so admits mean and include their respective assigns, administrators, attorneys,
receivers and successors in interest. 1. WHEREAS by pledge deed dated . . . . . . . . . . . . . . . . . . . . . . .
relating to stocks of sugar made between the borrower part and . . . . . . . . . . . . . . . . . . . . . . . DCCB, Leader
Bank (which pledge deeds are hereinafter jointly and severally referred to as 'The Said' Leader Bank
Charge) for the consideration therein mentioned, the borrower has covenanted to repay to . . . . . . . . . . . . . .
. . . . . . . . . DCCB the cash credit limit of Rs. . . . . . . . . . . . . . . . . . . . . . . . lakhs (Rupees . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . only) at such rate sanctioned / to be sanctioned as may be specified from time to
time.
3. WHEREAS by pledge deeds dated . . . . . . . . . . . . . . . . . . . . . . . relating to stocks of sugar made between the
475 - III
borrower and . . . . . . . . . . . . . . . . . . . . . . . DCCB for the consideration therein mentioned, the borrower has
also covenanted to repay . . . . . . . . . . . . . . . . . . . . . . . DCCB, the Cash Credit Limit of Rs. . . . . . . . . . . . . . . . . . .
. . . . . lakhs (Rupees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . only) advanced and to be advanced
together with interest thereon at such rate as may be fixed by . . . . . . . . . . . . . . . . . . . . . . . DCCB from time
to time. The pledge deeds dated . . . . . . . . . . . . . . . . . . . . . . are hereinafter jointly and severally called as
(The . . . . . . . . . . . . . . . . . . . . . . DCCB's charge)
4. WHEREAS the pledge deeds dated . . . . . . . . . . . . . . . . . . . . . . . relating to stocks of sugar made between
the borrower and . . . . . . . . . . . . . . . . . . . . . . . DCCB for the consideration therein mentioned, the borrower
has also covenanted to repay . . . . . . . . . . . . . . . . . . . . . . . DCCB the Cash Credit Limit of Rs. . . . . . . . . . . . . . . .
. . . . . . . . lakhs (Rupees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . only) advanced and to be
advanced together with interest thereon at such rate as may be fixed by . . . . . . . . . . . . . . . . . . . . . . . DCCB
from time to time. The pledge deeds dated . . . . . . . . . . . . . . . . . . . . . . are hereinafter jointly and severally
called as (the . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DCCB charge).
NOW THESE PRESENTS WITNESSETH AND it is hereby agreed by and between the parties hereto
as follows:
a. Notwithstanding anything to the contrary contained in the said . . . . . . . . . . . . . . . . . . . . . . . DCCB

(Leader Bank) charge . . . . . . . . . . . . . . . . . . . . . . . DCCB charge . . . . . . . . . . . . . . . . . . . . . . . DCB charge . .
. . . . . . . . . . . . . . . . . . . . . DCCB, charge / __________ State Apex Coop. Bank Charge, and the right of
. . . . . . . . . . . . . . . . . . . . . . . DCCB . . . . . . . . . . . . . . . . . . . . . . . DCCB, . . . . . . . . . . . .. . . . . . . . . . . DCCB, . . . .
. . . . . . . . . . . . . . . . . . . DCCB, / __________ State Apex Coop.Bank interest in respect of the
securities mentioned in the respective schedules thereto excluding the stocks of sugar earmarked
as 100% margin for issue of Letter of Credit / Bank Guarantee shall ran pari passu.
b. During the subsistence of the said securities referred above, all insurance policies in respect of
them shall be taken out in the joint names of the borrower and . . . . . . . . . . . . . . . . . . . . . . . DCCB
(Leader Bank) and shall be held by . . . . . . . . . . . . . . . . . . . . . . . DCCB (Leader Bank) for the benefit of .
. . . . . . . . . . . . . . . . . . . . . . DCCB (Leader Bank) . . . . . . . . . . . . . . . . . . . . . . . DCCB, . . . . . . . . . . . . . . . . . . . . .
. . DCCB, . . . . . . . . . . . . . . . . . . . . . . . DCCB and _________ State Apex Coop. Bank.
c. Prior to taking any action for enforcement of the aforesaid securities . . . . . . . . . . . . . . . . . . . . . . .

DCCB (Leader Bank) . . . . . . . . . . . . . . . . . . . . . . . DCCB . . . . . . . . . . . . . . . . . . . . . . . DCCB and
_________ State Apex Coop. Bank shall duly inform the other, of the same and each of them shall
consult the other in respect of all matters pertaining to the security aforesaid, so far as the same is
practicable without affecting its own rights and each of them shall at all times keep the other
informed of all serious and important matters coming to its knowledge relating to the security or
any part or proportion thereof or otherwise relating to the Borrower.
d. All money resulting from the enforcement of . . . . . . . . . . . . . . . . . . . . . . . DCCB charge (Leader Bank)
. . . . . . . . . . . . . . . . . . . . . . . DCCB charge . . . . . . . . . . . . . . . . . . . . . . . DCCB charge and _________ State
Apex Coop Bank charge, (hereinafter collectively refereed as 'the said securities') or the amount
realized in respect of any policies of insurance of insurance or any other realization from the said
476 - III
securities either by enforcement or otherwise shall be applied in the manner hereinafter appearing.
i. Firstly, all costs, charges and expenses incurred by the Banks (. . . . . . . . . . . . . . . . . . . . . . . DCCB, .
. . . . . . . . . . . . . . . . . . . . . . DCCB, . . . . . . . . . . . . . . . . . . . . . . . DCCB and _________ State Apex Coop.
Bank) for and incidental to the enforcement of the said securities or realization of receipt of such
monies.
ii. Secondly, the balance of such moneys shall in the event of moneys available for distribution to
the said banks being SUFFICIENT to pay to them, the full amount of money due under the said
securities be applied simultaneously in the payment to the said Banks the full amounts
respectively due to each and in the event of moneys available for distribution to the said banks
being insufficient to pay to them the full amount of moneys due under the said securities, the
money available shall be applied pari passu as nearly as may be practicable towards payment
to the said Banks, the amounts due to them without any preference or priority whatsoever. The
amount distributable to the said banks shall bear to the total distributable amount the same
proportions which the outstanding amount / the said banks, bear to aggregate of the
outstanding amount due to them by the borrower under the said securities.
iii. Thirdly, the surplus if any out of such moneys shall be paid to the person or persons entitled
thereto or otherwise to the borrower.
e. If at anytime during the currency of the respective advance by the said banks the borrower commits
any default in payment of their respective debt or in observance or performance of any covenant or
condition either . . . . . . . . . . . . . . . . . . . . . . . DCCB (Leader Bank) or . . . . . . . . . . . . . . . . . . . . . . . DCCB . . .
. . . . . . . . . . . . . . . . DCCB or _________ State Apex Coop. Bank in pursuance of the powers reserved
to them decide to enforce the right to take possession and to sell the securities or any part thereof or
to exercise any other rights conferred by their documents, then and in such cases, . . . . . . . . . . . . . . . . . .
. . . . . DCCB (Leader Bank) . . . . . . . . . . . . . . . . . . . . . . . DCCB, . . . . . . . . . . . . . . . . . . . . . . . DCCB and
_________ State Apex Coop. Bank shall consult each other before enforcing such securities or
exercising such powers. If at any time in the course of enforcing the securities . . . . . . . . . . . . . . . . . . . . .
. .DCCB (Leader Bank) or . . . . . . . . . . . . . . . . . . . . . . . DCCB or . . . . . . . . . . . . . . . . . . . . . . . DCCB or
_________ State Apex Coop. Bank decides to appoint a receiver in exercise of the powers reserved
therefor in their documents, then neither . . . . . . . . . . . . . . . . . . . . . . . DCCB (Leader Bank) . . . . . . . . . . . .
. . . . . . . . . . . DCCB or _________ State Apex Coop. Bank shall appoint such receiver except in
consultation with the other.
f. The borrower doth hereby conform these presents and undertake that during the subsistence of the
securities created by the borrower in favour of the said securities, the borrower shall not door suffer
to be done or be party or privy to any act, deed, matter or thing which may in any way prejudicially
affect the securities and right of the said Banks.
g. It is hereby agreed by and between the parties hereto that the provisions contained in or implied to
the said pledge deeds of . . . . . . . . . . . . . . . . . . . . . . DCCB (Leader Bank), . . . . . . . . . . . . . . . . . . . . . . .
DCCB, . . . . . . . . . . . . . . . . . . . . . . . DCCB and _________ State Apex Coop. Bank shall be read and
477 - III
construed in conjunction with their presents and shall be regarded as modified accordingly.
IN WITNESS WHERE OF, the parties have executed these presents on the day, month and year
first above written.
For . . . . . . . . . . . . . . . . . . . . . . . Coop. Sugar Mills,

Witness 1.
2. Authorized Signatory
(Borrower)
Name to be mentioned in
Capital Letters, Designation
And Address
For . . . . . . . . . . . . . . . . . . . . . . . Dist. Central Coop. Bank Ltd.,
Authorized
Signatory
(Leader Banker
Bank)
For . . . . . . . . . . . . . . . . . . . . . . . Dist. Central coop. Bank Ltd.
Authorized
Signatory
(Member Bank
No.1)
For . . . . . . . . . . . . . . . . . . . . . . . Dist. Central Coop. Bank Ltd.,
Authorized
Signatory
(Member Bank
No.2)
For The _______________ State Apex Coop.
Bank Ltd.,
Authorized
Signatory
(Member Bank
No.3)
478 - III
To be executed on Stamp Paper

SPECIMEN OF “INTER SE AGREEMENT”
BETWEEN
THE . . . . . . . . . . . . . . . . . . . . . . . DISTRICT CENTRAL COOP. BANK LTD.,
THE . . . . . . . . . . . . . . . . . . . . . . . STATE APEX COOP. BANK LTD.,
(A Bank Consortium)
THIS AGREEMENT is made at . . . . . .. . . . . . . . . . . . . this the . . . . . .. . . . . . . . . . . . . of Two thousand . . . . . .. . . . . .

. . . . . . . between THE . . . . . .. . . . . . . . . . . . . DISTRICT CENTRAL COOP. BANK, a Cooperative Society
registered under the State Coop. Societies Act and having its Head Office at . . . . . .. . . . . . . . . . . . . hereinafter
called “A Bank” (which expression shall, unless it be repugnant to the subject or context thereof, include its
successors and assigns) of the FIRST PART, The . . . . . .. . . . . . . . . . . . . Dist Central Coop. Bank Ltd., a Co
operative Society, registered under the concerned State Coop. Societies Act and having its Head office at . . .
. . .. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . hereinafter called “B” Bank which expression shall unless it be
repugnant to the subject or context thereof, include its successors and assigns) of the SECOND PART, The . .
. . . .. . . . . . . . . . . . . Dist, Central Coop. Bank Ltd., a cooperative Society registered under The concerned State
Cooperative Societies Act and having its Head Office at . . . . . .. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . hereinafter
called as 'C' Bank (which expression shall unless be repugnant to the subject or context thereof, include its
successors assigns) of the THIRD PART, The . . . . . .. . . . . . . . . . . . . Dist, Central Coop. Bank Ltd., a
Cooperative Society registered under the Cooperative Societies Act and having its Head Office at . . . . . .. . . . .
. . . . . . . . . . . . . .. . . . . . . . . . . . . hereinafter called as 'D' bank (which expression shall unless be repugnant to the
subject or context thereof, include its successors and assigns) of the FOURTH PART.
The ……………… State Apex Coop. Bank Ltd., a cooperative Society registered under the
…………………. Cooperative Societies Act and having its office at ……………………………….
hereinafter called the 'E' Bank (which expression shall unless be repugnant to the subject or context thereof,
include its successors and assigns) of the FIFTH PART, (All of which A Bank, B Bank, C Bank, D Bank and
E Bank are collectively reterred to as the “A Bank Consortium” which expression shall, unless it be
repugnant to the subject or context thereof, include each of them or any of or more of them and their
respective successors and assigns).
By consent of all the parties, 'A Bank' is designated and recognized as the Leader Bank of the “A Bank
consortium”.
If the number of members of the Consortium of Banks is increased or decreased from time to time by adding
to or dropping of one or more Banks or is changed by substitution of one Bank by another during the
479 - III
currency of this Agreement, then the Reconstituted Consortium will be governed by the provisions of this
Agreement as if they have been added or dropped herein as the case may be and the term 'the Said Banks”
shall mean and shall be deemed to include the Reconstituted Consortium as well.
1. WHEREAS the . . . . . . . . . . . . . . . . . . . Sugar Mills / Co.op Sugar Mills Ltd, a Cooperative Society
registered under the ……………… Cooperative Societies Act, having its Office at . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . (hereinafter called 'the Borrower' which expression shall, unless it be repugnant to
the subject or context thereof, include its successors and assigns) has been sanctioned by the 'A Bank
Consortium', inter alia, the working capital facilities in the proportion as mentioned in the working
capital consortium Agreement dated the . . . . . . . . . . . . . . . . . . . day of . . . . . . . . . . . . . . . . . . . between the
Borrower the said Banks (hereinafter called the Consortium Agreement) for meeting a part of the
working capital needs of the Borrower in addition to / in replacement of existing facilities and
replacement of certain other facilities on the terms and conditions set out in the said Consortium
Agreement and such other conditions as may be stipulated by the Bank Consortium from time to time,
the working capital facilities are hereinafter collectively referred to as 'the said facilities' which
expression shall, unless it be repugnant to the subject or context thereof, include each such facility or
any one or more of them. The limits or sub limits as so fixed from time to time during the tenure of the
said Consortium Agreement shall be deemed to be the limits or sub limits covered under the said
facilities.
2. As security for the repayment of the said facilities together with interest, cost, charges and other
expenses, payable in respect of the said facilities, the Borrower created in favour of the said banks first
charge by way of pledge on its Current Assets, both present and future, wherever situated but pertaining
to the Borrower as mentioned in the joint deed of pledge dated the . . . . . . . . . . . . . . . . . . . day of . . . . . . . . . . .
. . . . . . . . executed by the Borrower in favour of the said Banks and also created in favour of the said
Banks by way of collateral, a first / second / third charge on the fixed assets, both present and future, of
the Borrower. (The aforesaid charges are hereinafter collectively referred to as (“the said Securities")
3. For operational convenience, the said Banks have agreed to enter into an Inter se Agreement being
these presents to define the rights inter se the said Banks in the manner and with such convenants and
conditions are hereinafter contained.
Now, therefore, it is recorded that the parties hereto have mutually agreed as follows:
a. The Member Banks hereby recognize 'A Bank' as the Leader Bank of the 'A Bank Consortium'
b. The Member Banks hereby agree to abide by the directions, instructions and clarifications as may
be given from time to time by the Leader Bank in respect of any matters arising out of our in relation
to the Cash Credit Account(s) or other Accounts opened by the Borrower with the 'A Bank
Consortium'.
c. Notwithstanding anything to the contrary contained in or arising out of or implied by the said
Consortium Agreement and / or the Joint Deed of pledge and or the first / second / third charge on
the fixed assets, it is hereby agreed and declared by between the said Banks as follows:
480 - III
i) A Bank shall act as the Leader Bank of the 'A' Bank Consortium and all the members shall act
in the spirit of the consortium and all decisions should, as far as possible, be arrived at
unanimously including those to sharing of ancillary business and drawings under different
facilities sanctioned to the Borrower.
ii) The members of the consortium do hereby agree to execute in favour of the Leader Bank a
Power a Power of Attorney or other authorization as may deemed appropriate for constituting
the Leader Bank as their true and lawful attorneys for them, in their name and on their behalf to
do, execute and perform all acts, deeds and things as to the Leader Bank may deem
appropriate, necessary of expedient in the given circumstances, as the Leader Bankers of the
'A Bank Consortium' and to take decisions for and on behalf of the Consortium'. The member
Banks do hereby agree to ratify and confirm whatever all acts, deeds and things lawfully and
bonafide done, taken or effected by the Leader Bank as such attorneys in exercise of the
Powers, authorities and liberties hereby conferred upon, under and by virtue of this
Agreement.
iii) The Members of the consortium do hereby agree that they would act in the best interests of the
Consortium having due regard to the interest of each of he Members of the Consortium.
iv) Each Bank shall consult the Leader Bank in respect of any matter relating to the said facilities
including those relating to sanction of adhoc / temporary credit to the Borrower and act in
consonance with the clarifications, directions and decisions as may be given by the Leader
Bank.
v) A Bank Consortium shall set in accordance with the directions and instructions given by the
Leader Bank is so far as the monitoring of the Borrower's Cash Credit Account(s) or other
Account(s) with them are concerned and abide by the decisions of the Leader Bank and the
Apex Bank, which will be binding on the other members of the Consortium, in case of any
dispute or difference of view on the quantum of the Bank finance, terms and conditions to be
imposed or any other matters pertaining to the Borrower's Cash Credit Account(s) or other
Account(s).
vi) If an account of operational difficulties or locational problems, the Borrower desires to avail of
any non fund based facility from one member Bank in preference to another, the Leader Bank
should as far as possible evolve a suitable system of sharing the relative income thereof at a
consortium meeting and the decision of the Leader Bank thereon shall be binding on the
members of the consortium.
vii) Each Bank shall not, without the consent of the Leader Bank agree to any modification of the
terms of this agreement nor waive the rate of interest or defaults or vary the margins stipulated
earlier unilaterally.
viii) Subject to the provisions of the Inter Se Agreement as may be entered into between the said
Banks and the other Lenders, all proceeds of the sale or other proceeds out of or in connection
with any of the said Securities created by the Borrower shall be applied in the manner as set out
in Clause 5 herein.
ix) Any action for the enforcement of the said Securities against the Borrower shall be taken by
the Leader Bank in consultation with the other Members of the A Bank Consortium and the A
Bank as the Leader Bank shall be at the liberty to take any steps to realize or enforce the said
481 - III
Securities agreed to be created or close and cause to be closed the respective Cash Credit
Account(s) or other Account(s) opened in the Books of the said Banks but in the morning of the
full working day immediately preceding, if any action intended to be taken under this clause
due notice of such intention and of the action intended to be taken shall be communicated in
writing by the Leader Bank to the Other Banks and the other Banks shall immediately or as
soon as possible after receipt of such notice demand repayment of the moneys due under the
relative Cash Credit Account(s) or other account(s) and stop all further advances or
accommodations to the Borrower on the relative Cash Credit Account(s) or other Account(s)
of the Borrower with it and notify its intention in writing either to act jointly in such action with
the Leader Bank or otherwise and in the case the other Banks shall agree to act jointly in such
action then the said Banks shall act jointly and in case of failure, neglect or refusal by the other
Banks to join in any such action, the Leader Bank taking action shall make the Banks so
refusing, a defendant /respondent in any action which it may take against the Borrower.
x) All Members of the Consortium should jointly and severally ensure that there is no slackness
in follow up of and supervision over credit extended to the Borrower and each of the said
Banks shall keep the Leader Bank advised as may be deemed appropriate in mutual
consultation with one another of the A Bank Consortium.
xi) Inspection of the Books of Account(s) verification of securities and spot checks shall be done
by such member bank by rotation as may be decided by the Leader Bank and the Notes of
Inspection and Verification shall be forwarded to all the members of the Consortium, the
Member Banks shall ensure that there is no piecemeal collection of data from the Borrower by
each member separately but that all connection of data is made by the Leader Bank or as it may
direct.
xii) Each of the said Banks shall at the request of the Leader Bank join in the exercise of any power
hereby made exercisable by the said Banks or any of them and shall join or occur in all such
acts, proceeding, things or steps as may be necessary or convenient to enable any of the said
Banks to recover any moneys due to it upon the said Securities or otherwise to obtain the
benefit of the said securities and in default, the defaulter Bank shall be made an defendant /
respondent in any action the other Banks may decide to take.
xiii)The Leader Bank shall meet at quarterly intervals to assess the performance of the Borrower
based on the statements from the Borrower under the Quarterly Information System (QIS) and
fix at such meeting the operating limits / Individuals Bank's share thereof for the next quarter
which shall be binding on the members of the consortium.
xiv) No member of the consortium shall opt out of the Consortium mainly on account of the
sickness / impending sickness / weakness of any of the Borrower's units. In the event of a
Member of the Consortium desiring to opt out of the Consortium for any other reason
considered to be the valid by the Leader Bank either by itself or at the instance be offered to one
or more amount the other member Banks and only if one of them is willing to take up that
share, one or more new Banks may be admitted into the Consortium in consultation with the
Leader Bank.
xv) The Leader Bank will be solely responsible for submission to the Reserve Bank of India /
NABARD on behalf of Consortium Members for Post sanction security under the Credit
482 - III
Authorization Scheme and for answering to the requisitions as may from time to time be made
by the Reserve Bank / NABARD in that regard. The Leader Bank will also be solely
responsible for submitting an application on behalf of the Consortium Members for
authorization, if requisitions as may from time to time be made by the Reserve Bank /
NABARD in that statement.4. Each of the said Banks shall supply to the other or others of the
said Banks statements monthly or more often as may be agreed upon , showing the state of the
Cash Credit Account(s) or other account(s) in the Books of the Bank supplying such statement
and the amount of payments in and the drawings out of or any other sum debited to the Cash
Credit Account(s) or other Account(s) during the period preceding the date of the statement.
4. Notwithstanding anything to the contrary contained in the said Consortium Agreement and / or the Joint
deed of Pledge and / or the Second Charge or arising from or by virtue or reason of or implied by the
same, all moneys resulting from the enforcement or realization of the said Securities by or on behalf of
the said Banks and the amount realized from any policy or polices of insurance in respect of the said
securities though payable to the Borrower and any other realization from or out of the said securities or
any part thereof by enforcement of the securities or be resource to any special legislation for recovery of
dues as may be applicable or otherwise howsoever shall be available for distribution amongst the said
Banks inter se in the same proportion to their respective outstandings in the said facilities, without any
preference or priority of one over the other or others for all purposes and to all intents and shall be
applied by the Leader Bank with all convenient despatch in the manner herein provided.
a. First there shall be paid out of such moneys or provisions made there out for the costs, charges,
expenses incurred by the said Banks for and incidental to the enforcement of the said securities and
/ or realization or receipt of such moneys;
b. Secondly, the balance of such moneys shall:
i. In the event of the moneys so available for distribution being sufficient to pay to the said Banks
the full amounts of the Debts (including the contingent liabilities) due from the Borrower to
them respectively be applied simultaneously in the payment to each of them of their respective
Debts in full.
ii. In the event of moneys available for distribution being insufficient to pay to each of them the
full amount of the debts (including the contingent liabilities) due from the Borrower to them
respectively, be applied pari passu as nearly as may be practicable towards payment to each of
them without any preference or priority whatsoever. The amount distributable to each of them
shall bear to the total distributable amount the same proportion which the outstanding amounts
of Debts (including the contingent liabilities) due to all of them under the said securities
created and / or to be created by the Borrower.
c. Thirdly, the surplus if any, out of such moneys shall be paid by the Leader Bank to the Borrower or
the person entitled thereto.
5. All realisations out of policies of Insurance taken out by the Borrower in respect of the said Securities
although taken only in the name of the Borrower shall be available for the benefit of the said Banks.
483 - III
6. Notwithstanding that the Leader Bank shall distribute the realization in the manner mentioned above,
as between the said Banks and the Borrowers, the said Banks shall be entitled to enforce their rights by
suit against the Borrower for any moneys that may still be due to them from the Borrower. 8. All
documents of title evidencing the creation of the said securities by the Borrower and all documents
relating to the said Cash Credit Account(s) or other account(s) shall be held by the Leader Bank or as it
may direct. The Leader Bank shall make available the said documents to the Member Banks or any of
them against their accountable receipt for the same.
7. The Leader Bank shall take all the necessary and appropriate steps and actions to ensure compliance by
the Borrower with all the terms, conditions and stipulations in respect of the said facilities, the
repayment and payment obligations of the Borrower or the Guarantor/s to the said Banks, the quality,
quantity and sufficiency of the security there for and shall undertake at the cost and expense of the
borrower the requisite inspection of the said securities in accordance with the relevant provisions of the
said Consortium Agreement and / or the Joint Deed of pledge and / or the second charge. Whenever the
Leader Bank take any action, which in its opinion and discretion is necessary or appropriate in
pursuance, or for the enforcement, of its rights over the said Securities for other security by taking
possession of the said Securities, dealing therewith, or disposal thereof, or any other manner or by
filling suits, actions or other proceeding of in any other manner in accordance with terms, conditions the
stipulations contained in the said Consortium Agreement and / or the second charge otherwise, such
actions shall be taken for itself and for and on behalf of the member banks and where such actions have
not been specifically so taken they shall be deemed to have been taken for itself and for behalf of the
Member Bank. For all the services rendered by Leader Bank the other Member bank of the Consortium
shall pay service charges at 10% out of the 16% interest Received.
8. Each of the said Bank hereby agrees that all acts, deeds and things done in accordance with this
Agreement by the Leader Bank shall be construed as acts, deeds and things done by each of them and
each of said Banks undertakes to ratify and confirm all and whatsoever the Leader Bank shall do or
cause to be done for itself and on their behalf. The Leader Bank shall not be liable to the member banks
for any act, deed or thing done or omitted to be done in good faith under this agreement.
9. Any further assistance by way of working capital facilities granted to the Borrower by the said Banks
would have a ranking of a pari passu nature with the present assistance on receipt of the said facilities to
the Borrower and shall deemed to be included in the said facilities and secured like wise.
10. A. It is declared and agreed by and between the parties hereto that notwithstanding anything to the
contrary contained herein or in the securities created or purported to have been created by the
Borrower in respect of the said facilities granted or continued prior to the execution of these
presents, shall be governed and be deemed to have always been governed by the provisions, terms
and conditions contained in this Agreement, as if such facilities were and are part of the said
facilities referred to herein and hereunder.
B. It is declared and agreed by and between the parties hereto that notwithstanding anything to the
contrary contained herein or in the Securities created or purported to have been created by the
Borrower in respect of the said facilities or such other facilities as are subsisting from time to time
484 - III
in favour of the A Bank Consortium, the provisions contained herein shall govern not only the A
Bank Consortium as constituted at the time of execution of these presents but also such consortium
or the reconstituted consortium shall enter into and execute such documents or deeds as maybe
deemed necessary in the opinion of the Leader Bank and as directed by the Leader Bank.
In witness whereof the parties hereto have set their hands into these presents the day, month and year herein
above written. SIGNED AND DELIVERED for and on behalf of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
District Central Cooperative Bank Ltd., the Leader Bank by the hand of . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
. .. It's authorized officials in this behalf.
Shri
SIGNED AND DELIVERED for and on behalf or

The Member Banks as mentioned below by the
Hands of its duly Authorized Officials in this behalf.
. . . . . . . . . . . . . . . . . . . District Central Cooperative Bank Ltd.
The ______________State Apex Cooperative Bank Ltd.
INTER SE AGREEMENT BETWEEN
DATED THIS THE . . . .. . . . . . . DAY OF . . . . . . . . . . . . TWO THOUSAND..............................
485 - III
Specimen of 'OPERATION OF CASH CREDIT A/C PROCEDURES CONSORTIUM

ADVANCES TO SUGAR MILLS'
I. The Leader Bank should open separate day book accounts under the heads.
i. Advances to sugar mills under consortium
ii. Member Bank - B
iii. Member Bank - C
iv. Member Bank - D
II. Allowing Drawals:
While allowing drawals, the Leader Bank shall make the following entries.
Dr Cr
Advances to CSMs under Consortium Cash Credit Account of the CSM
III. Claiming reimbursement from Member Banks:

The Leader Bank allows drawals and receives remittances on behalf of the consortium by debiting its
“Advance to CSMs under Consortium” account. At an interval of 15 days the Leader Bank arrives at the
relative shares in the Drawing Power of the Member Banks and accordingly claims reimbursement /
makes repayment from / to the member banks. If reimbursement is claimed from the members and
received, the following entries are to be made;
Dr Cr
Member Bank B Advances to CSM under consortium
Member Bank - C
Member Bank - D
IV. Remittances By The CSM:

When remittances from the Sugar Mills are received, the Leader Bank makes the following entries:-
Dr Cr
Cash Credit account of the Sugar Mills Advances to CSM under Consortium
V. Repayments To Member Banks:

When any repayments are made to the member banks, the following entries are to be made by the
Leader Bank: -
486 - III
Dr Cr
Advances to CSM under consortium Member Bank – B
Member Bank - C
Member Bank – D
VI. Whenever the CCB accounts are maintained at the branches of the DCCBs, the Branch may make
adjustments to the Head Office Account instead of the “Advances to CSMs under consortium” account.
ILLUSTRATION
Sugar Mills “XYZ is sanctioned a Cash Credit Limit of Rs.4,000.00 lakhs in the following proportion:
Leader Bank : 50%
Member Banks : 20%
Member Banks : 15%
Member Banks : 15%
On 01.10.2001, there is a carry over outstanding of Rs.3,200.00 lakhs against the DP of Rs.3,800.00 lakhs.
The CSM makes the following transactions:
Date Drawals Remittances

October
1 -- 20.00
3 30.00 10.00
4 40.00 20.00
5 70.00 30.00
6 25.00 --
8 35.00 --
9 60.00 30.00
10 20.00 --
11 280.00 110.00
Hence as on 11.10.2010, the outstanding increases to Rs.3,370.00 lakhs and the D.P. is at Rs. 3.700.00 lakhs.
Now the Leader Bank should apportion the Current D.P. of Rs.3,700.00 lakhs to all the members of the
consortium according to their percentage of shares. Therefore, the relative share of DP will be as follows:
487 - III
Sl. No. Particulars Amount (Rs. in Lakhs)
01 Leader Bank 50% 1,850.00

02 Bank B 20% 740.00
03 Bank C 15% 555.00
04 Bank D 15% 555.00
TOTAL 3,700.00
Now, the Leader Bank should ensure that the outstanding against each member bank does not exceed the
relative DP fixed above. Hence, if the outstanding in the account of the Leader Bank is in excess of its share
in the D.P. reimbursements should be claimed from other member banks immediately.
488 - III
SPECIMEN OF 'DISBURSEMENT NOTE'

(format used by Member Banks after allowing the Share amount to Leader Bank under
Consortium Arrangements)
The . . . . . . . . . . . . . . . . . . . . . . . . . . District Central Co.op Bank. Ltd.,

********
We hereby disburse / reimburse the sum of Rs. Lakhs against our share of Rs.
(lakhs) under consortium arrangement for the season 1998 99 in respect of the advances to the .
. . . . . . . . . . . . . . . . . . . . . . . . . Coop. Sugar Mills as per the reimbursement claim . . . . . . . . . . . . . . . . . . . dated of the
. . . . . . . . . . . . . . . . . . . . . . . . . . District Central Coop. Bank, the Leader Bank of the Consortium.
The amount is credited / transferred as per the instructions of the Leader Bank as follows: -
Amount transferred : Rs. . . . . . . . . . . . . . . . . . . . . . . . . . . (in Lakhs)
Mode of Remittance :
For . . . . . . . . . . . . . . . . . . . . . . . . . .
District Central Coop. Bank Ltd.,
GENERAL MANAGER.
To
. . . . . . . . . . . . . . . . . . . . . . . . . . District
Central Coop. Bank (Leader Bank)
Copy to: -
1. The . . . . . . . . . . . . . . . . . . . . . . . . . . DCCB
2. The . . . . . . . . . . . . . . . . . . . . . . . . . . DCCB
3. The ______________ State Apex Coop. Bank Ltd., Chennai 1.
4. The . . . . . . . . . . . . . . . . . . . . . . . . . . Sugar Mills Ltd.
489 - III
Specimen of format to avail Reimbursement of Funds from Member Banks by the Leader Bank
under Consortium Arrangements)
THE . . . . . . . . . . . . . . . . . . . . . . . . . . DIST. COOPERATIVE BANK LIMITED

R.c No. . . . . . . . . . . . . . . . . . . . . . . . . . . Date . . . . .
To
The Special Officer,
. . . . . . . . . . . . . . . . . . . . . . . . . . District,
Central Coop. Bank / Apex Bank,
..........................
Sir,
Sub: Cash Credit Limit sanctioned to the . . . . . . . . . . . . . . . . . . . . . . . . . . Coop. Sugar Mills, . . . . . . . . . . . . . . . . . .

. . . . . . . . Reimbursement of share from Member Bank under Consortium Arrangement for Rs. . . . . . . . . . . . . . .
. . . . . . . . . . . . lakhs Reg.
Ref: ……………… Bank letter C.No.______/_____/________ dated _______
*******
We wish to state that the outstanding in the Cash Credit (Pledge) Account of the . . . . . . . . . . . . . . . . . . . . . . . . . .
Coop. Sugar Mills is Rs. . . . . . . . . . . . . . . . . . . . . . . . . . . lakhs as at the close of . . . . . . . . . . . . . . . . . . . . . . . . . .. The
CSM has pledged a stock of . . . . . . . . . . . . . . . . . . . . . . . . . . qtls. of sugar and the value of the same works out to
Rs. . . . . . . . . . . . . . . . . . . . . . . . . . . lakhs.
Please reimburse the Sum of Rs. . . . . . . . . . . . . . . . . . . . . . . . . . . lakhs against your share of Rs. . . . . . . . . . . . . . . . . . .
. . . . . . . . lakhs on the advances to the above Sugar Mills under consortium arrangement and credit the same to
our Centralized Current Account with ………………………………….. Bank.
Yours faithfully,
Encl: Enclosure I to III. GENERAL MANAGER
490 - III
Enclosure-I
Specimen of format to avail reimbursement from Member Banks under

Consortium Arrangement
THE . . . . . . . . . . . . . . . . . . . DIST. CENTRAL COOPERATIVE BANK LIMITED.

*********
Details of eligibility of . . . . . . . . . . . . . . . . . . . . . . . . . . Co.op. Sugar Mills . . . . . . . . . . . . . . . . . .
. . . . . . . . with reference to limit sanctioned as on . . . . . . . . . . . . . . . . . . . . . . . . . . under consortium
arrangement.
(Rs. In lakhs)
01. Limit sanctioned for . . . . . . . . . . . . . season :
02. Outstanding against the Column 1 as on . . . . .
. . . . . . . under pledge limit :
03. Drawing Power :
04. Share of Leader Bank :
05. Share of Member Banks :
a. . . . . . . . . . . . . . . . . . . . . . . . . . DCCB :
b. . . . . . . . . . . . . . . . . . . . . . . . . . DCCB :
c. . . . . . . . . . . . . . . . . . . . . . . . . . DCCB :
d . . . . . . . . . . . . . . . . . . . . .. . . Apex Bank :
06. Deed of pledge dated :
07. Pari Passu Letter executed on :
08. Pari Passu Agreement signed on :
09. Last Consortium Meeting held on
(Consortium Meeting Proceedings should
be furnished periodically) :
10. Amount of reimbursement / Member Banks
Share so far claimed :
11. Present amount claimed under consortium
Arrangement from Member Banks (specify the
Bank) :
(A latest Drawing Power Statement from Sugar Mills should be furnished along with this statement).
For …………….DCCB,
GENERAL MANAGER
491 - III
Enclosure-II
Specimen of format to avail reimbursement from member banks under

THE . . . . . . . . . . . . . . . . . . . DIST. CENTRAL COOPERATIVE BANK LIMITED.
ELIGIBILITY OF SUGAR MILLS (DRAWING POWER) AS ON . . . . . . . . . . . .
Name of the Sugar Mills : . . . . . . . . . . . . . . . . . . . . . . . . . . Coop. Sugar Mills.
(Rs. In lakhs)
01. Value of Levy Sugar at the rate of . . . . . . . .per

Qtl.for . . . . . . . . . . . . qtls. :
LESS: Margin at 10% :
BALANCE :
02. Value of Free Sale Sugar at the rate of Rs. Per
qtl. for . . . . . . . . . . . . . qtls. :
LESS: Margin at 15%
LESS: Earmarking if any for IC / LG etc. :
BALANCE :
03. Eligible Drawing Power of the Mills (1 + 2) :
04. Amount already advanced by DCCB (Leader Bank) :
05. Eligible amount to be drawn from Member Bank
(Member Banks share under consortium
arrangement) :
06. Amount already drawn :
07. Balance available for further drawals :
08. Amount now claimed :
for . . . . . . . . . . . . . . . . . . . . . . . . . .DCCB
GENERAL MANAGER
492 - III
Enclosure-III
Specimen of Certificate to avail reimbursement from member banks under

THE . . . . . . . . . . . . . . . . . . . . . . . . . . DIST. CENTRAL COOP. BANK LIMITED
CERTIFICATE
01. Certified that the Mills stocks are insured for Rs. . . . . . . . . . . . . . . .lakhs on declaration basis vide Policy
No. . . . . . . . . . . . . . against fire, riot, strike and flood clause with . . . . . . . . . . . . . . Assurance Company for
the period from . . . . . . . . . . . . to . . . . . . . . . . . . . . in the joint name of the Mills and the Dist. Central Coop.
Bank. It is further certified that the above insurance Policy covers the entire sugar stocks pledged with
the Banks.
02. Certified that the stocks of sugar stored in the mills godown and outside godwons are pledged with the . .
. . . . . . . . . . . . . . . . . . . . . . . . Dist. Central Coop. Bank . . . . . . . . . . . . . . . . . . . . . . . . . . towards cover for the
borrowing under the Cash credit Limits sanctioned to the Mills by the DCCB on its own behalf and on
behalf of Member Banks under consortium arrangements.
03. Certified that the sugar stocks pledged with the Dist. Central Coop. Bank under consortium
arrangements are the Sugar Mills own property and no one else has got any claim or lien over them other
than the Leader Banker and Member Banks under Consortium Finance.
04. Certified that the daily average price register is maintained by the Mills in respect of sale of Free / Buffer
Stock Sugar and the same is checked by the authorized officials of the DCCB and found to be in order.
For THE . . . . . . . . . . . . . . . . . . . . . . . . . . DISTRICT
CENTRAL COOP. BANK LTD.
GENERAL MANAGER
493 - III
Specimen of Weekly Statement to be furnished by Leader Bank to all the member

banks of the Consortium and the Apex Bank
Name of the Sugar Mill :
Particulars as on :
1. Sugar Stock LEVY FREE SALE
a. Quantity :
b. Rate per qtil :
c. Total Value :
d. Margin @ 10% /15% :
e. Drawing Power (c-d) :
2. Value of Buffer Stock, if any :
3. Total Drawing Power (1(e)+2) :
4. Amount out standing
5. Surplus Drawing Power /
Cover Deficit :
6. Other liabilities of the Mills :
a. Term Loan :
b. LC / LG :
c. Blocked Loan :
d. Others (please specify) :
TOTAL :
7. Consortium Share details :
(Rs. In LAKHS)
Sl. No. Name of the Bank Relative share in the DP Outstanding
1. Lead Bank
2.
3.
4
TOTAL
AUTHORISED OFICER
. . . . . . . . . . . . . . . . . . . . . . . . . . DCCB
494 - III
CHAPTER 30
FINANCING OTHER APEX COOPERATIVE INSTITUTIONS

1. General:
a. In each State, in addition to the SCB, other Apex Cooperative Institutions like State Coop.
Agriculture and Rural Development Bank (SCARDB), State Coop. Marketing Federation, State
Coop. Consumer's Federation, State Coop. Housing Federation, etc., will also be functioning.
b. All these Apex Cooperative Institutions may require working capital assistance to carry out their
day to day business and credit activities. Further Apex Coop. Institutions like SCARDB and Coop.
Housing Federation may require refinance for credit to their Primaries similar to that of DCCBs
availing refinance to provide credit facilities to PACS.
c. Since these Coop. Institutions are State Level Apex Cooperatives, the SCBs may provide credit
facilities to these Apex Cooperative Institutions from their own funds under direct finance for their
working capital requirements.
d. The SCB may sanction cash credit limits to these apex cooperative institutions against
hypothecation of goods/stocks/ outstanding dues as the case may be.
e. These credit limits may be sanctioned for a period of one year. Normally, these CC limits will be for
the calendar year from Jan to Dec.
f. The CC limits may be enhanced / reduced / renewed / cancelled for subsequent years based on their
requirement and operation in the CC account and the utilization of the credit during the previous
year.
g. The Rate of Interest for these CC limits will be as fixed by the Banks from time to time. The interest
will be charged to the CC account on monthly basis at the end of every month on the daily
outstanding in the CC account.
h. The credit facilities provided to the Coop. Apex Institutions also will be subjected to the norms
prescribed by NABARD under CMA and Exposure Norms.
2. Documents to be obtained from the Coop. Apex Institutions:
a. Application form in the prescribed form duly filled in and signed.
b. Board Resolution.
c. Demand Promissory Note.
d. Latest Audited Balance Sheet and Audit Certificate.
495 - III
e. Recommendation / Permission from the Registrar of Coop. Societies or appropriate authority.
f. NODC statement as on the date of application.
g. Statement showing the credit facilities availed by the Apex Coop. Institution during the previous
year along with the details of utilization and repayment schedule.
h. Statement showing the projections for the next 3 years.
i. Hypothecation Deed, if required.
j. Stock statement / cover statement.
k. Specimen signatures of authorized officers of the Institution to operate the CC a/c.
l. Statement showing the maximum borrowing power.
3. Board Resolution:
a. The Board Resolution should contain the following:
i. Request to the SCB to sanction the CC limit mentioning the purpose and the quantum of credit
required.
ii. Names and designations of officers of the Institution authorized to operate the CC limit.
iii. Specimen signatures of the officers authorized to operate the account duly attested.
iv. Nature of security offered.
v. Undertaking to abide by the rules/ terms and conditions prescribed by the bank form time to
time.
4. Procedure to sanction the CC limit:
a. On receipt of the application for the CC limit in the prescribed format along with the required
documents, the SCB has to scrutinize the application and analyse the statements and other
documents based on the appraisal norms fixed by the SCB and put up to the Board of Management
for approval.CC limit will be considered based on the requirement, drawing power. On approval by
the Board of Management, the SCB may sanction the CC limit to the Apex Coop. Institution and
send the sanction letter and the terms and conditions for acceptance by the Coop. Apex Institution.
5. Operation in the CC A/c:
a. The Apex Coop. Institution has to resubmit a copy of the sanction letter and the terms and
conditions duly signed by the officers authorized, as a token of acceptance.
b. The CC limits will be fixed to the Apex Coop. Institution and drawals will be allowed based on the
drawing power / requirement / utilization / NODC, etc. as per the terms and conditions prescribed
for the Limit.
496 - III
6. Terms and Conditions:
a. The CC limit will be valid for one calendar year from _________.
b. Drawals will be allowed based on the requirement / borrowing power / NODC.
c. The rate of interest will be ____ % (as fixed by the Bank) and the interest will be charged to the CC
account at the end of every month on the daily outstanding in the account.
d. Adequate funds have to be provided in the CC a/c or current a/c of the Apex Coop. Institution to
debit the interest due on the due date.
e. If interest is not paid on the due date, Penal Interest over and above the normal rate of interest fixed
for the CC limit will be charged at the rate fixed by the Bank from time to time.
f. All the transactions of the Apex Coop. Institution should be roughed through the CC a/c.
g. NODC / Stock statements, etc. should be submitted every month on or before 10th of the subsequent
month.
h. Demand Promissory Note and other documents should be signed by the authorized official.
i. The stocks should be hypothecated to the SCB; if refinance is provided to Primaries stocks should
be re- hypothecated in favour of the SCB.
j. Adequate insurance coverage should be provided for all the securities offered for the CC limit.
k. Adequate margin should be provided as fixed by the Bank based on the nature of credit /
transaction.
l. Periodical review will be done by the SCB on the utilization of the cc limit and the SCB has every
right to enhance / reduce / cancel / renew the CC limit at any time.
m. The SCB, RBI and NABARD may conduct periodical / surprise inspection of the Apex Coop.
Institution / their primaries / Security at any time.
n. The SCB has every right to alter / amend any of the terms and conditions prescribed at any time and
the Apex Coop. Institution should adhere to the terms and conditions strictly.
Note: Since the Financing to Apex Cooperative Institutions is a part of the Non Agricultural
Advances of the SCB, the terms and conditions prescribed for DCCBs for providing refinance from
the own funds of the SCB will also apply based on the nature of transaction / apex coop. institution.
497 - III
CHAPTER-31
APPRAISAL OF TERM LOAN
1. General:
a. A Term Loan is sanctioned for acquiring fixed assets i.e. land, building, machinery, vehicles, etc.
and is normally, repayable in equated monthly instalments spread over a specified number of years.
b. Repayment of a Term Loan should be out of profit.
c. Repayment of working capital finance is generally made out of the sale proceeds of current assets.
d. Term loan may be sanctioned either under direct finance or under refinance.
e. Banks prefer to sanction Term Loans which are eligible for refinance. To be eligible for refinance,
the Term Loan should be given as per the norms prescribed by the Refinancing Institution and the
industry should not be one which is classified under Negative List.
2. Term Loan to Industrial/ Manufacturing Units:
a. While sanctioning Term Credits to Industries, a detailed analysis is to be made on the following
aspects of a project.
i. Managerial Competence
ii. Technical Feasibility
iii. Commercial Viability
iv. Financial Viability.
b. Generally the entrepreneur submits a project report prepared and Approved by appropriate
authority.
c. The appraising official has to cross check the reliability of the assumptions made in the project
report and if necessary recalculate the projections on fresh assumptions made.
3. Managerial Competence:
a. A thorough study on the capability of the entrepreneurs in implementing and managing the project
is to be made by examining the following:
i. Past experience,
ii. Qualification,
iii. Technical and Managerial Skill
498 - III
iv. Entrepreneurial Skills,
v. Character (Honesty, integrity)
vi. Capability to arrange promoter's contribution/margin and other funds in contingencies.
4. Technical Feasibility:
a. Technical feasibility involves the study of the following aspects relevant to production of finished
goods of proper quality.
i. Licences, permits required to start the project and their availability.

ii. Location of the project vis-à-vis the availability of raw material, utilities, (Power, steam,
water, fuel, etc.) and transport.
iii. Product and Process: (The manufacturing process adopted, vis-à-vis the modern technology
available and the standing of the supplier of technology and his stake (as collaborator,
shareholder, etc.) is to be examined. Wherever feasible, performance guarantee may be
insisted upon from the suppliers of technology).
iv. Plant and Machinery (Suitability, Capacity, Standing of Suppliers, Availability of
performance guarantee and cost etc. are to be examined).
v. Raw material and Labour Availability (Quality, cost, regularity in supply are to be studied).
5. Commercial Viability:
a. One must examine whether the goods can be sold in quantity and price as projected by the
entrepreneur. Unless the products are sold at or near to the projected level the expected cash flow
will suffer and the unit would become sick. To avoid such an eventuality, a thorough examination is
to be made on the following points.
i. The present and futuristic trend of demand for the product.

ii. The level of competition from similar products and substitutes and the strength of the
competitors.
iii. The marketability of the product (by aggressive/innovative marketing strategy).
iv. The present stage in the life cycle of the product.
v. Price of the product vis-à-vis the substitutes and price elasticity of demand
6. Financial Viability:
a. Financial Viability involves the study of the following aspects:
i. Whether sufficient finance at reasonable cost is available to execute the project (cost of project
and means of finance)
ii. Whether sufficient profit will be available to service the creditors and shareholders, (Project
Profitability Statement and Funds Flow Statement).
499 - III
iii. Whether sufficient funds/cash will be available to repay Term Loan instalment (Debit Service
Coverage Ratio and Projected Cash Flow)
iv. Whether the break-even-point and margin of safety are satisfactory. A specimen of the
v. 'Break-Even Point Analysis' is given in the Annexure 1 to this Chapter.
vi. What will be the position of the company in future years (study of projected Balance Sheets
for the years covering the currency of Term Loan).
7. Cost of the Project:
a. The cost estimate/ analysis of fixed cost and variable cost and break-even level for the project
should be prepared by a Cost Accountant and to be studied in detail by the banker before
ascertaining the quantum of credit.
b. Cost of the Project includes all expenditures required to bring the project into the stage of
commercial production and consists of the following major components:
i. Land and Site Development

ii. Building
iii. Plant & Machinery
iv. Miscellaneous Fixed Assets (Electric Installation, Vehicles, Furniture, etc.)
v. Technical knowhow (cost of technology, patents, etc.)
vi. Preliminary expenses (expenses in formation of company, public issue, law charge, etc.)
vii. Pre-operative expenses (Salary, Interest on Term Loan, etc. before commencement of
production).
viii. Margin on Working Capital (as per 2nd Method of Lending). Provision for contingencies
(unforeseen expenditures).
8. Means of Finance:
a. Answers to the following questions for means of finance should be scrutinised:
i. Whether the means of finance is sufficient compared to the cost of the project?
ii. What is the average cost of finance and how it compares with the return from the project?
iii. What is the Debt Equity Ratio? Is it as per IDBI/SIDBI requirement? Or is it satisfactory?
iv. What is the Promoter's Contribution? Is it as per IDBI/SIDBI norms or is it satisfactory?
9. Time and Cost Overrun:
a. Time overrun refers to the delay in implementing a project. One of the major causes of time
overrun is the scarcity of finance which in turn occurs mostly due to the underestimation of project
cost and means of finance.
500 - III
b. Cost overrun means the escalation in the project cost due to one reason or the other. Time overrun
invariably leads to cost overrun. Besides this, there can be cost overrun due to inflation, fluctuation
in exchange rate, or any other reason which has the effect of increasing the components of project
cost.
c. Cost overrun disrupts the project profile of a project, its viability and its repayment capacity.
Sometimes the overrun even leads to abandoning the project as promoters fail to arrange the
incremental requirement of fund, or the project becomes unviable.
10. Projected Profitability Statement:
a. Projected Profitability Statement is to be prepared for all the years covering the repayment period
of the Term Loan.
b. The starting point for preparing a projected profitability statement is the estimation of sales in units
which is based on demand forecast.
c. After the calculation of sales, one should calculate capacity utilisation. The capacity utilization
during the initial years should be around 40% to 45% and then it should increase year after year to
reach optimum level of around 75% to 80%.
d. Then the amount of sales should be determined by multiplying the unit sales with current market
sale price of a unit. (The present market price should be applied for all the years as increase in sale
price will be offset by increase in cost and need not be taken into account).
e. The next step is to determine all the costs to be incurred to achieve the estimated level of sale. Raw
material cost is calculated at present actual cost.
f. Wages are calculated by multiplying the number of workers with wages to be paid. Wages should
include Bonus, perquisites etc. to be paid. The wage level should be increased by 5% to 10%from
one year to another.
g. Repair and maintenance should be around 2% of the machinery cost.
h. Other costs like Insurance, Rent and Stationery should be realistically projected for the first year
and then increased by 5% to 10% every year.
i. Depreciation should be as per actual calculation. Pre-operative Expenses and Contingencies (in
cost of project) should be added proportionately to fixed assets for calculating depreciation.
j. Interest on borrowing should be calculated taking into account the repayment schedule.
k. Preliminary expenses in excess of 2.5% of the project cost should be added to machinery for
calculating depreciation.
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l. Then the next step is to calculate profit before tax and after tax.
m. The credit officer must ascertain the reasonableness of projected sales in units, unit sales price, cost
of production and the profit.
11. Projected Funds Flow / Cash Flow Statement:
a. Funds Flow Statements covering the entire period of loan (including construction period) are
studied to ensure that sufficient funds will be available year after year to implement the project and
to repay the loan.
b. Further Funds Flow Statement helps to monitor the loan account by comparing actual uses and
sources of funds with the projected figures.
12. Annexure/s:
The following Annexure is appended to this Chapter:
Annexure 1 : Specimen of 'Break-Even Point Analysis'.
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Specimen of 'BREAK EVEN POINT ANALYSIS'
I. DEFINITION OF BEP:
BreakEven Point is the amount of Sales at which a unit makes no profit or no loss. In other words, it is
the level of sale at which sales revenue is equal to the total cost of the units sold. A unit can earn profit
only if its level of sale is above the break-even point.
II. WHY BEP IS CALCULATED?
- A Term Loan should be serviced out of profits. If the unit functions at a level of sale at which there is no
profit, it is natural that it cannot repay the Term Loan instalments. This brings the necessity for
calculating the level of sale above which profits are earned by the unit. In other words it is necessary to
calculate BreakEven Point.
- Once the BEP is calculated, the sale projection made in the profitability statement is compared with
BEP sale. In case the difference between the projected sale and BEP sale is very low, it is risky to finance
the project. A minor deviation in some elements of projected cost may result in a loss and likely default
in repayment of the term loan dues.
- On the other hand, where the projected sale is appreciably higher than the BreakEven Point, the
profitability of earning some profit is still there even if there are some deviations in projections. A unit
with comparatively low BEP is generally preferred for finance.
- The difference between Projected Sales and BEP sale is known as Margin of Safety. A unit with a
Higher Margin of Safety is generally preferred by banks for finance.
III. STEP BY STEP PROCEDURE FOR CALCULTING BEP
1. Optimum Capacity
Where projected profitability statements for many years are given one should chose the first year of
optimum capacity utilization for calculating BEP.
2. Classification of costs
All costs (i.e. manufacturing, selling and administrative) relevant to this year should be taken into
consideration and they should be classified into FIXED COSTS and VARIABLE COSTS.
Fixed Cost: is one which is incurred irrespective of the level of production. It is incurred even if
there is no production or sale. It is a sort of PERIOD COST a cost which is be compulsorily
incurred whether there is sale or no sale. Examples of Fixed Cost are Plant & Machinery,
Depreciation, Rent, Manager's Salary, Interest on Term Loan etc. (Note: Total Fixed Cost of a unit
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remains constant, but fixed cost per unit of sale/production goes down with increase in number of
units).
Variable cost: A variable cost is one which varies directly with sales/production. As the
sales/production increases this cost also increases. If there is NIL sales/production this cost should
be Nil. Examples of Variable cost are Raw material, wages, fuel, power, interest on working
capital etc. (Note: Total Variable cost of a unit goes up with increase in production/sale, but variable
cost per unit remains constant).
IV CALCULATION OF BEP
- BEP can be expressed in three ways in terms of:

(i) number of units of sale
(ii) amount of sale in rupees and
(iii) capacity utilization.
Depending on the requirement in which BEP is to be expressed, different formulae are used in calculating
BEP.
i. BEP in units of Sale: Anyone of the three formulae can be used depending on the availability of data
(in fact they are just different forms of the same formula).
BEP in units = Fixed cost

Contribution per unit
OR
BEP in units = Fixed cost
Sale Price per unit Variable cost per unit
ii BEP in Rupees: Any one of the following two formulae can be used.
(a) BEP in Rupees = BEP in units x Sales price per unit.
(b) BEP in Rupees = Fixed cost x Total sale in Rs.
Total Contribution
iii BEP in terms of capacity utilisation

BEP in capacity = Fixed cost x Projected capacity
Total Contribution Utilization at Optimum sales level
V. Calculation of BEP when p/v Ratio is given

P/V ratio (profit volume ratio) is equal to = Total contribution
Total Sales
Break Even Point = Fixed cost
P/V ratio
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VI. MARGIN OF SAFETY
Margin of Safety = Actual Sale BEP (Sales)

It is the measure of cushion available in the given level of sale. More the margin of safety, stronger is the
unit. Where the margin of safety is low, the possibility of the unit coming to loss is quite high and banks
avoid financing such units.
Margin of Safety is also calculated in the form in the form of ratio (in percentage) as given below.
Margin of Safety = Actual Sale BEP (Sale) x 100
Actual Sale
VII.STANDARD BEP
There is nothing called Standard BEP. Capital intensive industrial units generally have BEP. As a thumb
rule, units showing BEP higher than 65% should be treated as risk Units with BEP less than 45% are
relatively more attractive as they have a greater show absorbing capacity.
VIII. NET PRESENT VALUE:
Net present value is calculated by deducting present value of cash outflows from the present value of
cash inflows. Investments in projects with negative present value should be rejected, and investments
with higher net present value should be preferred.
IX. INTERNAL RATE OF RETURN (IRR):
- Internal Rate of Return is the rate of discount at which present value of cash inflow equal to the present
value of cash outflows.
- In other words, it is the rate of discount at which the inflows and outflows of cash should be discounted
so as to make the net present value ZERO.
X. ILLUSTRATION FOR CALCULATING IRR:
Let us calculate IRR for the following project where initial investment is Rs.10,000/- Total Project life
is 5 years, Cash inflows from 1st year onwards to 5th year are Rs.4,000/- Rs.2,500/-, Rs.2,000/-,
Rs.3,500/-, Rs.3,500/-. (Total for five years: Rs.3,500/-)
Step I: First We calculate the 'fake' payback period by dividing initial investment (Rs.10,000/-) by
average cash inflow (Rs.15,500/5 = Rs.3,100/-). It comes to 3.23 years. Then we try to locate this 'fake'
payback period (3.23) as a factor against 5 years in the annuity table. The nearest factors are 3.274 under
16% and 3.199 under 17%. This indicates that IRR in between 16% and 17%.
Step II: We try to find the present value of cash inflows by multiplying them with present value factor as
applicable for 16% and then 17%
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Year Cash Inflow PV Factor 16% Present Value PV Factor 17% Present Value
I 4,000 0.862 3,448 0.855 3,420
II 2,500 0.743 1,857 0.731 1,827
III 2,000 0.641 1,282 0.624 1,248
IV 3,500 0.552 1,932 0.534 1,869
V 3,500 0.476 1,666 0.456 1,595
10,185 9,960
Step III : Then we use the following steps for calculating IRR.
At 16% the present value is Rs.10,185 and
At 17% the present value is Rs.9,960.
For 1% difference in discount rate present value differs by Rs.225/-. Thus for Rs.225/-
discount factor changes by 1%. For Rs.185 (Rs.10,185 Rs.10,000) discount factor will change
by 0.82%. Therefore, Internal Rate of Return 16% + 0.82 = 16.82%
XI. USES OF IRR
1. A project is acceptable when the Internal Rate of Return is more than the expected rate of return
(determined by the management taking opportunity cost of capital and risk factor into account).
2. A project is acceptable only when the IRR is more than the cost of capital.
3. Normally for agriculture projects to be financed by bank, NABARD stipulates a minimum IRR of
15%. Higher the IRR, better is the acceptability of the project.
506 - III
CHAPTER 32
ASSESSMENT OF WORKING CAPITAL
1. General:
a. The capital required by an industrial unit can be classified broadly as Fixed Capital and Working
Capital.
b. The shopkeeper / dealer / distributor selling any goods from his shop / establishment is required to
block his funds in such goods. In addition to funds blocked in goods, the funds are also blocked in
debtors or receivables. The funds so blocked are called Working Capital because these funds are
required for carrying the Current Assets and to enable the business to carry on its operation without
break.
c. Fixed Capital: For the acquisition of Assets like Building, Machinery, Equipment, etc.
d. Working Capital: For the day today manufacturing and selling activities required for carrying
required current assets to enable the unit to carry on its operations, without break.
2. Components of Working Capital for Trade / Business:
a. The components of Working Capital are:
i. Minimum stocking period for goods less trades Creditors: The trading concern hold the goods
it trades in to bridge the gap between demand and supply and to exhibit different brand of
commodities to the customers. Value of minimum stock will naturally depend upon various
factors like, market nature, acceptability of brand, use of commodity (consumer durables or
perishable good), orders in hand and transport availability. The stocking pattern differs from
business to business, for example, in case of perishable goods (hotels, restaurant and
confectionery shops), the stocking period ranges from one day to fifteen days. Whereas in
other items it may range from fifteen days to three months. Stocking period can be worked out
with following formula:
No. of working days X Average stock of goods

Cost of goods sold
Where,
No. of working days = 365 days or actual number of working day
Average Stock of goods = Opening stock + Closing Stock
2
Cost of goods sold = Sales Gross Profit
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ii. Minimum credit period allowed to Debtors: This can be calculated as under:
No. of working days X Average stock of raw materials

Credit sales during the year
Where,
No. of working days = 365 days or actual number of working days
Average Debtors = Opening Stock + Closing stock
2
iii. The most common methods adopted by banks for assessing the working capital requirement
and the extent of Bank finance are:
a. Operating Cycle Method

b. Traditional Method
c. Recommendations of Tandon/ Chore Committee
d. Nayak Committee
e. Cash Budget Method
3. Performa for Calculation of Working Capital Requirement:
a. Working Cycle No. of days
i. Stock in trade:
ii. Sundry Debtors:
iii. Less: Sundry Creditors Operating Cycle / Cost ____________
____________
b. Working Capital Required:
i. Formula = Operating cost full year or operating period

Numbers of days in operating cycle
c. Operating Cycle Method:
i. Any manufacturing activity is characterised by a cycle of operations consisting of purchase of

raw materials for cash, converting these into finished goods and realising cash by sale of
finished goods.
CASH
SUNDRY RAW
DEBTORS MATERIALS
FINISHED STOCK IN
GOODS PROCESS
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ii. The operating cycle is the time that elapses between a cash flow and a cash realisation by the
sale of finished goods and realisation of sundry debtors.
E.g.: a. Time taken to acquire raw materials : 60 days

b. Conversion process time : 10 days
c. Average period for which finished goods are in store : 20 days
d. Collection period of receivable : 30 days
e. The operating cycle is : 120 days
This means in a year, the industry can have three operating cycles
i.e. 365 = 3 cycle
120
4. Traditional method of assessment of Working Capital requirement:
a. Under this method, Working Capital Requirements are calculated based on the projected level of
sales for next year at the peak level of production. As discussed earlier, a unit has to stock raw
materials, carry stock in process, finished goods and sundry debtors so that smooth production can
be carried on. The Working Capital Requirements for these purposes are assessed first.
b. The sources from which the Requirement will be met will be analysed next. Usually the sources are
Sundry Creditors, Advance Payment Received, and Net Working Capital in the Business. The
short fall will be met by Bank finance, provided the unit has satisfactory Net Working Capital.
Reasonable margins will be prescribed on the various assets.
c. Under this method while computing the working capital requirement of a unit, two additional
factors are taken into account. One is the credit received on purchases. Secondly advances
received against orders placed with the units.
i. Raw materials - months requirements -A

ii. Stock in process - weeks period of processing -B
iii. Finished goods - Months cost -C
iv. Sundry Debtors - Outstanding credits -D
v. Expenses - 1 month -E
A+B+C+D+E
LESS: i. Credit received on purchases -F
ii. Advance payment on order received -G
W/C required (H) = A+B+C+D+E - (F+G)
5. Tandon Committee Norms:
a. Manufacturing units have to carry adequate Current Assets for uninterrupted and steady
production. The main components of Current Assets are stock and debtors. Till late 60s there were
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no widely accepted norms for Current Assets that can be carried by carried by industry and for
determining Working Capital requirement. As early as 1969 Dahejia Committee studied the
increase in bank credit and production and observed that the increase in bank credit was greater
than the increase in production. It also observed that many individual borrowers were originally
carrying huge inventories (i.e. stock) unrelated to production needs with a view to making
stocking profit. In 1974 RBI appointed Tandon Committee to study the question of bank credit to
industry. Its recommendation as approved by RBI are as under (Tondon Norms were applicable to
Working Capital Limits of Rs.10 lakhs and above).
b. Inventory Norms / Receivable Norms:
i. Industries must carry reasonable or normal level of stock and stores, which are necessary for
production. Also trade credit extended by them must be a reasonable period. The Committee
had recommended norms for 15 industries and observed that a similar approach should be
adopted towards all categories of industry. Deviation up to 20% of the standard norms / past
trends may be permitted by the bank in deserving cases.
ii. Inventory consists of two parts one 'fluctuating' and the other 'steady'. The “Steady” part has a
core element: The core represents the absolute minimum level of raw materials stock in
process, finished goods and stores which is essential to ensure continuity of production. The
funds invested in the 'core' inventory represents the long Working Capital unit.
c. Lending Norms:
i. Commercial bank shall not be looked upon as the source for meeting the entire Working
Capital need of the unit. Bank finance is only a supplementary source. A manufacturing unit
should have adequate Net Working Capital in the business; usually it also enjoys trade credit.
It should approach the bank only for meeting the short fall. There are two methods by which
bank can meet the Working Capital needs of industry.
 First Method: The Working Capital Gap is the difference between Current Assets and
Current Liabilities other than bank borrowings. The borrower must meet 25% of the gap
from long term funds (i.e. owned funds and term borrowings). Under this method, current
ratio is 1:17:1
 Second Method: The borrower must meet a minimum of 25% of total Current Assets
from long term funds. Under this method the current ratio is a minimum of 1:33:1
In the first method the permissible level of Bank finance is determined as under:
METHOD I : (Amt. in Rs)
Current Assets as per the Norms : 360
(+) Other Current Assets : 10
------------
370
(-) Current Liabilities : 150
------------
220
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Less 25% of the gap to be brought from
long term sources : 55
-----------
Maximum Bank Borrowings permissible 165
-----------
METHOD II
Current Assets as per the Norms : 360

(+) Other Current Assets : 10
------------
370
(-) 25% from Long Term sources : 92
------------
278
(-) Current liabilities : 150
-----------
Maximum Bank Borrowings permissible 128
-----------
6. Chore Committee Norms:
a. RBI introduced the following modifications in late 1980 based on the Chore Committee
recommendations. These are in force at present, too.
b. Working Capital Term Loan:
i. All large borrowers (Rs.50 lakhs and above) must be placed under the Second Method of
lending and the Working Capital Term Loan (WCTL) must be computed accordingly. The
WCTL is to be repaid in 5 years. Borrowers with limits ranging between Rs. 10 lakhs and
Rs.50 lakhs must conform to the Ist method of lending and increase the current ratio
progressively to achieve the recommended level under IInd method.
c. Information System:
i. In term of the recommendations of the Chore Committee the following statements have to be
submitted by borrowers (non-food) enjoying Working Capital Limits of Rs.50 lakhs and
above.
 Quarterly Information System (QIS) Form - I: before the start of every quarter (say
December for the quarter January to March) the projected Current Assets and liabilities at
the end of the quarter must be submitted.
 Quarterly Information System (QIS) Form I: Within 6 weeks after the end of a quarter
the borrower has to submit this statement containing the detail of actual and projected
reduction, sales, Current Assets and Current Liabilities.
 RBI have now given discretion to the banks to decide whether to charge penal interest or
511 - III
not in case of non submission / delay in submission of QIS statement. As will be seen QIS
Forms reveal the complete picture of the position of Current Assets, Current Liabilities,
Operating Results and Funds Flow. Hence, it is an important control tool for the bank.
ii. The specimen of the said Form I and Form II are given in the Annexure-1 and Annexure
2 to this Chapter, respectively.
d. Operating Limits:
i. The Operating Limit will be fixed for a unit based on the projection in the QIS statements. This
limit will be equal to or less than the sanctioned limit based on the projections accepted by the
bank. Actual drawing should be permitted depending on the regularity /reliability of the
information or on the basis of monthly stock statement ensuring that there is no double
financing. QIS is applicable to manufacturing / non manufacturing borrowers and also to
seasonal industries (exception: Sugar Mills).
7. Nayak Committee Recommendations:
a. Based upon its recommendations, RBI has advised that Requirements of village industries, tiny
industries and SSI units would be computed on the basis of minimum of 20% of the projection
turnover for new as well as exiting units enjoying aggregate fund based Working Capital Limits of
less than Rs. 1 crore from the banking system and the norms for inventory and receivable, as also
the 1st method of lending will not apply. The recommending and sanctioning authorities will satisfy
themselves about the reasonableness of projected annual turnover on the basis of the document,
such as returns filed with Sales Tax / Revenue authorities. It is also to be ensured that the estimated
growth during the year is realistic and achievable by the unit. The borrower must be advised at the
time of sanction to route the entire sale proceeds through their C.C. account with the bank.
b. For sanctioning of credit limits to the borrowers enjoying aggregate fund based credit limit of
amount less than Rs.1 crore from the banking system, it should be ensured that minimum margin of
5% of the output annual turnover is brought by the promoter of the SSI unit.
i. In other words 25% of the output value should be computed as Working Capital requirement of
which at 80% should be provided by the bank and remaining 20% should be contributed by the
promoter towards margin money. In case output exceeds the projections or where he initial
assessment of Working Capital is found inadequate, suitable enhancement in Working Capital
Limit should be considered in time by competent authority on merit as and when it is deemed
necessary. When drawals are allowed proper safeguards should be taken to ensure proper and
use of funds. Branches must ensure regular and timely submission of monthly statement of
stock, receivable etc. and periodic variation of such statements vis-à-vis the physical stocks.
c. Other units having aggregate fund based Working Capital Limits of Rs.1crore and above from the
nd
banking system would, however, continue to be governed by existing guideline, i.e. 2 method of
lending be followed so as to ensure maintenance of a minimum current ratio 1:33:1. However sick /
weak units under rehabilitation will be exempted from the application of 2ndmethod of lending. In
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view of P.R. Nayak committee recommendations, an appraisal form for Working Capital
assessment is given below:
i. Computation of Working Capital requirement as per Nayak Committee Recommendations
and accepted by the RBI:
 Projected Annual Turnover : Rs.. . . . . . . . . . . . . lacs
 Margin money to be contributed by the
 Unit (5% of item 1) : Rs.. . . . . . . . . . . . . lacs
 Working Capital facilities to be provided By the bank : Rs.. . . . . . .. . . . lacs 'A' (20% of
item 1)
 Total Working Capital requirements of the units (2 + 3 which is 25% of item 1) :
ii. Working Capital Cycle Approach as per Extant Instructions:
 Margin money to be contributed by the unit :Rs. . ……. lacs
 Sundry creditors : Rs.. . . . . . . . . . lacs
 Working Capital facilities arrived at* : Rs. . . . . . . . . . . lacs 'B'
 Total Working Capital requirements of the unit (1+2+3) : Rs.. . . . . . . . . . . . . lacs
iii. Actual Working Capital to be provided
 by the bank :(A)or(B) whichever is higher
Note: The excess liquid surplus & credit available on purchases will be treated according to clarifications
given later in this Chapter.
8. Clarifications on Nayak Committee Recommendations for Assessment of Working Capital

Limits:
a. RBI instructions relate to computation of Working Capital Limits, which is only a part of appraisal
process and the assessment of credit limits is a part of this process. The appraisal procedure as such
need not be changed except for some modifications in respect of assessment of Working Capital
Limits. The Broad parameters of the present appraisal system are:
i. Basic credit decision based on the financial health and prospects of the unit.
ii. Fixing up the quantum of limit based on its Working Capital requirement.
b. These parameters need not be changed but they will now be subjected to the stipulation that the
credit limit so fixed is at least 20% of the projected turnover. The evaluation of the financial health
of the unit based on various financial parameters exciting as well as projected will be important as
hitherto.
c. The assessment of Working Capital Limits as per the traditional method will continue. However,
the levels of inventory and receivable assumed for the purpose will no more be restricted by the
levels stipulated under Tondon Committee norms. Similarly the permissible Bank Finance will not
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be subjected to the ceiling as per the 'First Method'. Permissible Bank Finance will have to be
compared to the projected turnover of the unit.
d. Where the Working Capital cycle is shorter than 3 months the Working Capital requirements would
be less than 25% of the projected turnover.
e. If the liquid surplus available is higher than 5% of turnover then ensures that the genuine
requirements of the unit are met adequately.
f. If the unit has a longer Working Capital cycle, the limit can be set at a higher level because there is
no restriction in finance at a level, which is higher than 20% of turnover.
g. As the basic objective is to meet the genuine requirements of the unit the peculiarity of the
particular industry has to be taken into account. In case of seasonal industries, the peak season and
off-season turnover, instead of annual turnover, can be separately considered for determining the
respective 20% levels.
h. The creditors/advance payment received are among the sources of funds required for building up
the Current Assets hence Working Capital Limit will be reduced accordingly.
th
i. In terms of Reserve Bank circular IECD No.19/08.13.09/93-94 dated the 28 October 1993, the
procedure to be adopted by bank for extending Working Capital to village, tiny and other SSI units
has been extended to all borrowing units enjoying aggregate Working Capital facilities up to Rs.1
crore from the banking system.
j. Sundry creditors and advance payments received will not be reckoned towards margin. Liquid
surplus available will be reckoned for the purpose of margin. This surplus may arise from long term
borrowing; however, the unit's debt equity should be within the acceptable range.
k. As a general rule there should not be dilution in the stipulation of margin requirements except
under the circumstances, where it is otherwise permitted, e.g. under the Entrepreneur Scheme, in
case of rehabilitation of sick units.
l. Bank can decide the level of holding of each item of inventory as also of receivables, which in their
view would represent a reasonable build-up of Current Assets for being supported by bank finance,
the banks may have, therefore, to fix the limit and sub limits taking into account all relevant factors.
m. The exciting system of regulating the drawing in the account will continue. However, it would also
be necessary to obtain the sales data every month and compare the drawings in the account with
this. These should be broadly in the proportion, which was arrived at while fixing the limits.
n. The extant range of margins will continue to be effective for the purpose.
o. The data on actual system turnover should be obtained every month and the drawing compared
with these. This is however a measure for monitoring and follow up of the account and not for
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regulating drawings, which will be done on the basis of inventory and receivables.
p. Calling for sales data on a monthly basis and comparing it with the drawing in the account would be
helpful, particularly, in the matter of arriving at effective operative limits as also in monitoring the
borrowal account since under the revised guidelines the QIS has been made applicable to
borrowers enjoying fund based Working Capital Limits of 1 Crore and more.
q. Further, under the revised guidelines, banks have been vested with discretion to decide the
quantum, rate of interest as also period of any ad-hoc credit facilities based on their commercial
judgement and marits of individual cases. It is no longer mandatory to charge additional interest of
1% over and above the normal rate of interest for sanction of ad hoc limits.
r. In the case of existing units, sales data pertaining to actuals of last 5 years, estimates for the current
year and projection for the next year together with trend analysis of the industry to which the
borrowing unit belong would also be useful while appraising sales projections. Other relevant
information i.e. modernisation / expansion of the existing manufacturing capacity.
s. Government policy, taxation and other relevant internal factors also need to be taken into account.
Any unreasonable projection say beyond 15% of the previous year's actual / current year projection
would need a closer look.
9. Cash Budget Method (for industries like Sugar, Tea, etc.):
a. It involves preparation of a Cash Budget, comprising receipts from sales and payments for
production expenses, which would throw up the month end cash position. The total credit
requirements of such seasonal industries are now being assessed on Cash Budget basis.
b. RBI Guidelines (October 1993):
i. Henceforth, Banks may themselves decide the levels of holding of individual items of
inventory and receivables, taking into account production, processing cycle and other relevant
factors. Banks will also be free to decide the period and quantum of adhoc credit limits
without level of additional interest. The requirement of maintaining a minimum current ratio
of 1:33 will continue. For the benefit of banks, which do not have an adequate infrastructure
for determining the inventory norms, the Reserve Bank will advise the overall levels of current
assets for different industries, which could be used as broad indicators.
ii. In its Slack Season Credit Policy (April 1997), the RBI has given freedom to the Bank to take
their own decision on the issue of assessment of Working Capital.
10. Calculation of Term Loan Requirements:
a. The procedure for calculation of Term Loan requirement is illustrated below:
515 - III
Cost to be
Cost Already
Sl. No. Particulars Total Cost
Incurred
Incurred
A. Land including development
i. Building and Civil works
ii. Plant and Machinery
iii. a) Indigenous
b) Imported
iv. Essential Tools, Spares &
v. Accessories
vi. Testing equipment's
vii. Misc. Fixed Assets
viii. Erection / Installation
ix. Preliminary Expenses
x Pre-operative expenses
Provision for Contingencies
xi. a.Building
b. Plant & Machinery
c. Other fixed assets
Margin for Working Capital
Total
B. Means of Finance:
i. Capital
ii. Reserves and Surplus
iii. Unsecured Loans and Deposits
iv. (indicate sources rate of interest
repayment)
Deferred payment guarantee
arrangements including supplier's
credit
v. Equipment to be acquired under
vi. Lease or Hire Purchase (indicate
lease rent interest and repayment)
Subsidy:
a. Central Government
b. State Government
Seed Capital (indicate source)
Internal Cash Accruals
Others sources (specify)
Term loan requirement (A-B)
TOTAL
516 - III
b. Sanction of Term Loans Terms and Conditions:
i. After satisfying itself as to the borrower, unit repaying capacity etc. the Bank may sanction
the proposal. The usual terms and conditions put forth in the sanction letter along with the
steps to be taken by branch in-charge are as under:
 Facility sanctioned:
 Term Loan
 Cash Credit Limit
 Interest Rate
 Security
 The Sanction letter should specify the nature of the Limit sanctioned, rate of interest to
be charged along with the period when it should be charged i.e. monthly / quarterly or
half-yearly.
ii. Duration of Facility
 In case of Term loan it should mention the amount of instalment log with period of first
instalment and last instalment.
 In case of Cash Credit Limit it should mention the period when it will expire for renewal
(Cash Credit limit is given for one year)
c. Financial Statement should be submitted at the close of financial year.

d. Proper Books of Accounts have to be maintained and quarterly select data submitted.
e. Exclusive dealing with the Bank,
i. The bank should obtain an undertaking from the borrower to deal exclusively with bank.
ii. The moratorium period to be specified. The start of moratorium period should be mentioned
i.e. starting from first disbursement, or starting from last disbursement, etc.
iii. The mode of recovery of moratorium period interest should also be mentioned.
 In equated monthly instalment of 3 to 6 months
 Or lump sum at the end of moratorium period.
 Or to be converted into loan amount and to be recovered along with main loan account.
 Or to be recovered as and when due.
f. Comprehensive insurance of 'Primary Security' with Bank clause.

g. Periodic inspection of 'Primary Security' at the cost of Borrower.
h. Collateral security at the cost of Borrower. The sanction letter should indicate the Collateral
Security to be obtained and the type of mortgage i.e. whether equitable or registered mortgage (as
per the legal opinion of approved Advocate).
i. The Guarantees to be obtained should be from outside persons not closely related to the borrower.
An affidavit from the guarantor should be obtained that he has not given any other guarantee or
517 - III
taken loan from the Bank. The guarantee from staff members of the Bank for loans to outsider
should be avoided. Branch Manager should ensure that the persons who stand guarantee be of good
repute having net worth to his satisfaction.
j. The sanction letter should clearly mention the documents to be executed before disbursement
k. Bank's right to cancel and recall the loan amount.
l. Bank's right to set off balance in other accounts.
m. Displaying Bank's name at Borrowers premises.
n. Borrower to abide by The State Co-op Societies Act and Rules and bye-laws of the Bank.
o. Mortgagor (if other than Borrower) Guarantors, to become nominal members of the Bank.
p. Affidavit for acceptance of conditions.
q. Penal interest: The sanction letter should mention rate and the circumstances under which penal
interest is to be charged.
r. Borrower to introduce fresh capital to meet the margin requirement, if necessary.
s. Only for Cash Credit,
i. Stock Register to be maintained.

ii. Periodic submission of Stock Statement.
iii. No Drawing Power against unpaid / unsolvable stock.
t. Only for Companies,
i. Increase of authorized capital (if required).

ii. Registration of charge with Registrar of Companies within 30 days of Agreement.
iii. All directors to give personal guarantees in addition to two outside guarantees.
11. Documentation:
a. The next important and logical aspect is to ensure creation of charges over the securities by getting
proper documents executed from the borrower and all other parties, so that proper contractual
relationship comes into existence. This is important from the angle of enforcement of the securities
at the time of need. Precautions like getting right kind of printed documents forms with all
modifications, getting them signed appropriately at all places, getting them filled in all respects,
getting them from only the authorized persons and then keeping them in safe custody are required
to be taken.
12. Annexure/s:

Annexure - 1: Specimen of Quarterly Information System (QIS): Form I
Annexure - 2 : Specimen of Quarterly Information System (QIS): Form II
518 - III
FORM 1
QUARTERLY INFORMATION SYSTEM (QIS)
Estimates for the ensuing quarter ending . . .
(To be submitted in the week preceding the commencement
of the quarter to which the statement relates.)
(000 omitted)
NAME OF BORROWER :
A. Estimates for current accounting year. : (a) Production:
(b) Gross Sales:
(c) Net Sales:
B. Estimates for the ensuing quarter ending . . . . . . . : (a) Production:
(b) Gross Sales:
(c) Net Sales:
C. Estimates for Current Assets & Current:
Liabilities for the ensuing quarter ending.
CURRENT ASSETS:
I. Inventory:
(i) Raw Materials- :
(a) Imported (Month's consumption) :
(b) Indigenous (Month's consumption) :
(ii) Stock in process (Month's cost of Production) :
(iii) Finished goods (Month's cost of sales) :
II. Receiving including bills discounting (Month's sales) :
III. Advances to suppliers of raw materials & stores :
IV. Other Current Assets including Cash and Bank Balances.
TOTAL (Estimated) CURRENT ASSETS
CURRENT LIABILITIES : :
V. Short term bank borrowing including bills Discounted. :
VI. Creditors for purchase of raw materials
And stores (Month's purchases) :
VII. Advances from customer :
VIII. Accrued expenses :
IX. Statutory Liabilities :
X. Other Current Liabilities :
TOTAL (estimated) CURRENT LIABILITIES :
519 - III
NOTES:
(i) Information in these forms is to be furnished for each line of activity/unit separately as also for the
Company as a whole and where the different activities / units are finance by different banks, the
concerned activity/unit wise data relating to the whole company should be furnished to each financing
bank.
(ii) The valuation of Current Assets and Current Liabilities in these forms should be on the same basis as
adopted for the Statutory Balance Sheet, and should be applied on a consistent basis.
(iii) The period to be shown is in relation to the annual projection for the relative items. If the levels of
inventory / receivables are higher than the norms indicated by the Bank, reasons may be given.
(iv) If the canalised items form a significant part of raw materials inventory, they may be shown separately.
(v) Amount of bills discounted with the bankers, included in item II of part C should be indicated
separately.
(vi) Amount of bills discounted with bankers, in respect of purchases, included in item V or item VI of Part
C should be indicated separately.
(vii)The classification of Current Assets and Current Liabilities should be made as per the usually accepted
approach of the bankers are not as per definitions in the Companies Act.
520 - III
FORM II
QUARTERLY INFORMATION SYSTEM (QIS)
(To be submitted within six week from the close
of the quarter to which the statement relates.)
Name Of Borrower:
A. Estimates for current accounting year. (a) Production :
Indicated in the Annual Plan (b) Gross Sales :
(c) Net Sales :
B. Actual production / sales for the current:
accounting year.
During the Cumulative
Quarter position
Production Production
Sales Sales
1st quarter ended . . . . . . . . .
2nd quarter ended . . . . . . .
3rd quarter ended . .. . . . . . . . .
4th quarter ended . . . . . . . . . . .
C. Data relating to the latest Estimated Actuals
Complete quarter ended . . . . (as given in Form 1)
Production :
Gross Sales :
Net Sales :
Current Assets :
I. Inventory:
(i) Raw Materials -
(a) Imported (Month's consumption) :
(b) Indigenous (Month's consumption) :
(ii) Consumable stores (do.) :
(iii) Stock in process (Month's cost of production) : Estimate Actual
(iv) Finished goods (Month's cost of sales) :
II. Receivable including bills discounting (Month's sales) :
III. Advances to suppliers of raw materials & Stores :
IV. Other Current Assets including cash and bank balances :
TOTAL CURRENT ASSETS
521 - III
Current Liabilities:
V. Short term bank borrowings including bills discounted :
VI. Creditors for purchase of raw materials and stores
(Month's purchases). :
VII. Advances from customers :
VIII. Accrued expenses : IX. Statutory Liabilities :
IX. Other current Liabilities :
TOTAL (estimated) CURRENT LIABILITIES :
Notes:
(i) Information in these forms is to be furnished for each line of activity / unit separately as also for the
Company as a whole and where the different activities / units are financed by different banks, the
concerned activity / unit wise data relating to the whole company should be furnished to each
financing bank.
(ii) The valuation of Current Assets and Current Liabilities in these forms should be on the same basis
as adopted for the Statutory Balance Sheets.
522 - III
CHAPTER 33
RURAL PROJECTS FINANCE
1. General:
a. Investment of Medium/Long Term Loans for various activities under the schemes of NABARD
and the Central Government is termed as Schematic Lending. NABARD under Section 25 of
NABARD Act 1981 extends refinance assistance to the eligible institutions such as SCBs
Scheduled Primary/ Urban Coop. Banks, Commercial Banks for farm sector, non-farm sector
activities. The refinance facility is extended to the financing Banks for the loans sanctioned for
creation of income generating assets.
b. NABARD and State Coop. Banks are signing a Memorandum of Agreement for granting refinance
to SCBs for the loans sanctioned the DCCBs under Investment credit/ Schematic Lending.
c. The SCB sign a Memorandum of Agreement with the DCCBs for granting refinance to the DCCBs
for the loans issued through their Branches and PACS under Investment Credit/ Schematic
Lending.
2. Thrust Areas of activities:
a. Swarnajayanti Gram Swarozgar Yojana (SGSY)
b. Dairy Entrepreneurship Development Scheme
c. Pig Development Scheme
d. Poultry Development
e. Agri. clinic and Agri. Business Centres
f. Swarojgan Credit Card Scheme
g. Self Help Groups/ JLGs/ RMGs linkage programme
h. Waste Land Development
i. Dry Land Farming
j. Contract Farming
k. Plantation and Horticulture
l. Agro-forestry
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m. Seed Production
n. Agri. marketing infrastructure including cold storage, godowns, market yard
o. Farm Mechanisation
3. Total Liability Register (Scheme-wise):
a. Format of the Register:
Date Particulars Debit Credit Balance Initial No. of days Products
i. Total Liability (Percentage-wise) Register (7.5% - Project, SHG, NFS, RH)
b. Bank-wise Ledger (Two Ledgers One for NFS and Another for Projects) Schemewise/
Ratewise to be maintained. The Format of the Register is as follows:
Date Particulars Debit Credit Balance Initial No. of days Products
c. Borrowing from NABARD:
i. Total Liability (Scheme-wise)

ii. Total Liability (Rate-wise)
iii. Ledger Bank-wise, Scheme-wise, Rate-wise (NFS, Projects Separate Ledger)
d. General Ledger Heads of Accounts:
i. Advances to DCCB / MT / NABARD / Schematic / SGSY

ii. Advances to DCCB / MT / NABARD / NFS
iii. Advances to DCCB / MT / NABARD / SHG
iv. Advances to DCCB / MT / NABARD / Rural Housing
4. Book Entries:
a. For borrowals from NABARD when borrowed from NABARD and on receipt of credit advice
from NABARD informing the credit to the SCB A/c with RBI.
i. Dr Reserve Bank of India (GL head)

ii. Cr Loans from NABARD/ MT/ Project Loan, SHG (GL head)
b. When the SCB disburses to DCCB on sanction, the following entries may be passed.
524 - III
i. Dr Advances to DCCB/ IRDP SHG NFS, etc.
c. If the SCB is already processing the transactions through system, arrangement may be made to
have the data scheme-wise and DCCB-wise.
Name of Amount Interest Date
Date Balance Rate
the DCCB advanced accrued of drawal
d. Half Yearly Interest Demand for the Half Year Ended:
Project Balance Principal Half year Current Previous Interest

Rate Total
Name as on demand interest provision provision demand
5. Eligibility Criteria: Availing refinance from NABARD for investment credit is governed by their
eligibility criteria policy communicated by them every year, the criteria includes compliance with
Section 11(1) of the B.R. Act 1949 (AACS) exemptions of its compliance in certain cases; NPA level,
profitability, etc.
a. Eligibility / Quantum of refinance (as per NABARD POLICY FOR THE YEAR 2010-11):
The eligibility of the bank will be determined on the basis of its Net NPAs, Profit and position of
accumulated losses, if any, as on 31 March 2009. The quantum of refinance
will be restricted based on the performance of the banks in respect of the these parameters as per
details given below:
Criteria Quantum of refinance
Category A - The quantum of refinance will be unrestricted

(i) Net NPA up to 5% as on 31 March 2009. subject to the banks' realistic disbursement plans
(ii) SCB to be in profit for 2008-09. acceptable to NABARD and the overall allocation
(iii)No accumulated losses as on 31 March 2009. for the state.
Category B - The quantum of refinance will be fixed at 5% over

(i) Net NPA above 5% and up to 10% as on and above the refinance drawn in the previous
31March 2009. year subject to the banks' realistic disbursement
(ii) SCB to be in profit for 2008-09. plans acceptable to NABARD and the overall
(iii)No accumulated losses as on 31 March 2009. allocation for the state.
Category C - The quantum of refinance will be fixed at the same

(i) Net NPA above 10% and up to 15 % as on level as the refinance drawn in the previous
31March 2009. year subject to the banks' realistic disbursement
(ii) SCB to be in profit for 2008-09. plans acceptable to NABARD and the overall
(iii)No accumulated losses as on 31 March 2009. allocation for the state.
525 - III
Category D - The quantum of refinance will be fixed at 5% less
(i) Net NPAs above 15 % and up to 20% as on than the refinance drawn in the previous year
31March 2009. subject to the banks' r e a l i s t i c
(ii) SCB to be in profit for 2008-09. disbursement plans acceptable to NABARD and
(iii)No accumulated losses as on 31 March 2009. the overall allocation for the state.
i. No refinance will be extended to SCBs with Net NPAs more than 20% even though they had
profit during 2008-09 and had no accumulated losses as on 31.3.2009.
ii. In case, there is improvement in any of the above parameters as on 31 March 2010, same
will be reckoned for eligibility of refinance.
iii. Additional refinance may be extended to SCBs which show distinct improvements in the
implementation of the reform measures outlined in the Government of India (GoI)
package based on Vaidyanathan Committee - I (VC- I) recommendations.
iv. With a view to increasing the credit flow to the states in Eastern region viz., West
Bengal, Orissa, Bihar, Jharkhand, Andaman and Nicobar Island, North Eastern Region
(Assam, Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland and Tripura),
Jammu & Kashmir, Himachal Pradesh, Uttarakhand, Lakshadweep, Sikkim and
Chhattisgarh Net NPA norm would be relaxed, subject to satisfaction of NABARD, by 5
percentage points.
v. During 2010-11, SCBs will be given the benefit of unutilised eligibility of 2009-10 in
respect of pending drawal applications with the RO as on 31 March 2010. This will be in
addition to the quantum of eligibility fixed during 2010-11.
b. Compliance of Section 11(1) of BR Act, 1949 (AACS):
i. SCBs which are Section 11(1) non-compliant will be eligible for refinance provided they
have been exempted by GoI from the requirement of the compliance thereof or
exemption application along with Action Plan submitted by the bank is not pending with
RBI for a period not exceeding one year. Drawals would, however, be permitted to such
banks only upto the period of exemption. There would be exception for SCBs located in
states which have executed MoU for the implementation of GoI package based on
VC-I recommendations. In such cases, they will be eligible for refinance even though
their exemption applications are pending for more than a year with RBI/GoI.
ii. SCBs will be eligible for availing refinance in respect of section 11(1) non-compliant
DCCBs provided the bank has been exempted by GoI from complying with the
requirements of said section or exemption application along with the Action Plan submitted
by the bank has been forwarded by NABARD to RBI for favourable consideration and
the same is not pending with RBI / GoI for more than 1 year. Drawals would, however,
526 - III
be permitted for such banks only upto the period of exemption. There would be exception for
DCCBs located in states which have executed MoU for the implementation of VC-I
recommendations. In those cases, they will be eligible for refinance even though their
exemption applications are pending for more than a year with RBI / GoI.
c. Thrust Areas: The thrust areas for which preference will be given for release of refinance
during 2010-11 shall include minor & micro irrigation, water saving and water
conservation devices, agriculture implements including small machinery, threshers, rotors,
sprayers, weeding equipments, fisheries, animal husbandry, SHGs/JLGs/RMGs linkage
programme, Agri-Clinics and Agri-Business Centres, agro-processing, wasteland
development, dryland farming, contract farming, plantation & horticulture, agro-forestry,
seed production, tissue culture plant production, agri-marketing infrastructure, including cold
storage, godowns, market yards, etc., non-conventional energy sources and financing in areas
of watershed & tribal development programmes already implemented.
d. Extent of Refinance:
i. The extent of refinance for the States in North Eastern Region (Assam, Arunachal
Pradesh, Manipur, Meghalaya, Mizoram, Nagaland and Tripura), Hilly States (Jammu &
Kashmir, Himachal Pradesh, Uttarakhand), Eastern States (West Bengal, Orissa, Bihar,
Jharkhand and Andaman & Nicobar Islands), Lakshadweep, Sikkim and Chhattisgarh shall
be 100% of eligible bank loans for all purposes.
ii. For Other Regions the extent of refinance shall be 100% for all thrust areas as
indicated at Sl.No. 5 (c), 95% for all other diversified purposes and 80% for Krishak
Sathi Yojana.
6. Automatic Refinance Facility: Automatic Refinance Facility will be extended to the SCBs
without any upper ceiling of refinance quantum, bank loan or TFO for all kinds of projects of Farm
and Non-Farm Sector (FS & NFS). In case, any bank intends to avail refinance under pre-sanction
procedure, they may submit projects to NABARD.
7. Other Terms and Conditions:
a. Audit:
i. Audit of SCB and the concerned DCCBs for the year 2008-09 should have been
completed and relative audit report along with financial statements should have been
received by NABARD. The SCB / DCCB must have been awarded the audit class of either 'A'
or 'B'.
ii. In case, there is improvement in Audit position as on 31 March 2010, the same will be
reckoned for eligibility of refinance.
b. Security Norms: Refinance to the SCBs both for FS & NFS will be extended against Govt.
Guarantee. However, the requirement of Govt. Guarantee for SCBs could be waived on
527 - III
compliance of certain conditions. Refinance to Section 11 non- compliant SCB/ DCCBs will
always be against Govt. Guarantee. In the event of Govt. Guarantee (wherever required)
not forthcoming, alternative security like pledge of Govt. Securities or pledge of Fixed Deposit
Receipts issued by Scheduled Banks could be considered on a case by case basis.
c. Reckoning of NPAs:
i. For 2010-11 the eligibility of SCB in both 3 tier and 2 tier systems will be reckoned on the
basis of Net NPAs at the SCB level and not on the basis of Net NPAs at DCCB or
branch of SCB.
ii. NPA position as indicated in the statutory audit report will form the basis for eligibility.
However, in the event of any variation in the NPA position as indicated in the audit
report and the inspection report of NABARD, the latter would be reckoned for
determining the eligibility.
iii. Reconciliation of inter-bank and inter-branch accounts pending beyond 6 months could
result in denial of refinance assistance from NABARD.
iv. In the event of the eligibility falling short of the committed expenditure, NABARD
would permit drawals beyond eligibility in terms of circular No NB.ICD.1295/ PPS-9/2005-
06 dated 05 October 2005, to enable the SCB to meet the committed expenditure, on a case
by case basis, on submission of complete information in the prescribed format. Thus, the
SCB will utilise the eligibility first to meet the committed expenditure followed
by fresh disbursements.
v. The eligibility norms will be applicable for drawal of refinance under both FS & NFS
including Government sponsored schemes like Swarnajayanti Gram Swarojgar Yojana
(SGSY), SC/ST Action Plan, etc.
vi. NABARD would have the right to cause special audit of the books of accounts and other
relevant material of the Cooperative banks either by itself or through other agencies (at
borrowing entity's cost) to ensure that same are maintained as per the rules and
regulations in force and the terms and conditions of refinance are adhered to by the bank.
vii. NABARD reserves the right to conduct spot verification/checks to ensure that terms and
conditions of refinance are adhered to.
528 - III
CHAPTER - 34
NATIONAL RURAL LIVELIHOOD MISSION (NRLM)
1. General:
a. The Ministry of Rural Development, Government of India has launched National Rural Livelihood
Mission (NRLM) by restructuring Swarnajayanti Gram Swarozgar Yojana (SGSY) replacing the
existing SGSY scheme, effective from April 1, 2013. The scheme is named as 'Aajeevika'.
b. NRLM is the flagship program of Govt. of India for promoting poverty reduction through building
strong institutions of the poor, particularly women, and enabling these institutions to access a range
of financial services and livelihoods services. NRLM is designed to be a highly intensive program
and focuses on intensive application of human and material resources in order to mobilize the poor
into functionally effective community owned institutions promote their financial inclusion and
strengthen their livelihoods. NRLM complements these institutional platforms of the poor with
services that include financial and capital services, production and productivity enhancement
services, technology, knowledge, skills and inputs, market linkage, etc. The community
institutions also offer a platform for convergence and partnerships with various stakeholders by
building environment for the poor to access their rights and entitlements and public service.
c. A women's self-help group, coming together on the basis of mutual affinity is the primary building
block of the NRLM community institutional design. NRLM focuses on building, nurturing and
strengthening the institutions of the poor women, including the SHGs and their Federations at
village and higher levels. In addition NRLM will promote livelihoods institutions of rural poor. The
mission will provide a continuous hand-holding support to the institutions of poor for a period of 5
7 years till they come out of abject poverty. The community institutional architecture put in place
under NRLM will provide support for a much longer duration and of a greater intensity.
d. The support from NRLM will include all round capacity building of the SHGs ensuring that the
group functions effectively on all issues concerning their members, financial management,
providing them with initial fund support to address vulnerabilities and high cost indebtedness,
formation and nurturing of SHG federations, making the federations as strong support
organizations, making the livelihoods of the poor sustainable, formation and nurturing of
livelihoods organizations, skill development of the rural youth to take up self-enterprises or jobs in
organized sector, enabling these institutions to access their entitlements from the key line
departments, etc.
e. The implementation of NRLM is in a Mission Mode. NRLM adopts a demand driven approach,
enabling the States to formulate their own State specific poverty reduction action plans. NRLM
enables the State rural livelihoods missions to professionalize their human resources at state,
district and block level. The State missions are capacitated to deliver a wide range of quality
services to the rural poor.
529 - III
f. NRLM emphasises continuous capacity building, imparting requisite skills and creating linkages
with livelihoods opportunities for the poor, including those emerging in the organized sector, and
monitoring against targets of poverty reduction outcomes. The blocks and districts in which all the
components of NRLM will be implemented, either through the State Rural Livelihood Missions
(SRLMs) or partner institutions or NGOs, will be the intensive blocks and districts, whereas
remaining will be non-intensive blocks and districts. The selection of intensive districts will be
done by the states based on the demographic vulnerabilities. It will be rolled out in a phased manner
over the next 7 - 8 years. All blocks in the country will become intensive blocks over time.
g. The Rural Planning and Credit Department (RPCD) of Reserve Bank of India, vide Circular No.
RPCD.GSSD.CO.No./81/09.01.03/2012-12 dated 27.06.2013 issued to the Scheduled
Commercial Banks including Regional Rural Banks has enumerated the details of the NRLM and
the operational guidelines on the same.
2. NRLM and SGSY - Key difference:
a. NRLM is promoting a major shift from purely 'allocation based' strategy to a 'demand driven'
strategy wherein states have the flexibility to develop their own plans for capacity building of
women SHGs and Federations, infrastructure and marketing, and policy for financial assistance
for the SHGs.
b. NRLM will identify the target group of poor through a 'participatory identification of the poor'
process instead of using the BPL list as was done in SGSY. This will ensure that the voiceless,
poorest of poor are not ignored. In fact under NRLM, the first preference is given to the poorest of
poor households.
c. NRLM will promote the formation of women SHGs on the basis of affinity and not on the basis of a
common activity, as it used to be under SGSY. It is definitely possible that members who come
together on the basis of affinity could be having a common activity.
d. Unlike SGSY, the NRLM has taken a saturation approach and will ensure all the poor in a village
are covered and a woman from each poor family is motivated to join the SHG.
e. SHG Federations: All SHGs in a village come together to form a federation at the village level.
The village federation is a very important support structure for the members and their SHGs. The
cluster federation is the next level of federation. A cluster consists of a group of villages within a
block. The exact configuration will vary from State to State, but typically a cluster consists of 25 -
40 villages. The Village federations and the Cluster federations are the two critical support
structures for the SHG s and their members in their long journey out of poverty.
f. NRLM will provide continuous hand-holding support to SHGs, and their federations. This was
missing in SGSY. Under NRLM this support will be provided to a great extent by capacitating the
SHG federations and by building a cadre of community professionals from among the poor
women. The federations and the community professionals will be imparted the necessary skills by
the mission.
530 - III
g. The objective of NRLM is to ensure that SHGs are enabled to access repeat finance from Banks,
till they attain sustainable livelihoods and decent living standards. This was missing in SGSY,
where the emphasis was on one time support. Key features of NRLM are given in the Annexure -1
to this Chapter.
3. Women SHGs and their Federations:
a. Women SHGs under NRLM consist of 10-15 persons. In case of special SHGs i.e. groups in the
difficult areas, groups with disabled persons, and groups formed in remote tribal areas, this number
may be a minimum of 5 persons.
b. NRLM will promote affinity based women Self help groups.
c. Only for groups to be formed with Persons with disabilities, and other special categories like
elders, transgenders, NRLM will have both men and women in the self-help groups.
d. SHG is an informal group and registration under any Societies Act, State Cooperative Act or a
partnership firm is not mandatory (Circular RPCD. No. Plan BC.13/PL-09.22/90-91 dated July
24th, 1991). However Federations of SHGs formed at village level, cluster level, and at higher
levels are to be registered under appropriate acts prevailing in their States.
4. Financial Assistance to the SHGs:
a. Revolving Fund (RF): NRLM would provide a Revolving Fund (RF) support to SHGs in existence
for a minimum period of 3/6 months and follow the norms of good SHGs, i.e they follow
'Panchasutra' regular meetings, regular savings, regular internal lending, regular recoveries and
maintenance of proper books of accounts. Only such SHGs that have not received any RF earlier
will be provided with RF, as corpus, with a minimum of Rs.10,000 and up to a maximum of Rs.
15,000 per SHG. The purpose of RF is to strengthen their institutional and financial management
capacity and build a good credit history within the group.
b. Capital Subsidy has been discontinued under NRLM: No Capital Subsidy will be sanctioned to any
SHG from the date of implementation of NRLM.
c. Community Investment support Fund (CIF): CIF will be provided to the SHGs in the intensive
blocks, routed through the Village level/ Cluster level Federations, to be maintained in perpetuity
by the Federations. The CIF will be used, by the Federations, to advance loans to the SHGs and/or
to undertake the common/collective socio-economic activities.
d. Introduction of Interest subvention: NRLM has a provision for interest subvention, to cover the
difference between the Lending Rate of the banks and 7%, on all credit from the banks/ financial
institutions availed by women SHGs, for a maximum of Rs 3,00,000 per SHG. This will be
available across the country in two ways:
531 - III
i. In 150 identified districts, banks will lend to all the women SHGs @7% upto an aggregated
loan amount of Rs 3,00,000/- . The SHGs will also get additional interest subvention of 3% on
prompt payment, reducing the effective rate of interest to 4%.
ii. In the remaining districts also, NRLM compliant women SHGs will be registered with
SRLMs. These SHGs are eligible for interest subvention to the extent of difference between
the lending rates and 7% for the loan upto Rs. 3 lakhs, subjected to the norms prescribed by the
respective SRLMs. This part of the scheme will be operationalized by SRLMs. (A separate
guideline on interest subvention and its operationalization across the country alongwith the
list of 150 identified districts is made available by the RBI/NABARD).
5. Role of Banks:
a. Opening of Savings accounts: The role of banks would commence with opening of accounts for all
the Women SHGs, SHGs with members of Disability and the Federations of the SHGs. The 'Know
Your Customer' (KYC) norms as specified from time to time by Reserve Bank of India are
applicable for identification of the customers.
b. Lending Norms: The eligibility criteria for the SHGs to avail loans
i. SHG should be in active existence at least since the last 6 months as per the books of account of
SHGs and not from the date of opening of S/B account.
ii. SHG should be practicing 'Panchasutras' i.e. Regular meetings; Regular savings; Regular
inter-loaning; Timely repayment; and Up-to-date books of accounts;
iii. Qualified as per grading norms fixed by NABARD. As and when the Federations of the SHGs
come to existence, the grading exercise can be done by the Federations to support the Banks.
iv. The existing defunct SHGs are also eligible for credit if they are revived and continue to be
active for a minimum period of 3 months.
c. Loan amount: Emphasis is laid on the multiple doses of assistance under NRLM. This would mean
assisting an SHG over a period of time, through repeat doses of credit, to enable them to access
higher amounts of credit for taking up sustainable livelihoods and improve on the quality of life.
The amount of various doses of credit should be as follows:
i. First dose: 4-8 times to the proposed corpus during the year or Rs. 50, 000 whichever is higher.
ii. Second dose: 5-10 times of existing corpus and proposed saving during the next twelve
months or Rs. 1 lakhs, whichever is higher.
iii. Third dose: Minimum of Rs. 2 lakhs, based on the Micro credit plan prepared by the SHGs and
appraised by the Federations/Support agency and the previous credit history
iv. Fourth dose onwards: Loan amount can be between Rs. 5-10 lakhs for fourth dose and/or
higher in subsequent doses. The loan amount will be based on the Micro Credit Plans of the
SHGs and their members.
v. The loans may be used for meeting social needs, high cost debt swapping and taking up
532 - III
sustainable livelihoods by the individual members within the SHGs or to finance any viable
common activity started by the SHGs.
Note: Corpus is inclusive of revolving funds, if any, received by that SHG, its own savings and funds from
other sources in case of promotion by other institutes/NGOs.
d. Type of loan facility: SHGs can avail either Term loan or a CCL loan or both based on the need. In
case of need, additional loan can be sanctioned even though the previous loan is outstanding.
e. Repayment schedule could be as follows:
i. The first dose of loan will be repaid in 6-12 instalments
ii. Second dose of loan will be repaid in 12-24 months.
iii. Third dose will be sanctioned based on the micro credit plans, the repayment has to be either
monthly/quarterly /half yearly based on the cash flow and it has to be between 2 to 5 Years.
iv. Fourth dose onwards: repayment has to be either monthly/quarterly /half yearly based on the
cash flow and it has to be between 3 to 6 Years
f. Security and Margin: No collateral and no margin will be charged upto Rs. 10.00 lakhs limit to the
SHGs. No lien should be marked against savings bank account of SHGs and no deposits should be
insisted while sanctioning loans.
g. Dealing with Defaulters:
i. It is desirable that wilful defaulters should not be financed under NRLM. In case wilful
defaulters are members of a group, they might be allowed to benefit from the thrift and credit
activities of the group including the corpus built up with the assistance of Revolving Fund. But
at the stage of assistance for economic activities, the wilful defaulters should not have the
benefit of further assistance until the outstanding loans are repaid. Wilful defaulters of the
group should not get benefits under the NRLM Scheme and the group may be financed
excluding such defaulters while documenting the loan.
ii. Further, non-wilful defaulters should not be debarred from receiving the loan. In case of
defaulters due to genuine reasons, Banks may follow the norms suggested for restructuring the
account with revised repayment schedule.
6. Credit Target Planning:
a. Based on the potential linked plan/state focus paper prepared by NABARD, SLBC sub-committee
may arrive at the district-wise, block-wise and branch-wise credit plan. The sub- committee has to
consider the existing SHGs, New SHGs proposed, and number of SHGs eligible for fresh and
repeat loans as suggested by the SRLMs to arrive at the credit targets for the states. The targets so
decided should be approved in the SLBC and should be reviewed and monitored periodically for
effective implementation.
b. The district-wise credit plans should be communicated to the District Coordination Committee
(DCC). The Block-wise/Cluster-wise targets are to be communicated to the bank Branches
through the Controllers.
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7. Post credit follow-up:
a. Loan pass books in regional languages may be issued to the SHGs which may contain all the details
of the loans disbursed to them and the terms and conditions applicable to the loan sanctioned. The
passbook should be updated with every transaction made by the SHGs. At the time of
documentation and disbursement of loan, it is advisable to clearly explain the terms and conditions
as part of financial literacy
b. Bank branches may observe one fixed day in a fortnightly to enable the staff to go to the field and
attend the meetings of the SHGs and Federations to observe the operations of the SHGs and keep a
track of the regularity in the SHGs meetings and performance.
8. Repayment:
a. Prompt repayment of the loans is necessary to ensure the success of the programme. Banks shall
take all possible measures, i.e. personal contact, organization of joint recovery camps with District
Mission Management Units (DPMUs) / DRDAs to ensure the recovery of loans. Keeping in view,
the importance of loan recovery, banks should prepare a list of defaulters under NRLM every
month and furnish the list in the BLBC, DLCC meetings. This would ensure that NRLM staff at the
district/ block level will assist the bankers in initiating the repayment.
9. Deputation of the bank officials to SRLMs:
a. As a measure of strengthening the (DPMUs) / DRDAs and for promoting a better credit
environment, deputation of the bank officials to DPMUs/ DRDAs has been suggested. Banks may
consider deputing officers at various levels to the State Governments/DRDAs in consultation with
them.
10. Supervision and monitoring:
a. Banks may set up NRLM cells at Regional/Zonal office. These cells should periodically monitor
and review the flow of credit to the SHGs, ensure the implementation of the guidelines to the
scheme, collect data from the branches and make available consolidated data to the Head office and
the NRLM units at the districts/ blocks. The cell should also discuss this consolidated data in the
SLBC, BLBC and DCC meetings regularly to maintain the effective communication with the state
staff and all banks.
b. State Level Banker's Committee: SLBCs shall constitute a sub-committee on SHG-bank linkage.
The sub-committee should consist of members from all banks operating in the State, RBI,
NABARD, CEO of SRLM, representatives of State Rural Development Department, Secretary-
Institutional Finance and Representatives of Development Departments etc. The sub- committee
shall meet once a month with a specific agenda of review, implementation and monitoring of the
SHG-Bank linkage and the issues/ constraints in achievement of the credit target. The decisions of
SLBCs should be derived from the analysis of the reports of the sub-committee.
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c. District Coordination Committee: The DCC (NRLM sub-committee) shall regularly monitor the
flow of credit to SHGs at the district level and resolve issues that constrain the flow of credit to the
SHGs at district level. This committee meeting should have participation of LDMs, AGM of
NABARD, district coordinators of the banks and DPMU staff representing NRLM and office
bearers of SHG federations.
d. Block level Bankers Committee: The BLBC shall meet regularly and take up issues of SHG bank
linkage at the block level. In this Committee, the SHGs/ Federations of the SHGs should be
included as members to raise their voice in the forum. Branch wise status of SHG credit shall be
monitored at the BLBC (Annex - 2 and Annex - 3 may be used for the purpose)
e. Reporting to Lead District Managers (LDMs): The banks/branches are required to furnish the
progress report and the delinquency report achieved under various activities of NRLM in two
formats which is given in Annexure -2 and Annexure -3 this Chapter to the LDM every month for
onward submission to Special Steering Committee/sub-committee constituted by SLBC.
f. Reporting to RBI: Banks may give a state-wise consolidated report on the progress made on
NRLM to RBI/NABARD at monthly intervals.
g. Reporting on SHG-Bank linkages: NABARD shall submit monthly report on the SHG bank
linkage, data for which shall flow from the CBS platform to NRLM on regular basis.
h. LBR returns: Existing procedure of submitting LBR returns to be continued duly furnishing the
correct code.
11. Data Sharing:
a. Data sharing on a mutually agreed format / interval may be provided to SRLM for initiating various
strategies including recovery etc. The financing banks may enter into a Memorandum of
Understanding (MOU) for regular data sharing with the State Rural Livelihood Missions, through
the CBS platform.
12. NRLM support to the bankers:
a. SRLM would develop strategic partnerships with major banks at various levels. It would invest in
creating enabling conditions for both the banks and the poor for a mutually rewarding relationship.
b. SRLM will assist the SHGs through imparting Financial literacy, extending counselling services
on savings, credit and training on Micro-investment Planning embedded in capacity building.
c. Improving quality of banking services to poor clients by positioning customer relationship

managers (Bank Mitra).
d. Leveraging IT mobile technologies and institutions of poor and youth as business facilitators and
business correspondents.
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e. Community based recovery mechanism: One exclusive sub - committee for SHG Bank Linkage
may be formed at village/cluster/ block level which will provide support to the banks in ensuring
proper utilization of loan amount, recovery etc. The bank linkage sub - committee members from
each village level federation along with project staff will meet once in a month under the
chairmanship of the Branch Manager in the branch premises with the agenda items relating to bank
linkage.
13. Closure of SGSY Scheme:
a. Banks have been directed to commence extending credit under NRLM replacing SGSY from 1st
July 2013.
b. In respect of Loans sanctioned under SGSY during 2012-13 for which subsidy is released, the
banks were advised to disburse the loan before 30th June 2013 or return the subsidy amount, if the
loan is not disbursed.
c. The loans sanctioned by banks on or after April 1st, 2013 will be covered under the ambit of
NRLM.
d. In case of part disbursal of loans, the Banks may disburse the full amount by availing the balance
subsidy amount under SGSY.
e. Under NRLM Interest subvention scheme is not applicable for the outstanding loans sanctioned
under SGSY, where capital subsidy is already released.
14. Annexure/s:
a. The following Annexure is appended to this Chapter:
Annexure 1: Key Features of NRLM

Annexure 2: Format for monthly Progress Report.
Annexure 3: Format for monthly Delinquency Report.
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Key Features of NRLM
1. Universal Social Mobilization: To begin with, NRLM would ensure that at least one member from each
identified rural poor household, preferably a woman, is brought under the Self Help Group (SHG)
network in a time bound manner. Subsequently, both women and men would be organized for
addressing livelihoods issues i.e. farmers organizations, milk producers' cooperatives, weavers
associations, etc. All these institutions are inclusive and no poor would be left out of them. NRLM
would ensure adequate coverage of vulnerable sections of the society such that 50% of the beneficiaries
are SC/STs, 15% are minorities and 3% are persons with disability, while keeping in view the ultimate
target of 100% coverage of BPL families.
2. Participatory identification of poor (PIP): The experience from SGSY suggests that the current BPL list
has large inclusion and exclusion errors. To widen the target groups beyond the BPL list and to include
all the needy poor, NRLM will undertake community based process i.e. participation of the poor
process to identify its target group. Participatory process based on sound methodology and tools (social
mapping and well-being categorization, deprivation indicators) and also locally understood and
accepted criterion ensures local consensus that inadvertently reduces the inclusion and exclusion
errors, and enables formation of the groups on the basis of mutual affinity. Over the years, the
participatory method of identifying the poor have been developed and applied successfully in the states
like AP, Kerala, Tamil Nadu and Odisha.
3. The households identified as poor through the P.I.P process will be accepted as NRLM target group and
will be eligible for all the benefits under the programme. The list finalized after PIP process will be
vetted by the Gram Sabha and approved by the Gram Panchayat.
4. Till the PIP process is undertaken by the State in a particular district/Block, the rural households already
included in the official BPL list will be targeted under NRLM. As already provided in the Framework
for implementation of NRLM, up to 30% of the total membership of the SHGs may be from among the
population marginally above the poverty line, subject to the approval of the BPL members of the group.
This 30% also includes the excluded poor, those who are really as poor as those included in BPL list but
their name does not figure in the list.
5. Promotion of Institutions of the poor: Strong institutions of the poor such as SHGs and their village
level and higher level federations are necessary to provide space, voice and resources for the poor and
for reducing their dependence on external agencies. They empower them and also act as instruments of
knowledge and technology dissemination, and hubs of production, collectivization and commerce.
NRLM, therefore, would focus on setting up these institutions at various levels. In addition, NRLM
would promote specialized institutions like Livelihoods collectives, producers'
cooperatives/companies for livelihoods promotion through deriving economies of scale, backward and
forward linkages, and access to information, credit, technology, markets etc. The Livelihoods
collectives would enable the poor to optimize their limited resources.
537 - III
6. Strengthening all existing SHGs and federations of the poor. There are existing institutions of the poor
women formed by Government efforts and efforts of NGOs. NRLM would strengthen all existing
institutions of the poor in a partnership mode. The self-help promoting institutions both in the
Government and in the NGO sector would promote social accountability practices to introduce greater
transparency. This would be in addition to the mechanisms that would be evolved by SRLMs and state
governments. The learning from one another underpins the key processes of learning in NRLM.
7. Emphasis on Training, Capacity building and skill building: NRLM would ensure that the poor are
provided with the requisite skills for: managing their institutions, linking up with markets, managing
their existing livelihoods, enhancing their credit absorption capacity and credit worthiness, etc. A multi-
pronged approach is envisaged for continuous capacity building of the targeted families, SHGs, their
federations, government functionaries, bankers, NGOs and other key stakeholders. Particular focus
would be on developing and engaging community professionals and community resource persons for
capacity building of SHGs and their federations and other collectives. NRLM would make extensive
use of ICT to make knowledge dissemination and capacity building more effective.
8. Revolving Fund and Community investment support Fund (C.I.F): A Revolving Fund would be
provided to eligible SHGs as an incentive to inculcate the habit of thrift and accumulate their own funds
towards meeting their credit needs in the long-run and immediate consumption needs in the short-run.
The C.I.F would be a corpus and used for meeting the members' credit needs directly and as catalytic
capital for leveraging repeat bank finance. The C.I.F would be routed to the SHGs through the
Federations. The key to coming out of poverty is continuous and easy access to finance, at reasonable
rates, till they accumulate their own funds in large measure.
9. Universal Financial Inclusion: NRLM would work towards achieving universal financial inclusion,
beyond basic banking services to all the poor households, SHGs and their federations. NRLM would
work on both demand and supply side of Financial Inclusion. On the demand side, it would promote
financial literacy among the poor and provides catalytic capital to the SHGs and their federations. On
the supply side, it would coordinate with the financial sector and encourage use of Information,
Communication & Technology (ICT) based financial technologies, business correspondents and
community facilitators like 'Bank Mitras'. It would also work towards universal coverage of rural poor
against loss of life, health and assets. Further, it would work on remittances, especially in areas where
migration is endemic.
10. Provision of Interest Subvention: The rural poor need credit at low rate of interest and in multiple doses
to make their ventures economically viable. In order to ensure affordable credit, NRLM has a provision
for subvention on interest rate above 7% per annum for all eligible SHGs, who have availed loans from
mainstream financial institutions. (The final guidelines on this will be released after the requisite
approvals.)
11. Funding Pattern: NRLM is a Centrally Sponsored Scheme and the financing of the programme would
be shared between the Centre and the States in the ratio of 75:25 (90:10 in case of North Eastern States
including Sikkim; completely from the Centre in case of UTs). The Central allocation earmarked for the
States would broadly be distributed in relation to the incidence of poverty in the States.
538 - III
12. Phased Implementation: Social capital of the poor consists of the institutions of the poor, their leaders,
community professionals and more importantly community resource persons (poor women whose lives
have been transformed through the support of their institutions). Building up social capital takes some
time in the initial years, but it multiplies rapidly after some time. If the social capital of the poor does not
play the lead role in NRLM, then it would not be a people's programme. Further, it is important to ensure
that the quality and effectiveness of the interventions is not diluted. Therefore, a phased implementation
approach is adopted in NRLM. NRLM would reach all districts by the end of 12th Five-year Plan.
13. Intensive blocks. The blocks that are taken up for implementation of NRLM, 'intensive blocks', would
have access to a full complement of trained professional staff and cover a whole range of activities of
universal and intense social and financial inclusion, livelihoods, partnerships etc. However, in the
remaining blocks or non-intensive blocks, the activities may be limited in scope and intensity
14. Rural Self Employment Training Institutes (RSETIs): RSETI concept is built on the model pioneered
by Rural Development Self Employment Institute (RUDSETI) a collaborative partnership between
SDME Trust, Syndicate Bank and Canara Bank. The model envisages transforming unemployed youth
into confident self- employed entrepreneurs through a short duration experiential learning programme
followed by systematic long duration hand holding support. The need-based training builds
entrepreneurship qualities, improves self-confidence, reduces risk of failure and develops the trainees
into change agents. Banks are fully involved in selection, training and post training follow up stages.
The needs of the poor articulated through the institutions of the poor would guide RSETIs in preparing
the participants/trainees in their pursuits of self-employment and enterprises. NRLM would encourage
public sector banks to set up RSETIs in all districts of the country.
539 - III
Format for Monthly Progress Report Annexure 2 to Chapter 34
Branch Name:
Progress report for Block Name: Bank Name:
the month of xxxx, 20xx District:
State:
*Rs lakhs
No of SHGs with Credit outstanding
Credit linked SHGs in this month
S/B acnts
S. Total S/B
No accounts New a/c opened
till last Cumulative New loans Repeat Loans Cumulative
this month
month
No of Amount Amount No of Amount No of Amount

No of loans
loans disbursed* disbursed* loans disbursed* loans disbursed*
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1( c ) = 4(a) = 2(a) 4(a) = 2(a)
1(a) 1(b) 2(a) 2(b) 3(a) 3(b) 5(a) 5(b)
1(a)+1(b) +3(a) +3(a)
*New loans : First linkage loans to be considered as the new loans

*Second and third linkage to be counted under repeat finance
* Credit Outstanding 5(a) and 5(b) should be inclusive of the cumulative credit disbursed in the month i.e. 5(a) = 4(b) + credit
outstanding till last month
Annexure - 3 to Chapter - 34
Format for Monthly Delinquency Report
Delinquency Report for the month of Branch Name:

Bank Name:
Block Name:
District:
State:
*Rs lakhs
No of loan Amount Irregular Details of the
accounts outstanding* accounts ( 4 ) NPA accounts(5)
SL No
No of Overdue No of
Amount*
accounts Amount* accounts
1 2 3 4(a) 4(b) 5(a) 5(b)
541 - III
CHAPTER 35
'DAIRY ENTREPRENEURSHIP DEVELOPMENT SCHEME' (DEDS)
1. General:
a. Dairy and Poultry Venture Capital Fund launched in 2005-06 was segregated into Dairy Venture
Capital Fund and Poultry Venture Capital Fund during the year 2009-10. The mode of
implementation of Dairy Venture Capital Fund is changed from interest free loan to capital subsidy
and a revised scheme 'Dairy Entrepreneurship Development Scheme' (DEDS) has come into effect
from 1 September 2010. The objectives of DEDS include to:
i. promote setting up of modern dairy farms for production of clean milk
ii. encourage heifer calf rearing thereby conserve good breeding stock
iii. bring structural changes in the unorganized sector so that initial processing of milk can be
taken up at the village level itself.
iv. bring about upgradation of quality and traditional technology to handle milk on a commercial
scale
v. generate self-employment and provide infrastructure mainly for unorganized sector
2. Activities covered and indicative unit costs:
a. Small dairy farms - Cross bred cows, Indigenous descript breeds and Graded buffaloes (upto 10
animals) - Rs.5 lakh.
b. Vermicompost (with milch animals unit) - Rs 20,000/-.
c. Heifer calf rearing - upto 20 calves - Rs 4.80 lakh.
d. Purchase of milking machines / milko testers / bulk milk coolers (upto 2000 lr. capacity) - Rs.18
lakh.
e. Indigenous milk products manufacturing units - upto Rs.12 lakh.
f. Dairy product transport facilities and cold chain - Rs.24 lakh.
g. Cold storage for milk/milk products - Rs.30 lakh.
h. Private veterinary clinic - Rs.2.4 lakh - Mobile Units, Rs.1.80 lakh - Stationary Units.
i. Dairy parlour - Rs 56,000/-.
3. Eligibility:
a. Farmers, individual entrepreneurs, NGOs, companies, groups of unorgainsed and organized sector
etc.
542 - III
4. Scheme funding/Pattern of Investment:
a. Entrepreneur's Contribution : 10% of total outlay minimum
b. Back ended capital subsidy : 25% (33.33% for SC/ST beneficiaries) of total outlay, subject to a
ceiling
c. Cold storage for milk/milk products - Rs.30 lakh.Bank's share : Balance portion - Minimum 40%.
d. Implementing Institutions: Department of Animal Husbandry Dairying and Fisheries, GoI is the
focal department for the scheme. NABARD will implement the scheme through Commercial
Banks, State Cooperative Banks, SLDBs Regional Rural Banks and other agencies eligible for
refinance from NABARD.
5. Security Norms: The security norms will be as prescribed by Reserve Bank of India from time to time.
6. Financial Assistance Available from Banks/NABARD for Dairy Farming
a. NABARD is an apex institution for all matters relating to policy, planning and operation in the
field of agricultural credit. It serves as an apex refinancing agency for the institutions providing
investment and production credit. It promotes development through formulation and appraisal of
projects through a well organised Technical Services Department at the Head Office and Technical
Cells at each of the Regional Offices.
b. Loan for dairy farming can be extended with refinance facility from NABARD.. For obtaining
bank loan, the farmers may be advised to apply for a loan from the nearest branch of a co-operative
Bank in their area in the prescribed application form which is available in the branches of financing
banks. The Technical Officer attached to or the Manager of the bank can help/give guidance to the
farmers in preparing the project report to obtain bank loan.
c. For dairy schemes with very large outlays, detailed reports will have to be prepared. The items of
finance would include capital asset items such as purchase of milch animals, construction of sheds,
purchase of equipment etc.
d. The feeding cost during the initial period of one/two months is capitalised and given as term loan.
Facilities such as cost of land development, fencing, digging of well, commissioning of diesel
engine/pump set, electricity connections, essential servants' quarters, godown, transport vehicle,
milk processing facilities etc. can be considered for loan.
e. Cost of land is not considered for loan. However, if land is purchased for setting up a dairy farm, its
cost can be treated as party's margin upto 10% of the total cost of project.
7. Scheme Formulation for bank loan:
a. A Scheme can be prepared by a beneficiary after consulting local technical persons of State animal
husbandry department, DRDA, SLPP etc., dairy co-operative society / union / federation /
543 - III
commercial dairy farmers. If possible, the beneficiaries should also visit progressive dairy farmers
and government / military / agricultural university dairy farm in the vicinity and discuss the
profitability of dairy farming. A good practical training and experience in dairy farming will be
highly desirable.
b. The dairy co-operative societies established in the villages as a result of efforts by the Dairy
Development Department of State Government and National Dairy Development Board would
provide all supporting facilities particularly marketing of fluid milk. Nearness of dairy farm to
such a society, veterinary aid centre, artificial insemination centre should be ensured. There is a
good demand for milk, if the dairy farm is located near urban centre.
c. The scheme should include information on land, livestock markets, availability of water, feeds,
fodders, veterinary aid, breeding facilities, marketing aspects, training facilities, experience of the
farmer and the type of assistance available from State Government, dairy
society/union/federation.
d. The scheme should also include information on the number of and types of animals to be
purchased, their breeds, production performance, cost and other relevant input and output costs
with their description. Based on this, the total cost of the project, margin money to be provided by
the beneficiary, requirement of bank loan, estimated annual expenditure, income, profit and loss
statement, repayment period, etc. can be worked out and shown in the Project report. A format
developed for formulation of dairy development schemes is given as Annexure-1.
8. Scrutiny of Schemes by Coop. Banks: The scheme so formulated should be submitted to the nearest
branch of bank. The bank's officers can assist in preparation of the scheme for filling in the prescribed
application form. The bank will then examine the scheme for its technical feasibility and economic
viability on the following lines:
a. Technical Feasibility:
i. Nearness of the selected area to veterinary, breeding and milk collection centre and the
financing bank's branch.
ii. Availability of good quality animals in nearby livestock market.
iii. Availability of training facilities.
iv. Availability of good grazing ground/lands.
v. Green/dry fodder, concentrate feed, medicines etc.
vi. Availability of veterinary aid/breeding centres and milk marketing facilities near the scheme
area.
b. Economic Viability:
i. Unit Cost.
ii. Input cost for feeds and fodders, veterinary aid, breeding of animals, insurance, labour and
other overheads.
544 - III
iii. Output costs i.e. sale price of milk, manure, gunny bags, male/female calves, other miscellaneous
items etc.
iv. Income-expenditure statement and annual gross surplus.
v. Cash flow analysis.
vi. Repayment schedule (i.e. repayment of principal loan amount and interest).
vii. Other documents such as loan application forms, security aspects, margin money requirements etc.
are also examined. A field visit to the scheme area is undertaken for conducting a techno-economic
feasibility study for appraisal of the scheme. Model economics for a two animal unit and mini
dairy unit with ten buffaloes are given in Annexure-2 and Annexure - 3.
9. Sanction of Bank Loan and its Disbursement:
a. After ensuring technical feasibility and economic viability, the scheme is sanctioned by the bank.
The loan is disbursed in kind in 2 to 3 stages against creation of specific assets such as construction
of sheds, purchase of equipment and machinery, purchase of animals and recurring cost on
purchase of feeds/fodders for the initial period of one/two months. The end use of the fund is
verified and constant follow-up is done by the bank.
10. Lending Terms:
a. Unit Cost: Each Regional Office (RO) of NABARD has constituted a State Level Unit Cost
Committee under the Chairmanship of RO-in-charges and with the members from developmental
agencies, commercial banks and cooperative banks to review the unit cost of various investments
once in six months. The same is circulated among the banks for their guidance. These costs are only
indicative in nature and banks are free to finance any amount depending upon the availability of
assets.
b. Margin Money: NABARD had defined farmers into three different categories and where subsidy
is not available the minimum down payment as shown below is collected from the beneficiaries.
Sr. Category of Farmer Level of predevelopment return Beneficiary's

No. to resources Contribution
(a) Small Farmers Upto Rs.11000 5%
(b) Medium Farmers Rs.11001 - Rs.19250 10%
(c) Large Farmers Above Rs. 19251 15%`
c. Interest Rate: As per the RBI guidelines the present rate of interest to the ultimate beneficiary
financed by various agencies are as under :
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No. Loan Amount CB's and RRB's SLDB/SCB
(a) Upto and inclusive of 12% As determined by
Rs.25000 SCB/SLDB subject to
minimum 12%
(b) Over Rs. 25000 and upto 13.5% -do-
Rs. 2 lakhs
(c) Over Rs. 2.0 lakhs As determined -do-
by the banks
d. Security: Security will be as per NABARD/RBI guidelines issued from time to time.
e. Repayment Period of Loan: Repayment period depends upon the gross surplus in the scheme.
The loans will be repaid in suitable monthly/quarterly instalments usually within a period of about
5 years. In case of commercial schemes it may be extended upto 6-7 years depending on cash flow
analysis.
f. Insurance: The animals may be insured annually or on long term master policy, where ever it is
applicable. The present rate of insurance premium for scheme and non-scheme animals are 2.25%
and 4.0% respectively.
11. Annexure/s:
a. The following annexures are appended to this chapter.

i. Format for Daily Development Scheme
ii. Economics of two Animal Units.
iii. Economics of a Mini-Diary Unit
546 - III
Annexure - 1 to Chapter- 35
FORMAT FOR DIARY DEVELOPMENT SCHEME
1. General
i) Name of the sponsoring bank

ii) Address of the controlling office sponsoring the scheme
iii) Nature and objectives of the proposed scheme
iv) Details of proposed investments
S.No Investment No. Of units
(a)
(b)
(c)
v) Specification of the scheme area (Name of District & Block/s)
S.No District Block
vi) Names of the financing bank's branches:
S.No Name of the Branch/District
(a)
(b)
(c)
vii) Status of beneficiary/ies: (individual/Partnership/Company/Corporation/Co-operative Society /

Others)
viii) In case of area based schemes, coverage of borrowers in weaker sections (landless labourers,
small, medium & large farmers as per NABARD's norms, SC/ST, etc.)
ix) Details of borrowers profile (Not applicable to area based schemes)
(a) Capability
(b) Experience
(c) Financial Soundness
(d) Technical/Other special Qualifications
547 - III
(e) Technical/Managerial Staff and adequacy thereof
2. Technical Aspects :
a) Location, Land and Land Development :

i) Location details of the project
ii) Total Area of land and its cost
iii) Site map
iv) Particulars of land development, fencing, gates, etc.
b) Civil Structures :
Detailed cost estimates along with measurements of various civil structures

- Sheds
- Store room
- Milk room
- Quarters, etc.
c) Equipment/Plant and Machinery :
i) Chaff cutter
ii) Silo pit
iii) Milking machine
iv) Feed grinder and mixer
v) Milking pails/milk cans
vi) Biogas plant
vii) Bulk coolers
viii)Equipment for manufacture of products
ix) Truck/van (price quotations for the above equipment)
d) Housing :
i) Type of housing
ii) Area requirement
- Adults
- Heifers (1-3 years)\
- Calves (less than 1 year)
e) Animals :
i) Proposed species
548 - III
ii) Proposed breed
iii) Source of purchase
iv) Place of purchase
v) Distance (kms.)
vi) Cost of animal (Rs.)
f) Production parameters :
i) Order of lactation
ii) Milk yield (ltrs. per day)
iii) Lactation days
iv) Dry days
v) Conception rate
vi) Mortality(%)
- Adults
- Young stock
g) Herd projection (with all assumptions):
h) Feeding:
i) Source of fodder and feed - Green fodder
- Dry fodder
- Concentrates
ii) Fodder crop rotations
- Kharif
- Rabi
- Summer
iii) Fodder cultivation expenses
v) Requirement and costs :
Quantity required (kg./day)

Cost(Rs. / Kg) Lactation Dry Period Young Stock
Green Fodder
Dry Fodder
Concentrates
i) Breeding Facilities:
i) Source:
549 - III
ii) Location :
iii) Distance (km.):
iv) Availability of semen :
v) Availability of staff :
vi) Expenditure per animal/year
j) Veterinary Aid :
i) Source
ii) Location
iii) Distance (km.)
iv) Availability of staff
v) Types of facilities available
vi) If own arrangements are made -
a) Employed a veterinary doctor/stockman/consultant
b) Periodicity of visit
c) Amount paid/visit (Rs.)
vii) Expenditure per animal per year (Rs.)
k) Electricity :
i) Source
ii) Approval from SEB
iii) Connected load
iv) Problems of power failure
v) Arrangements for generator
l) Water :
i) Source
ii) Quality of water
iii) Availability of sufficient quantity for drinking, cleaning and fodder production
iv) If investment has to be made, type of structure, design and cost
m) Marketing of milk :
i) Source of sales
ii) Place of disposal
iii) Distance (km.)
550 - III
iv) Price realised - (Rs. per litre of milk)
v) Basis of payment
vi) Periodicity of payment
n) Marketing of other products:
i) Animal - age
- place of sale
- price expected
ii) Manure - Qty./animal
Price/unit (Rs.)
iii) Empty gunny bags
- Number
- Cost/bag (Rs.)
o) Beneficiary's experience :
p) Comments on technical feasibility :
q) Government restrictions, if any :
3. Financial Aspects :
i) Unit Cost :
Unit cost with Whether approved
Name of the Physical units
Sr.No component wise by state level unit
Investment and specification
break-up (Rs.) cost committee
Total
ii) Down payment/margin/subsidy(Indicate source & extent of subsidy):
iii) Year-wise physical & financial programme :
Year Invest- Physical Unit Total Margin/ Bank Refinance

1 Ment Units Cost (Rs.) Outlay (Rs.) Subsidy (Rs.) loan (Rs.) Assistance (Rs.)
2 3 4 5 6 7 8
Total
iv) Financial viability (comment on the cash flow projection on a farm model/unit and enclose the
same.)
551 - III
Particulars :
a) Internal Rate of Return (IRR) :

b) Benefit Cost Ratio (BCR) :
c) Net Present Worth (NPW) :
v) Financial position of the borrowers (to be furnished in case of corporate bodies/partnership firms)
a) Profitability Ratio :
i) GP Ratio
ii) NP Ratio
b) Debt Equity Ratio :
c) Whether Income Tax & other tax obligations are paid upto date :
d) Whether audit is upto date (enclose copies of audited financial statements for the last three
years)
vi) Lending Terms :
i) Rate of Interest :
ii) Grace Period :
iii) Repayment Period :
iv) Nature of Security :
v) Availability of Government guarantee wherever necessary :
4. Infrastructural Facilities:
a) ailability of technical staff with bank/implementing authority for monitoring
b) Details of -
i) technical guidance
ii) training facilities
iii) Govt. support/extension support
c) Tie-up arrangements with marketing agencies for loan recovery
d) Insurance -
- Type of policy
- Periodicity
- Rate of premium
e) Whether any subsidy is available, if so amount per unit
f) Arrangements for supply of green fodder and cattle feed
552 - III
Annexure 2 to Chapter -35
ECONOMICS OF TWO ANIMAL UNIT (BUFFALOES)

Project at a Glance
1 Unit Size : 2 Animals
2 Breed : Graded Murrah
3 State : Karnataka
4 Unit Cost (Rs.) : 18,223
5 Bank Loan (Rs.) : 15,400
6 Margin Money (Rs.) : 2,823
7 Repayment period : 5
8 Interest rate (%) : 12
9 BCR at 15% DF : 1.50:1
10 NPW at 15% DF (Rs.) : 29,187
11 IRR(%) : >50%
Model Project for Two Animal Units (Buffaloes)
A. Investment Cost
Unit Cost Total Cost
Sr.No. Items Specifications Phy. units
(Rs. /Unit) (Rs.)
1 Cost of animals 2 8,200 16,400
2 Insurance 2 689 1,378
3 Conc. Feed (4.5 kg/ 135 Kg 1 3.3 446
day/animal for 30 days)
4 Total cost 18,223
5 Margin money (15% Say Rs. 2,733 2723
of total cost)
6 Bank laon (85% Say Rs. 15490 15500
of total cost)
553 - III
B. Techno Economic Parameters
i) No.of milch animals 2

ii) Cost of milch animals 8,200
iii) Lactation period (days) 280
iv) Dry period (days) 150
v) Milk yield (lts./day) 7
vi) Sale price of milk (Rs./lt) 7.75
vii) Sale of manure/animal/year (Rs.) 300
viii) Insurance premium for five years (%) 8.4
ix) Veterinary aid/animal/year (Rs.) 150
x) Labour (Rs.) Family labour
xi) Cost of electricity & water (Rs./animal) 100
xii) Interest rate (%) 12
xiii Repayment period (years) 5
xiv) Income from sale of gunny bags 20
bags/tonne @ Rs. 5/bag 100
xv) Feeding schedule
(Quantity in kg/day)
S.No. Type of fodder/feed Price (Rs./kg) Lactation Dry
Period
a) Green fodder0.2 25 25
b) Dry fodder 0.5 55
c) Concentrate 3.3 4.5 1
xvi) Animals will be purchased in two batches at an interval of 5 - 6 months
xvii) It is assumed that the expenditure on calf rearing will nullify the sale value of calf / hiefer.
xviii) Closing stock value (Rs. per animal) 4100.
554 - III
C. Lactation Chart
Sr.No Particulars Years
I II III IV V
i) Lactation Days
a) First batch 250 280 250 210 210
b) Second batch 180 210 210 210 210
Total 430 490 460 420 420
ii) Dry Days
a) First batch 110 80 110 150 150
b) Second batch - 150 150 150 150
Total 110 230 260 300 300
D. Cash Flow Analysis
Sr.
Particulars Years
No.
I II III IV V
I Costs:
1 Capital cost* 17,777
2 Recurring cost
a) Feeding during lactation period
Green fodder 2,150 2,450 2,300 2,100 2,100
Dry fodder 1,075 1,225 1,150 1,050 1,050
Concentrate 6,386 7,277 6,831 6,237 6,237
Total 9,611 10,952 10,281 9,387 9,387
b) Feeding during dry period
Green fodder 550 1,150 1,300 1,500 1,500
Dry fodder 275 575 575 750 750
Concentrate 363 759 858 990 990
Total 1,188 2,484 2,733 3,240 3,240
c) Veterinary aid & breeding cover 225 300 300 300 300
d) Cost of electricity & water 150 200 200 200 200
Total 28,951 13,936 13,514 13,127 13,127
II BENEFITS
a) Sale of milk 23,328 26,583 24,955 22,785 22,785
b) Sale of Gunny bags 205 232 218 200 200
c) Sale of manure 450 600 600 600 600
d) Closing stock value 8,200
555 - III
Total 23,982 27,414 25,773 23,585 31,785
III DF @15% 0.870 0.756 0.658 0.572 0.497
IV Discounted Costs At 15% 25,175 10,537 8,886 7,505 6,526 58,630
V Discounted Benefits At 15% 20,854 20,729 16,946 13,485 15,803 87,817
VI NPW @ 15% 29,187
VII BCR @ 15% 1.50:1
VIII DF @ 50% 0.667 0.444 0.296 0.198 0.132
IX Net Benefits -4,969 13,479 12,259 10,458 18,658
X Discounted Net Benefits At 50% -3,313 5,990 3,632 2,066 2,457 10,833
XI IRR >50%
* excluding the capitalised expenditure on concentrated feed
E. Repayment Schedule
Bank Loan (Rs) - 15500

Interest Rate (%) - 12
Capital recovery factor - 0.277
Expenses Gross surplus Equated annual Net surplus

Year Income
instalment
I 23,982 10,728 13,254 4,294 8,961
II 27,414 13,936 13,479 4,294 9,185
III 25,773 13,514 12,259 4,294 7,966
IV 23,585 13,127 10,458 4,294 6,165
V 23,585 13,127 10,458 4,294 6,165
556 - III
ECONOMICS OF A MINI DAIRY UNIT-TEN ANIMAL UNIT (BUFFALOES)

Project at a Glance
1 Unit size : 10 animals

2 Breed : Graded Murrah
3 State : Karnataka
4 Unit cost (Rs.) : 155,030
5 Bank loan (Rs.) : 131,700
6 Margin money (Rs.) : 23,330
7 Repayment period (yrs.) : 5
8 Interest rate (%) : 13.5
9 BCR at 15% DF : 1.53:1
10 NPW at 15% DF(Rs.) : 154,403
11 IRR (%) : >50
Model Project for Ten Animal Unit (Buffaloes)
A. Investment Cost
S. Unit Cost Total Cost
Items Specifications Phy. units
No. (Rs./unit) (Rs.)
1 Cost of animals 10 8,200 8,200
2 Transportation cost of animals 10 300 3,000
3 Cost of construction of shed Sq.ft. 650 55 35,750
4 Cost of Store cum office Sq.ft. 200 100 20,000
5 Equipment (chaff cutter, milking 10 500 5,000
pails, cans, technicians
6 Insurance 10 328 3,280
7 Fodder raising expenses 2 3,000 6,000
@ Rs.3000/acre
8 Total cost 155,030
9 Margin money (15% of total cost) Say 23255 23330
10 Bank loan (85% of total cost) Say 131776 131700
557 - III
B. Techno Economic Parameters
i Animals will be purchased in two batches at an interval of 5-6 months

ii Second/Third lactation animals within 30 days of calving will be purchased in first
year
iii No. of acres of irrigated land for fodder production considered in the project. Green 2
fodder will be produced on the farm. Fodder production expenses are considered in
the cash flow analysis. During first year only two seasons are considered.
iv In the first year the fodder production expenses are capitalised for one season (Rs. per 3,000
acre per season) and manure is utilised for fodder production
v It is assumed that the expenditure on calf rearing will nullify the income realised from
its sale. However, the heifer will be retained on the farm and the old animals will be
sold out.
vi No. of milch animals 10
vii Cost of milch animals 8,200
viii Transportation cost (Rs. per milch animal including followers) 300
ix Civil structures:
a) Shed (sft. per milch animal) 65
b) Store and office (sft) 200
x Cost of construction 55
a) Shed (Rs. per sft) 100
b) Store and office
xi Cost of equipment (Rs per milch animals) 500
xii Lactation period (days) 280
xiii Dry period (days) 150
xiv Milk yield (lts/day) 7
xv Sale price of milk (Rs/lt) 7.75
xvi Income from sale of gunny bags (20 bags/tonne @ Rs.5/bag) 100
xvii Expenditure on dry fodder for dry and lactation period requirement (kg/day) Cost 5
(Rs/kg) 0.5
xviii Expenditure on concentrates 4.5
a)Requirement (kg/day)Lactation period Dry period 1
b) Cost (Rs/kg) 3.3
xix Veterinary aid/animal/year (Rs) 150
xx Labour (Rs./month) 900
xxi Insurance premium (%) 4
xxii Cost of electricity, water & other overheads (Rs/animal) 200
558 - III
xxiii Depreciation (%)
5
a) Sheds 10
b) Equipment
xxiv Value of closing stock 4,100
xxv Interest rate (%) 13.5
xxvi Repayment period (years) 5
C. Lactation Chart
Years
S.No Particulars I II IV V
III
I Lactation Days
a) First batch 1,250 1,400 1,250 1,050 1,050
b) Second batch 900 1,050 1,050 1,050 1,050
Total 2,150 2,450 2,300 2,100 2,100
II Dry days
a) First batch 550 400 550 750 750
Second batch - 750 750 750 750
Total 550 1,150 1,300 1,500 1,500
D. Cash Flow Analysis
S.No Particulars I Year II Year III Year IV Year V Year
I Costs
1 Capital cost* 145,750
2 Recurring cost
a) Green fodder 12,000 18,000 18,000 18,000 18,000
raising expenses
b) Feeding during
lactation period
Dry fodder 5,375 6,125 5,750 5,250 5,250
Concentrate 31,928 36,383 34,155 31,185 31,185
Total 37,303 42,508 39,905 36,435 36,435
c) Feeding during
dry period
Dry Fodder 1,375 2,875 3,250 3,750 3,750
559 - III
Concentrate 1,815 3,795 4,290 4,950 4,950
Total 3,190 6,670 7,540 8,700 8,700
d) Veterinary aid & 1,125 1,500 1,500 1,500 1,500
breeding cover
e) Cost of electricity 1,500 2,000 2,000 2,000 2,000
& water
f) Insurance 3,280 3,280 3,280 3,280 3,280
g) Labour cost 10,800 10,800 10,800 10,800 10,800
Total 188,868 52,678 50,945 49,503 48,635
II Benefits
a) Sale of milk 116,637 132,912 124,775 113,925 113,925
b) Sale of Gunny 1,023 1,218 1,165 1,095 1,095
bags
c) Depreciated - 26,813
value of sheds
d) Depreciated 2,500
value of equipment
e) Closing stock 41,000
value
Total 117,660 134,130 125,940 115,020 185,333
III DF @ 15% 0.87 0.76 0.66 0.57 0.50
IV Discounted 164,233 39,832 33,497 28,303 24,180 290,045
Costs At 15%
V Discounted 102,313 101,422 82,808 65,763 92,143 444,448
Benefits At 15%
VI NPW @ 15% 154,403
VII BCR @ 15% 1.53:1
VIII DF @ 50% 0.667 0.444 0.296 0.198 0.132
IX Net Benefits -71,208 81,453 74,995 65,518 136,698
X Discounted Net 47,472 36,201 22,221 12,942 18,001 41,893
Benefits At 50%
XI IRR >50
* excludes the capitalised cost for fodder raising for three months and insurance for one year
560 - III
E. Repayment Schedule:
Bank Loan (Rs.) - 131700
Interest rate (%) - 13.5
Capital recovery factor - 0.287
(in Rs.)
Equated
Year Income Expenses Gross surplus annual Net surplus
instalment
I 117,660 33,838 83,823 37,798 46,025
II 134,130 52,678 81,453 37,798 43,655
III 125,940 50,945 74,995 37,798 47,197
IV 115,020 49,503 65,518 37,798 27,720
V 115,020 48,635 66,385 37,798 28,587
561 - III
CHAPTER - 36
GUIDELINES FOR CENTRAL SECTOR SCHEME ON PIG DEVELOPMENT
1. General:
a. To encourage commercial pig rearing by farmers/ labourers to improve production

performance of native breed through cross breeding by using selected animals of high
performing breeds and by providing incentives in terms of capital subsidy for ensuring the
viability of the pig breeding, rearing and related activities.
th
2. Implementation and Area of Operation: The scheme will be implemented during the XI five year
plan period throughout the country. The high potential districts identified in 15 States are indicated
in Annexure-1. However the proposals received from other than these districts/ States can also be
considered for providing subsidy assistance under the scheme.
3. Eligibility: Producer companies, partnership firms, corporations, NGOs, SHGs, JLGs,

cooperatives and individual entrepreneurs.
4. Subsidy: The ceiling on capital subsidy for different activities is given below.
Unit size and

S. Component Pattern of
indicative Unit
No Assistance
Cost#
1 Pig breeding farms 20 F+ 4M (Unit Cost 25% of the outlay (33 1/3 % in NE States
Rs 6.00 lakh) including Sikkim and hilly areas*) as back
ended subsidy subject to a ceiling of Rs 1.50
lakh (Rs 2.00 lakh in NE States including
Sikkim and hilly areas*)
2 Pig rearing 3F+1M (Unit Cost 25% of the outlay (33 1/3 % in NE States
& fattening units Rs 0.76 lakh) including Sikkim and hilly areas*) as back
ended subsidy subject to a ceiling of Rs
19000/- (Rs 25,300/- for NE States including
3 Retail (Unit Cost Rs 10.00 25% of the outlay (33 1/3 % in NE States
outlets lakh) including Sikkim and hilly areas*) as back
ended subsidy subject to a ceiling of Rs 2.50
lakh (Rs 3.33 lakh in NE States including
4 Facilities @ 2 per district 50% of the outlay as back ended subsidy
for live markets subject to a ceiling of Rs 2.50 lakh
562 - III
F : Female (Sows), M : Male (Boars), TFO: Total Financial Outlay
* where the project site is located at a height of more than 1000 meters above mean sea level.
# These are indicative costs . The subsidy will be calculated based on the indicative or actual cost,
whichever is less. Banks are, however, free to sanction higher/lower TFO also based on the local
conditions.
5. Funding pattern:
a. Beneficiary contribution (margin) - 10 % of the outlay (minimum). The cost of land not
exceeding 10% of the project cost can form part of the
entrepreneur's contribution.
b. Back ended capital subsidy - as indicated at Sl. No: 4
c. Effective Bank Loan - Balance portion
d. Linkage with credit: Assistance under the scheme would be purely credit linked and subject to
sanction of the project by eligible financial institutions.
e. Eligible Financial Institutions:
i. Commercial Banks
ii. Regional Rural Banks
iii. State Cooperative Banks
iv. State Cooperative Agriculture and Rural Development Banks, and
v. Such other institutions, which are eligible for refinance from NABARD. NABARD would provide
refinance assistance to these institutions considering their eligibility. The quantum and rate of
interest on refinance will be as decided by NABARD from time to time.
6. Promotional Assistance: To support and encourage these activities by organizing SHGs / JLGs /
Farmers Clubs / Cooperatives, providing training to farmers / butchers & shop owners, giving
publicity and campaign, mapping of resources and reviving of Govt. Farms the following
promotional programmes are proposed under the scheme. Funds will be routed through NABARD
after approval by State Level Sanctioning & Monitoring Committee (SLSMC) :
S. Unit Rate Funding Eligible Organisations/

Component
No (Rs. lakh) Pattern Agencies
1 Organisation of SHGs/ 0.20 100% Grant NGOs through NABARD
JLGs Farmers Clubs/
Cooperatives
2 Training of Farmers / 0.01 / 0.02 100% Grant NGOs through NABARD
Butchers & Shop Owners
3 Resource Mapping 0.75 100% Grant By NABARD
4 Publicity & Campaign 150 100% Grant By NABARD
of Scheme
5 Revival of Government 3 50% Grant SIA, KVK, State
Farms (20 Sows + 4 Boars) Governments
563 - III
* 50% from Central Government and remaining from concerned State Government. KVK : Krishi Vikas
Kendra; NGO : Non-Government Organization; SHG : Self Help Group; JLG: Joint Liability Group; SIA :
State Implementing Agency
7. Sanction by banks: The entrepreneurs/ eligible organizations shall apply to the banks for sanction of
the project. The bank shall appraise the project as per their norms and if found eligible, sanction the
total outlay excluding the margin as the bank loan. The loan amount is then disbursed in suitable
instalments depending on the progress of the unit. After the disbursement of first instalment of the
loan the bank shall apply to the concerned Regional Office of NABARD for sanction and
release of subsidy in the format given in Annexure- 2.
8. State Level Sanctioning & Monitoring Committee (SLSMC)
a. State Level Sanctioning & Monitoring Committee(SLSMC) will be Chaired by the Secretary,
State Animal Husbandry Department with representatives from Department of Animal
Husbandry, Dairying and Fisheries (DADF), GoI, lead bank of the state, State Dept. of Local
Administration, NGO in this field, an expert in the related field, and O-I-C of NABARD as
members. The SLSMC will be constituted by the State Government concerned. O n l y o n e
SLSMC will look after all the schemes relating to Animal Husbandry Department. OIC of
NABARD Regional Office will be convener of the SLSMC.Initially NABARD shall convene
the meeting as and when the projects are received for sanction and later at quarterly intervals
to review the progress of the scheme. Banks that have submitted projects for sanction may be
invited as special invitees.
b. As the number of projects that would be submitted is expected to be more in due course, the
SLSMC may delegate the sanctioning powers in respect of these units to the Project Sanctioning
Committees (PSC) of NABARD Regional Offices. On quarterly basis the PSC will put up
the sanctioned projects to SLSMC for ratification.
9. Release of Subsidy:
a. After sanction of the subsidy by the SLSMC, the Regional Office of NABARD shall release the
subsidy amount after confirming the availability of funds from NABARD Head Office. The
subsidy shall be released on first come first serve basis subject to availability of funds.
b. After crediting the subsidy in the subsidy reserve fund account of the borrower, a Utilization
Certificate in the prescribed format as given in Annexure - 3 shall be submitted by the
participating bank to NABARD to the effect that the amount of subsidy received by them has
been fully utilized and adjusted in the books of account within the overall guidelines of the
scheme.
10. Repayment:
a. Repayment period will depend on the nature of activity and will vary between 5 to 6 years
including grace period of one (1) year.
564 - III
b. The repayment schedules will be drawn on the total amount of the loan (including subsidy) in such
a way that the subsidy amount is adjusted after liquidation of net bank loan (excluding subsidy).
11. Rate of Interest: Rate of interest on term loan shall be as per RBI guidelines and declared policy of
the bank in this regard. The bank may charge interest on the entire loan amount till the subsidy is
received and from the date of receipt of subsidy by the implementing branch, interest has to be
charged only on the effective bank loan portion i.e. outlay excluding the margin and subsidy.
12. Security: The security for availing the loan will be as per guidelines issued by RBI from time to
time.
13. Time limit for Completion of the project:
a. Time limit for completion of the project would be as envisaged under the project, subject to
maximum of 12 months period from the date of disbursement of the first instalment of loan
which may be extended by a further period of 3 months, if reasons for delay are considered
justified by the financial institution concerned.
b. If the project is not completed within the stipulated period, benefit of subsidy shall not be available
and advance subsidy placed with the participating bank, if any, will have to be refunded forthwith
to NABARD.
c. Adjustment of subsidy: The capital subsidy will be back ended with minimum 3 Years lock-in
period. The capital subsidy should be refunded one year after the account becoming NPA and
remaining NPA as on that date. The capital subsidy will be adjusted against the last instalments of
repayment of bank loan. The capital subsidy admissible under the scheme will be kept in the
“Subsidy Reserve Fund Account (Borrower-wise) in the books of the financing bank. No interest
will be paid on this amount by the bank. In view of this, for the purposes of charging interest on the
loan component, the subsidy amount should be excluded. The balance lying to the credit of the
“Subsidy Reserve Fund Account” will not form part of Demand and Time Liabilities for
calculation of CRR and SLR.
14. Monitoring:
a. Central Monitoring Committee (CMC) at National level Chaired by Joint Secretary,

DADF, GoI with members from DADF, Planning Commission, Secretaries of Department of
AH from three States (on rotation basis), three banks (on rotation basis), M/O Rural
Development, Environment and Forest, Micro, Small & Medium Enterprises D/o Commerce
& Industry (Leather Division), and NABARD will review the implementation of the scheme at
half yearly intervals.
b. The SLSMC will review the progress on quarterly basis.
c. The participating banks should conduct periodic inspections of the units and give a feedback
to the SLSMC at regular intervals.
565 - III
d. Indicative Farm models for Pig rearing is given in Annexure - 4 to this Chapter.
15. Other Conditions:
a. The participating banks should adhere to the norms of appraising the projects regarding
technical feasibility and commercial/financial viability.
b. Financing bank should ensure that regulations /laws of Govt, Corporation/ Municipality/
Local Self Government are complied with wherever necessary.
c. The participating banks should ensure insurance of the assets created under the project.
d. A signboard displaying “Assisted by Department of Animal Husbandry Dairying and

Fisheries, Ministry of Agriculture, Government of India through NABARD” will be exhibited
at the unit.
e. Pre and post completion inspection of the project shall be undertaken by the participating
bank to verify physical and financial progress as and when required.
f. DADF reserves the right to modify, add and delete any terms / conditions without assigning
any reason and its interpretation of various terms will be final.
g. DADF reserves the right to recall any amount given under the scheme without assigning any
reason thereof.
h. Any other pre and post inspection would be undertaken by DADF representative to find out the
physical and financial progress as and when required.
i. Other operational instructions issued by DADF / NABARD from time to time will be strictly
followed.
16. Annexure/s:
Annexure 1 :State wide High Potential Districts for Pig Rearing Activities
Annexure 2 :Claim Form for release of Capital subsidy
Annexure 3 :Utilisation Certificate Capital Subsidy
Annexure 4 : Indicative Farm Models for Pig rearing units
566 - III
Annexure -1 to Chapter 36
State-wise identified high potential districts for Pig rearing activities
S.No. State High Potential Districts *

1 Andhra Pradesh Guntur, Nalgonda, W Godawari
2 Arunachal Pradesh Lohit, Lower Subansiri, West Siang
3 Assam Berpeta, Bongaigaon, Cachar, Darrang, Dhamaji, Dubri, Goalpara,
Golaghat
4 Bihar Gaya
5 Chattisgarh Dantawada, Jogdalpur
6 Jharkhand Dumka, Ranchi
7 Kerala Pattanamthitta
8 Manipur Bhinupur, Chendel, Churachundpur, Imphal East, Imphal West
9 Meghalaya E Goro hills, E Khasihills, Ri Bhoi, S Garo hills
10 Mizoram Aizwal, Champai, Kolasib, Lunglei
11 Nagaland Dimapur, Kiphire, Kohima, Longleng, Mokokchung
12 Odisha Kendrapara
13 Tripura Dhalai, North, South and West Tripura
14 Uttar Pradesh Basti, Muzzafarnagar, Pililbit
15 West Bengal Bankura, Burdwan, Darjeeling, Midnapore (W)
Total 50
* Proposals received from other than these districts/ States can also be considered for providing subsidy
assistance under the scheme.
567 - III
Claim Form From the Controlling Office of the Bank for Release of Capital Subsidy in Respect
of Scheme for Piggery Development
(To be submitted to the concerned Regional Office of NABARD)
Name of the Bank : Date:
Total Amount of Current Claim:
Details of Current Claim :
[Rs]
Particulars
Name and address of the Entrepreneur (Pl
indicate district also)
Location of the Project ( indicate the district
and whether it is a hilly area)
Whether SC/ST/Women
Bank/Branch address ( indicate district also)
with BSR code
Loan A/c No.
Date of sanction
Purpose of Loan
Unit size
Total Financial Outlay
Margin
Bank Loan
Repayment prescribed
Rate of Interest
Date of release of 1st instalment of loan
Capital Subsidy claimed
Any other information relevant to the project
1. We undertake having complied with all the instructions contained in NABARD circular No. dated
regarding operational guidelines of the scheme while sanctioning above proposals.
2. We request you to release an amount of Rs. (Rupees ….) as Capital Subsidy in respect of the
above entrepreneurs.
Place :
Date :
Seal and signature of the Branch Manager (financing bankAuthorised signatory Controlling Office of the
bank (For the use of NABARD RO, )
568 - III
The above claim is scrutinised. HO is requested to confirm the release of Advance subsidy amount of
Rs. (Rupees only) to be released to
(Name of the Bank).
(Signature) AGM/DGM (NABARD, RO)
(For the use of ICD, NABARD HO)
Release of Subsidy - Confirmation
RETURN FAX MESSAGE
Date
FROM : CGM, ICD, NABARD, HO, MUMBAI
FOR: CGM/GM/OIC, REGIONAL OFFICE NABARD
Scheme for Piggery Development

Release of subsidy - confirmation
The claim No. is admitted. Since sufficient funds are available with NABARD, under the scheme, the above
proposal of releasing advance subsidy amount Rs............................. (Rupees......................
............................................. only) is confirmed for release.
AGM
ICD, NABARD-HO, MUMBAI
Date :
569 - III
Annexure - 3 to Chapter 36
Format for Utilization Certificate - Capital Subsidy

(For the use of financing bank to be submitted to the regional office of NABARD)
Scheme for Piggery Development
1. Name, address of the beneficiary and location of the project

2. Name of the financing bank :
3. Name & address of the financing branch:
4. Date of sanction of loan by bank :
5. Date of field monitoring of the unit by the bank
6. Date of completion of the unit :
7. Financial details
i. Total financial outlay: Rs.
ii. Margin Money: Rs.
iii. Bank loan: Rs.
iv. Subsidy received from NABARD Date of receipt: Amount (Rs.):
v. Date of credit to the "Subsidy Reserve Fund A/C" of the Borrower:
8. Brief description of facilities created.
9. Rate of interest charged by the financial bank : ----- ------% p.a.
10. The bank has / has not availed refinance from NABARD
This is to certify that the full amount of capital subsidy received in respect of the above project has been
fully utilized (by way of crediting to the "Subsidy Reserve Fund Account - borrower - wise) and adjusted in
the books of account under the sanctioned terms and conditions of the project within the overall guidelines
of the scheme.
Place :
Date :
570 - III
Economics of Piggery ( 3 Sows + 1 Boar )
A. Summary
1 Unit Size : 3 sows + 1 boar

2 Type of animal : Improved breed
3 Unit Cost (Rs.) : 76000
4 Margin Money (Rs.) : 7600
5 Bank Loan (Rs.) : 49400
6 Capital Subsidy (Rs.) : 19000
7 Repayment period (years) : 6 years including first year grace period
8 Interest rate (% p.a.) : 12
9 NPW @ 15% DF (Rs.) 83542
10 BCR @ 15% DF 1.49:1
11 IRR (%) >50
B. Investment Cost
Sr.N Item Specifications Physical Unit Unit Cost Total Cost (Rs.)
1A Boar Pen 70 sqft 70 sqft 70 sqft 4900.00

B Sow Pens 60 sqft/sow 180 sqft 70 12600.00
C Fattener Shed 12.5 sqft/fattener 250 sqft 70 17500.00
2 Equipment -- -- LS 1000.00
3 Cost of Animals
A Sow Improved 3 2500 7500.00
B Boar Improved 1 3000 3000.00
4 Feed
A Adults 3 kg/day/boar 4927 kg
3.5 kg/day/boar
Conc.Feed-30% 1477 kg 6 8862.00
Waste-70% 3450 kg 1 3450.00
B Fatteners (20) 1.75 kg/day/fattener 6300 kg
Conc.Feed-30% 1890 kg 6 11340.00
Waste-70% 4410 kg 1 4410.00
5 Insurance 5% of value of animals 4 -- 525.00
6 Labour Family -- -- --
7 Cost of Medicines -- 4 Adults 50 per Fattener 700.00
-- -- 25 per Fattener
8 Misc. Expenses -- -- -- 213.00
Total 76000.00
571 - III
C. Techno-Economic Parameters
1 Space requirement for shed (sqft) :

Boar : 70
Sow : 60
Fattener 3-8 months : 12.5
Cost of shed (Rs./sqft) : 70
2 Farrowing details
Farrowing interval (month) : 8
No. of piglets per sow : 9
Mortality among piglet (%) : 20
Mortality among fatteners (%) : 10
Weaning period (days) : 60
3 Feed requirement : Kg/day
Boar : 3
Sow : 3.5
Fattener (Average) : 1.75
Ratio of concentrateto total feed : 30%
Cost of Conc. feed (Rs./kg) : 6
Cost of waste (Rs./kg) : 1
4 Cost of animals at purchase
Sow ~7 months age (Rs.) : 2500
Boar ~7 months age (Rs.) : 3000
5 Insurance (%) : 5
6 Labour : family labour
7 Cost of medicine, vaccine, etc. : Rs. 50/adult & Rs. 25/fattener
8 Sale price of 8 months old fattener : Rs. 2000/fattener
9 Salvage value of animals : Adults - Rs. 2500/animal
Piglets - Rs. 500 / animal
10 Depreciation (%) :
Civil structures : 5% Equipment : 10%
D. Cash Flow Statement
Sl.No. Particulars I II III IV V VI

I Cost
1 Capital cost 46500
2 Recurring cost
a Conc. feed adult fattener 8862 * 8862 8862 8862 8862 8862
b Waste/Garbage 7560 * 11340** (15120) 18900 15120 1890018900
Adult 3450 * 3450 3450 3450 3450 3450
Fattener 2940 * 4410** (5880) 7350 5880 73505880
c Vet. care 600 * 1100** (1200) 700 1200 7001200
572 - III
Sl.No. Particulars I II III IV V VI
d Insurance 525 * 525 525 525 525 525
e Misc. expenses 213 * 426 213 426 213 213
Total Cost 70650 30113(35463) 40000 35463 40000 25463
II Benefits
a Sale of fattener 100000 50000 100000 50000 100000
b Salable value of closing stock 20000
c Residual value of shed/equipment 26000
Total Benefit 100000 50000 100000 50000 146000
Net Benefit (Total Cost- Total Bene -70650 64537 10000 64537 10000 110537
DF @ 15% 0.87 0.756 0.658 0.572 0.497 0.432
PW @ 15% -61465 37714 0 45760 33796
NPW @ 15% 83542
BCR @ 15% 1.49 : 1
IRR 61%
* Capitalised
** Other than capitalised
@ Figures in parenthesis include the capitalised amount
Capital Subsidy : Rs.19,000/- Bank Loan : Rs. 49,400/- Interest : 12 %p.a.
Loan Interest @ 12% Repayment Total Net

Year Gross Surplus outstanding p.a. of principal outgoings Surplus
Bank loan Bank loan
1 - 49400 5928 0 5928 -5928
2 69887 49400 5928 15000 20928 48959
3 10000 34400 4128 0 4128 5872
4 64537 34400 4128 17000 21128 43409
5 10000 17400 2088 0 2088 7912
6 64537 17400 2088 17400 19488 45049
F. Economics of Piggery Breeding Farm (20 + 4)
A. Summary
1 Unit Size 20 Sow + 4 Boar
2 Type of Animal Improved breed
3 Unit cost (Rs.) 6,00,000
4 Margin Money- minimum 10% (R 60,000
5 Capital Subsidy @ 25% of UC 1,50,000
6 Bank Loan - balance portion (Rs.) 3,90,000
573 - III
7 Repayment period (Years) 5 years including 1 year grace period
8 Interest rate (% p.a.) 12%
9 NPW @ 15% DF (Rs.) 2,85,890
10 BCR @ 15% DF 1.24: 1
11 IRR (%) 41%
Bank Loan (Rs.) 3,90,000
Capital Subsidy @ 25% of UC 1,50,000
B. Investment cost
Unit Cost Total Cost
S. No Item Specifications Physical Unit
(Rs./Unit) (Rs.)
1 Pig Sty
A Boar Pens 70 sqft/noes 280 sqft 80 22400
B Sow Pens 20 sqft/sow for 15 sows 300 sqft 80 24000
C Farrowing Shed 100 sqft/sow for 7 sows 700 sqft 90 63000
D Gorwers Shed 10 sqft/grower 810 sqft 80 64800
2 Equipment LS 20000
3 Water Supply, Biosecurity, etc. 50000
4 Cost of Animals
A Sow Improved 20 2500 50000
B Boar Improved 4 3500 14000
5 Feed
A Adult 3/kg/day/boar 4230 kg
3. 5/kg/day/sow 25000 kg 40% conc. feed 11808 kg 782656
60% waste 17712 kg 1 17712
B Growers 1.75 kg/flattener 51030 kg
30% conc. feed 15309 kg 7 107163
70% waste 35721 kg 1 35721
6 Insurance 5% of value of animals 24 3200
7 Labour 2 persons till 3 6 100 30000
after 6
8 Cost of Medicines Adult 50/adult 1200
Pig lets & Grow 25/fattener 4050
9 Misc. Expenses 10098
Total Investment Cost 600000
C. Tecbno-Economic Parameters
1 Space requirement for shed (sft)
A Boar 70 sqft for Rs.80
B Sow 20 sqft for Rs.80
574 - III
Farrowing pens 100 sqft for Rs.90
C Growers 3-8 months 10.0 sqft @ 80/sqft
2 Farrowing details
A Farrowing Interval (months) 7
B No. of piglets per sow 9
C Mortality among piglets (%) 10%
D Weaning period (days) 60
3 Feed requirement : kg/day
A Boar 3
B Sow 3.5
C Grower (Average) 1.75
D Ratio of concentrate to total feed 40% of breeding stock
30% of grower
E Cost conc. feed (Rs./kg) 7
F Cost of waste (Rs./kg) 1
4 Cost of animals at purchase
A Sow - 7 months age (Rs.) 2500
B Boar - 7 months age (Rs.) 3500
5 Insurance (% of value) 5
6 Labour 2 persons for 1st 6 months
3 persons after 6 months
7 Cost of medicine, vaccine etc. Rs.50/adult
Rs.25/fattener
8 Sale price of 2 months old 1000
piglet for rearing
Sale of breeders 50%
9 Sale price of 8 months old 3000
pigs for breeding
Sale of breeding pigs 100%
10 Salvage Adult Rs.2000 per animal
Value Piglets Rs.500 per animal
11 Depreciation (%)
A Civil Structures 5%
B Equipment 10%
575 - III
D. CASH FLOW STATEMENT (20+4 Unit)
Years
S. No. Particulars
First Second Third Fourth Fifth
1 2 3 4 5 6 7
A Costs
1 Capital Cost 600000
2 Recurring Costs
a. Concentrate Feed
-Adult Cap 82656 82656 82656 82656
- Fattener Cap 89303 89303 89303 89303
b. Waste/Garbage
Adult Cap 17712 17712 17712 17712
Fattener Cap 32744 32744 32744 32744
c. Veterinary Care
Adult Cap 1200 1200 1200 1200
Fattener Cap 4050 4050 4050 4050
d. Insurance Cap 3200 3200 3200 3200
e. Miscellaneous Expenses Cap 36000 36000 36000 36000
Total Cost 600000 266865 266865 266865 266865
B Benefits
Sale of Weaners 80000 80000 162000 162000 162000
Sale of Adult pigs 0 486000 246000 486000 486000
Sale of Manure etc. 2000 4000 4000 4000 4000
Salvage Sale
Total Benefits 82000 570000 412000 652000 652000
Net Benefits -518000 303135 145135 385135 385135
(Total Benefits-Total Cost)
DF @ 15% 15.00%
NPW @ 15% 285890
BCR @ 15% 1.24:1
IRR 41%
576 - III
i. Capital Subsidy: Rs.1,50,000/-
ii. Bank Loan: Rs.3,90,000/-
iii. Interest: 12% per annum
iv. Repayment Period 5 years including first year grace period
Gross Interest Repayment

Loan Outstanding Surplus of Total Net
Year @ 12%
Outgoings Surplus
Bank Loan p.a. Bank Loan
1 390000 82000 46800 0 46800 35200
2 390000 303135 46800 100000 146800 156335
3 290000 145135 34800 50000 84800 60335
577 - III
CHAPTER-37
POULTRY DEVELOPMENT
1. General:
a. India produces an estimated 53.5 billion eggs per annum, with per capita availability of 42 per
annum. It has recorded an average growth rate of 7-8% over the years. Even more astounding was
growth in production of poultry/chicken meat from only 0.12 million metric tonnes in 1981 to 2.0
million metric tonnes presently, a phenomenal growth of 15% per year, on an average. The Indian
poultry industry with an annual output value of nearly Rs. 20,000 crore provides direct & indirect
employment to about three million people catering primarily to domestic market.
b. This has been made possible by policies / interventions of Government, proactive role of private
sector and entrepreneurs and large scale funding by the financial institutions. However,
these efforts resulted in unequal growth with development being mainly concentrated in
few states. A considerable segment in the poultry sector is still unorganized and is spread over in
the form of small units in far-flung areas that still needs organized effort to exploit the existing
potential. Training and marketing continue to be the weakest links in various poultry development
programs. With all these weaknesses, poultry development programmes under the cooperative
sector were not able to make a dent.
c. Poultry related activities have become highly scientific and to survive marginalization, small
farmers have to work in groups. Further, most crucial linkages (both forward and backward) have
to be set-up for enabling small farmers to directly participate in marketing operations, as far as
possible.
d. It is envisaged that the current scheme will enable small and marginal farmers including landless
farmers, women and other socio-economically weak segments, educated unemployed youth to
take up poultry farming as an income generating activity in organized way.
2. Poultry Estates:
a. Poultry Estates will have establishments of small farmers who will organize and form
societies- thus accruing both, benefits of economies of scale and achieve better market
opportunities with promotion of quality products, instilling confidence in consumers.
b. Creation of estates is primarily envisaged on line of other industrial estates where majority of
facilities will be made available within an area to facilitate both backward and forward
linkages. As far as Poultry Estates are concerned, State Government will provide facilities in terms
of land on lease, development of estate area, electricity and water supply, training, common
facilities like feed mixing, storage, etc. Entrepreneurs who will set up either layer or broiler units in
these estates will be assisted with interest free loan provided they adopt scientific production
methods. State Governments may also be considering providing incentives like tax holidays &
578 - III
waiver from sales tax, etc. Direct participation of farmers in Poultry Estates can lead to sale of
wholesome & hygienic product at a better price.
c. The scheme to establish Poultry Estates is envisaged as a unique attempt not only to have a specific
outcome from few estates but also to turn mind-set of a large section of private producers, who
mostly work on short-term gain policy compromising on either quality of products or cutting down
costs, showing little regard to poultry health, bio-security and waste disposal protocols. Success of
these estates will enable the way poultry farming should be done and maybe we may not need a law
or act to impose quality and bio-security norms upon a self-disciplined industry.
3. Objectives of the Scheme: The objective of the scheme will be to establish two Poultry Estates, either
layer or broiler depending on the demand, to:
a. Encourage small & marginal farmers, educated & unemployed youth, women, socially &
economically backward section of the society to take up activities of poultry sector in a
compact area by providing required infrastructure and related facilities.
b. Achieve economies of scale by adopting cluster approach, better resource sharing etc.
c. Putting technical-backstopping, training and operation procedures in place in these units to

prevent risk of loss from breach of biosecurity and disease.
d. Restore consumer confidence in products from these estates and encourage brand - recognition
and therefore ensure a steady market. Farmers may exploit opportunity provided by these estates
to become exporters of poultry products.
e. Eventually, these model poultry estates should have a snowball effect and propel private sector
to pay attention to bio-security issues, hygienic, pollution-free production and most
important of all, welfare of primary farmer etc.
4. Area of Operation:
a. These farming estates may be established in low poultry-intensive areas (non- traditional
areas for poultry) or States where commercialization/ intensification of production has not yet
taken place but potential exists. The list of eligible areas/ states are given in Annexure - 1. As
only two estates are approved on pilot basis, States which come forward to provide land, necessary
infrastructure and share 25% of the infrastructure cost will be given preference.
b. Depending on the demand, the estates will be housing either layers or broilers. Both the birds
however are not allowed in a single estate.
5. Allotment of Land and Selection of a Facilitator:
a. The first step will be to allot land and other facilities required for undertaking poultry farming in a
common place for small farmers. Each estate will be either for layers or for broilers. An estate
579 - III
would be requiring about 50 acres of land. State Governments should take initiative and allot land
for establishing an estate taking into account the suitability of the activity to the area, potential to
benefit scheduled castes and scheduled tribes and create employment opportunities etc.
b. A State Level Sanctioning and Monitoring Committee (SLSMC) is constituted by the Regional
Office of NABARD which will be chaired by the Principal Secretary / Secretary (AH) of the State
Government with members from NABARD, financing bank and DAH. Once the State
Government comes forward to establish poultry estate, the SLSMC shall decide on the suitability
of the land keeping in view factors like distance from water bodies, existing farms, connectivity,
migratory birds flying route, etc. and if found suitable, will invite proposals from NGOs,
companies, integrators and Government departments for working as a facilitator.
c. The agencies who are applying have to submit a detailed action plan as to how they want to proceed
in the matter.
d. SLSMC shall scrutinize the proposals and identify a facilitator and recommend to GoI through
NABARD.
e. Once a facilitator for an estate is approved, that agency will be responsible for creation of common
infrastructure like supply of electricity and water, internal roads, fencing, foot bath/foot dip
and other bio-security measures like waste disposal system outside the individual units; but
within the estates. This expenditure subject to a ceiling of Rs. 200 lakh will be given on grant basis
and will be shared by Central and State Governments in the ratio of 75:25. The grant assistance will
depend on the number of units to be housed in the estate. A minimum of 50 units should be there in
each estate and the maximum number of units that can be housed in an estate shall be 100. The
facilitator would work under the overall supervision of the SLSMC as per the conditions laid by
them. SLSMC has the right to remove any facilitator if they deviate from the guidelines or act
against the interest of the beneficiaries
6. Selection and Training of Beneficiaries:
a. An advertisement shall be given by the facilitator in the local dailies calling for
applications from interested persons. The requisites such as the social and financial status of the
candidates shall be given in the advertisement. Preference will be given to women, SC/ST,
educated unemployed youth and economically backward section of the society.
b. A committee comprising representatives of NABARD, district Animal Husbandry

Department, DRDA, lead bank and facilitator shall select the candidates from out of the applicants.
c. The facilitator shall arrange for training of the selected beneficiaries under the guidance of local
Animal Husbandry Department.
d. The selected beneficiaries will be organised into a society, which will be responsible for running
the estate under the guidance of the facilitator.
580 - III
e. The land shall be given by the State Government to the society / individual beneficiaries on long
term lease so that a charge can be created in favour of the financing bank. Modalities of the lease
shall be decided by the SLSMC in consultation with the financing bank.
7. Creation of Infrastructure for Feed Manufacturing: The input industry of poultry like feed
manufacturing units should be connected to the efforts of establishing estates. These units shall
be located nearby. Similarly disease investigation labs may have to be in a place, accessible by the
beneficiaries. Assistance to eligible activities like feed manufacturing or poultry disease
investigation labs should be facilitated.
8. Components which can be supported:
a. Common Items of Expenditure:
i. Publicity for launching the scheme: upto Rs.5.50 lakh per state as grant.
ii. Creation of common infrastructure like roads, electricity and water supply, bio security
measures, etc. within the estate but outside the individual units and also managerial subsidy to
the estate: upto Rs.200 lakh per estate as grant.
iii. Selection and Training of 100 beneficiaries in two stages: upto Rs.12.50 lakh per estate as
grant
iv. Planning and Escort services to Beneficiaries: upto Rs.17.00 lakh per estate as grant.
v. Common facilities at Stage II (for processing and storage, etc. after 2 years of functioning):
upto Rs.17.00 lakh per estate as grant.
b. Individual Proposals:
i. Interest free loan to 100 beneficiaries (upper limit) in each estate.
Sl. No Activity Interest Free loan Margin

1 2000 bird layer unit 50% of total financial outlay 10% ( minimum)
subject to a ceiling of
Rs. 3.00 lakh
2 2000 bird broiler unit* 50% of total financial outlay 10% ( minimum)
(all in all out system) subject to a ceiling of
Rs 1.20 lakh
* Contract farming is suggested in case of the broilers as it is well established and will ensure supply of
inputs, technical guidance and marketing. Further the margin money to be provided by the beneficiaries
would be less as term loan is provided for construction of sheds and purchase of equipment. Accordingly,
the recurring expenditure for firstoperating cycle is not to be included in the total financial outlay for broiler
units.
581 - III
ii. Input Services (Feed Manufacturing Unit in the case of layer estates) upto Rs.25 lakh for each
estate as 50% grant.
9. Preparation of Projects:
a. For Common Facilities:
i. The facilitator will prepare a detailed project report for creation of infrastructure and submit to
the SLSMC, which after scrutiny will sanction the eligible amount subject to the .deposit of
State Government's share with the concerned Regional Office of NABARD. The amount shall
be released by NABARD Regional Office to the facilitator on obtaining confirmation from
their Head Office.
ii. The eligible amount for land and infrastructure development shall be released in two
instalments, the first instalment will be released immediately after sanction of the project and
the second and final instalment on submission of utilisation certificate for the first instalment
amount released .
iii. Utilisation of the first instalment shall be verified by the representatives of State Animal
Husbandry Department and NABARD and the second instalment shall be released on receipt
of a satisfactory report.
b. For Individual Units:
i. The facilitator will coordinate with the local banks for sanction of loans to the selected
farmers under the scheme. They shall help the farmers in applying for loan from a bank in the
vicinity. The banks will adhere to their own appraisal norms for sanctioning the projects.
ii. Wherever the banks are not very familiar with the appraisal of any project, they can consult
concerned NABARD Regional Office for guidance.
iii. The financing bank will sanction the entire loan amount, i.e., the project cost excluding the
party's margin. Documentation may be done for the entire loan amount. The bank then shall
apply through their controlling offices in the format given in Annexure -2, to the Regional
Office of NABARD for sanction of Interest Free Loan.
iv. The unit cost may vary depending on the local conditions. However, assistance under the
scheme is restricted to 2000 bird layer (1:2 system) and broiler units (all in all out). The
SLSMC may consider fortnightly (500 birds) or monthly batches (1000 birds) of broilers
depending on the local conditions . However, interest free loan (IFL) is restricted to the ceiling
indicated at 2.6(II).
v. The banks, if they so desire, can disburse the loan before receipt of IFL, in which case they can
charge interest on the entire loan amount till they receive the IFL portion. On receipt of IFL,
interest shall be charged on their loan component only and no interest shall be charged on the
IFL. However, this will not confer any right on the bank / beneficiary for the IFL component
which shall be sanctioned / released subject to the project's eligibility and availability of
funds from Government of India.
582 - III
10. Mother units for Rural Backyard Poultry:
a. It is proposed to set up mother units where day old chicks of low input birds are reared upto 4 weeks
and supplied to the beneficiaries under Rural Backyard Poultry programme. These mother units
will get the day old chicks from State Poultry Farms or private hatcheries producing low input
birds.
b. The State Governments shall submit proposals to GoI for rural backyard poultry in the proforma
prescribed by DAHD&F, GoI and communicated to them vide administrative approval no.
43-23/2009/LDT-P dated 07 August 2009.
c. The details on mother units like number of mother units, State Poultry Farms or private hatcheries
to which these mother units are proposed to be linked for supply of day old chicks shall be given by
the State Government.
d. Unless justified, there should not be more than 10 mother units in each district / cluster.
e. After approval by DAHD&F, State Animal Husbandry Department shall identify the beneficiaries
for establishment of mother units in consultation with DRDA and local banks. The beneficiaries
could be individuals, SHGs, NGOs, who are trained in management of day old chicks and rearing
them upto 4 weeks. If necessary, Animal Husbandry Department will arrange for training of the
identified beneficiaries.
f. The funding pattern for a mother unit with 3 pheriwalas is as follows:
i. Unit cost (unit size 1500 chicks per batch): Rs. 1.36 lakh (of which Rs.1.00 lakh would be
fixed cost and Rs.0.36 lakh for kick starting the operations of the unit).
ii. Subsidy :Rs.0.20 lakh (to be treated as borrowers margin when bank loan is availed)
iii. Interest Free Loan : Rs.0.36 lakh
iv. Bank Loan : Rs.0.80 lakh
g. The District Animal Husbandry Department will sponsor the applications for mother units and
release the subsidy amount to the financing banks. The financing banks on receipt of the subsidy
will sanction the amount of unit cost excluding the subsidy as bank loan and apply to the concerned
Regional Office of NABARD through their controlling office in the proforma (Annexure -2
similar to poultry estates). In case the unit cost is more than that indicated, banks shall finance the
additional cost as their loan or the beneficiaries may bring that amount as margin.
11. Sanction of the project and release of IFL:
a. NABARD RO will scrutinise the claim proposals and ensure that those which satisfy the terms and
conditions laid down in the guidelines only are put up to SLSMC for sanction. The meeting will be
convened initially as and when proposals are received and later at quarterly / half-yearly intervals
to review the progress of the scheme. The SLSMC in each State are expected to meet quickly after
583 - III
its constitution and decide whether proposal concerning each beneficiary is to be placed before the
Committee for approval or proposals of a district/cluster are to be firmed up and bunched
together for consideration of the Committee or the Committee would ratify the action taken by
the financial institution on individual projects.
b. The SLSMC will sanction the Interest Free Loan portion (50% of the outlay subject to the ceiling)
for eligible proposals in respect of poultry estates and Rs.36,000 per unit in case of mother units.
c. On receipt of the confirmation from HO, the concerned ROs of NABARD will release the
sanctioned IFL to the respective banks. The sanction and disbursement of IFL will be for the
selected beneficiaries only.
d. The banks will release the first instalment within a month of receipt of the IFL component from
NABARD. If the bank is not in a position to release the loan due to some reasons, the IFL shall be
remitted back to the concerned Regional office of NABARD within a month of its receipt. In case
of delay of such refund the bank has to pay interest on such amount @10% per annum from the date
of its receipt by the nodal branch.
12. Repayment Period and Recovery of Loan:
a. Repayment period of loan will depend upon the cash flow and will be up to maximum of 9 years
including grace period of 2 years in case of layer units and 6 months to 1 year in case of broiler and
mother units. The bank will submit the repayment schedule for the entire loan inclusive of IFL to
NABARD and may take all steps to ensure proper follow-up and recover the loan provided to the
borrower and return the pro-rata amount to NABARD on a half- yearly basis. For convenience
sake, the repayment received during January to June should be passed on by the bank to NABARD
on 31st July and likewise those received during July to December should be passed on to
NABARD on 31st January next year. The risk, if any, will be shared by Government of India on a
pro-rata basis. However, the banks will take effective steps for recovering the entire loan amount.
b. Banks shall furnish the status of the accounts on a yearly basis in the format given in Annexure -3.
13. Refinance Assistance: NABARD would provide refinance assistance to commercial banks, RRBs,
SCBs SCARDBs and other such eligible institutions. Quantum and rate of interest on refinance will be
as decided by NABARD from time to time.
14. Security Norms: The security norms will be as prescribed by Reserve Bank of India from time to time
15. Rate of Interest: Rate of interest on the loan component shall be as per RBI guidelines and declared
policy of the bank in this regard. The bank shall however not charge interest on the IFL component.
16. Monitoring:
a. The Central Level Joint Monitoring Committee will be headed by Joint Secretary (Poultry),
Department of AHD&F, Ministry of Agriculture, Government of India with representatives
584 - III
of NABARD, financing bank, state government and facilitator. The Committee will
monitor the progress of implementation of projects on half yearly basis.
b. SLSMC will sanction the projects and also monitor the progress initially on quarterly basis and
after creation of infrastructure on a half yearly basis, the progress under the scheme and take
necessary steps for smooth functioning of the scheme
17. Role of Various Agencies:
a. NABARD:
i. To administer the revolving fund and conduct SLSMC Meetings.

ii. To scrutinise the claims of the banks and release eligible Interest Free Loan amount.
iii. To submit returns at periodical intervals on sanction and utilisation of the fund
iv. To plan for improvement and expansion of the scheme for future, based on the
feedback.
b. Facilitator:
i. To develop the infrastructure for establishment of poultry estates

ii. To identify the beneficiaries for poultry estates.
iii. To organise training programmes for them under the guidance of Animal Husbandry
Department.
iv. To coordinate with banks for sanction of loans to the identified beneficiaries.
v. To mobilize the beneficiaries to form cooperative societies and guide them.
vi. To arrange for supply of inputs and marketing of output.
c. Banks:
i. To identify the borrowers, receive, sanction the projects for various components
identified under the scheme.
ii. To recover the loan amount as per repayment schedule and repay the amount recovered pro-
rata to NABARD on half-yearly basis.
iii. To provide feedback on implementation of the scheme at State and National level.
d. State Animal Husbandry Department:
i. To identify the borrowers in association with the local banks, provide training and arrange for
sanction of loans.
ii. To release subsidy for the mother units.
iii. To provide technical guidance to the beneficiaries.
iv. To monitor the progress of the units and assist the banks in recovery of the loans.
585 - III
v. To provide feedback on implementation of the scheme
e. Department of Animal Husbandry, Dairying and Fisheries, GoI
i. To convene the meeting of the Joint Monitoring Committee regularly (half yearly basis) and
review the implementation with NABARD and financing banks.
ii. To plan and expand the scheme in future years as per the feedback received from NABARD
and financing banks.
iii. To undertake field visits of project on sample basis.
iv. To make funds available as and when needed or keeping the amount with NABARD in
advance.
18. Publicity: NABARD and the implementing banks, AH departments of State Governments will make
efforts for wide publicity at the district and state levels through organisation of workshops and through
farmer's clubs, NGOs and rural branches of financing banks. The details of the scheme will also be put
on the website of NABARD and DAHD&F.
a. A signboard at the site “Assisted by Department of Animal Husbandry, Dairying and Fisheries, GoI
through NABARD” will also be exhibited.
b. DAHD&F reserves the right to modify, add and delete any terms / conditions without assigning any
reason. DAHD&F's interpretation of various terms will be final.
c. DAHD&F reserves the right to recall any amount given under the scheme without assigning
any reason thereof.
d. Any other pre and post inspection would be undertaken by DAHD&F representative to find out the
physical and financial progress as and when required.
e. Other operational instructions issued by DAHD&F / NABARD from time to time will be strictly
followed.
20. Annexure/s:
a. Annexure -1 : List of eligible areas/ states.
b. Annexure -2 :Consolidated claim format for release of loan component.
c. Annexure -3: Status Report format.
586 - III
Annexure -1 to Chapter - 37
List of eligible areas/ states

States with low commercial activity
(Non-traditional States)
S.No Name of the State
1 Bihar
2 Chattisgarh
3 Gujarat
4 Jharkhand
5 Madhya Pradesh
6 Maharashtra – Vidharba area
7 All North Eastern States including Sikkim
8 Orissa
9 Uttar Pradesh- some districts
10 Uttaranchal
12. West Bengal- some districts
587 - III
SCHEME FOR POULTRY DEVELOPMENT
CONSOLIDATED CLAIM FROM THE CONTROLLING OFFICE OF THE BANK FOR
RELEASE OF INTEREST FREE LOAN PORTION
(To be submitted to the concerned NABARD, Regional Office)
1. NAME OF THE BANK: 2. MONTH/YEAR OF CLAIM:

3. TOTAL AMOUNT OF CURRENT CLAIM:
4. DETAILS OF CURRENT CLAIM:
(Rs.lakh)
S.No Particulars 1 2 3 4 5
1 Name & address of Beneficiary

(Plindicate district also)
2 Category (SC/ST/others)
3 Gender (M/F)
4 Constitution (Individual / SHG/Others)
5 Branch Address (indicate districtalso)
6 Loan a/c No.
7 Date of sanction
8 Purpose of loan
9 Unit size
10 Total financial outlay
11 Margin
12 Bank loan
13 IFL claimed
14 Repayment prescribed
15 Rate of interest
16 Any other information relevant tothe
project
1. We undertake having complied with all the instructions contained in NABARD circular No. -------------
------------------------------- regarding operational guidelines of the scheme and as amended from time to
588 - III
time while sanctioning above proposals.
2. We request you to release an amount of Rs.________________ (Rupees) as interest free loan portion
in respect of the above beneficiaries under the scheme for poultry development
3. We also certify that the IFL in respect of previous claims have been fully utilised.
Place: Seal and signature of the Officer
Date : (Controlling office of the financing bank)
(For the use of NABARD RO,)
The above claim is scrutinised. HO is requested to confirm the release of Interest free loan amount of Rs.
(Rupees only) to be released to (Name of the Bank).
(Signature)
AGM/DGM (NABARD, RO)
Release of IFL - Confirmation
RETURN FAX MESSAGE

Date

FOR: CGM/GM/OIC, REGIONAL OFFICE
Central sector scheme for Poultry Development- confirmation
The claim No. is admitted. (Ref. Claim No........................ for IFL). Since
sufficient funds are available with NABARD, under the scheme, the above proposal of releasing IFL
amount of Rs................................. (Rupees........................................................................................
only) is confirmed for release.
AGM / DGM
ICD, NABARD-HO, MUMBAI Date
589 - III
SCHEME FOR POULTRY DEVELOPMENT

STATUS OF LOAN ACCOUNTS UNDER THE SCHEME AS ON 31 MARCH
Name of the Bank: Date:

State :
Loan Of col As on 31 Mar Of Col.(9)

Branch Loan
Name of the Purpose Outlay sanctio amount
S. No (6) IFL Demand Repay- remitted
O/S as on Remarks
beneficiary 31
- ned ment to
1 2 3 4 5 6 7 8 9 10 11 12
It is hereby certified that the amount at col.9 has been remitted to NABARD towards IFL component out of
the recoveries made in the account on pro-rata basis.
Place: Seal and signature of the Officer

Date : (Controlling office of the financing bank)
590 - III
CHAPTER 38
SETTING UP OF AGRI-CLINICS AND

AGRI- BUSINESS CENTRES SCHEME (ACABCs)
1. General:
a. Financial inclusion may be defined as the process of ensuring access to timely and adequate credit
and financial services to vulnerable groups such as Weaker Sections and Low-income Groups at an
affordable cost.
b. A sizeable majority of the population, particularly the low income groups, continue to remain
excluded from the opportunities and services provided by the financial sector.
c. Accordingly, the committee on financial inclusion “set up by the Government of India” under Dr.
C. Rangarajan, recommended the establishment of two Funds, namely the “Financial Inclusion
Fund” (FIF) for meeting the cost of developmental and promotional interventions for ensuring
financial inclusion and the “Financial Inclusion Technology Fund” to meet the cost of technology
adoption.
d. The Hon'ble Union Minister of Finance, in the Union Budget Speech for 2007-2008 announced the
constitution of the Financial Inclusion Fund and Financial Inclusion Technology Fund, with an
initial corpus of Rs.500/- crores each. The Financial Inclusion Fund shall be used for the following
activities/ purposes:
i. Funding support for capacity building inputs to business facilitators and business
correspondents.
ii. Self-Employment Training Institutes, Farmers Service Centre, etc. to enable them to provide
improved technical and financial services arrived at increasing technology adoption, effective
management of Assets, nurturing entrepreneurial capacity and increasing financial education
to literacy.
iii. Providing funding support for promotion, nurturing and credit linking of Self Help Groups.
iv. Capacity building of personnel of NABARD, Banks, Post Offices, State Governments, MFIS,
NGOS, Village Associations, Members of SHGs/ Joint Liability Groups, etc.
v. Funding support for setting up of Rural Credit Bureaus and credit rating of rural customers.
vi. Supporting initiatives of Village level associations/ federations.
vii. Development of innovative products
viii. Developmental and promotional interventions recommended by the Advisory Body for the
FIF.
2. Objectives of the Scheme:
a. To provide extension and other services to farmers on payment basis.
591 - III
b. To support agriculture development and entrepreneurship.
c. To promote self-employment.
d. Concept/Definition:
i. Agri-Clinics: Agri.-Clinics are envisaged to provide expert advice and services to farmers on
technology, cropping practices, protection from pests and diseases, market trends, prices of
various crops in the markets and also clinical services for animal health, etc., which would
enhance productivity of crops/animals and increased income to farmers.
ii. Agri- Business centres: Agri.- Business centres are envisaged to provide farm equipment
on hire, sale of inputs and other services.
3. Eligibility:
a. The scheme is open to agriculture graduates /graduates in subjects allied to agriculture like
Horticulture, Animal Husbandry, Forestry, Dairy, Veterinary, Poultry farming and Pisci- culture.
b. The subsidy would be admissible only in respect of agricultural graduates trained under the
st
ACABC scheme on or after 1 April 2004.
c. The agricultural graduates who were trained on or after 1st April 2004 and had availed of loan
earlier for ACABC project, would also be eligible for subsidy for expansion / additional to exiting
units or for fresh investments, only if the earlier loan is not closed prematurely.
d. The trained graduates could also undertake group projects. If the group consists of a total of five
more persons, all except one of them would have to be agriculture graduates trained under the
scheme and the remaining person could be non-agriculture graduate with experience in business
development and management.
e. Delivery of Extension services shall be the main component of ACABC projects for availing of the
benefit of subsidy under the scheme. Commercial activities in agriculture and allied sectors may,
on a case-by-case basis, consider as eligible component of ACABC projects with a view to
improve their viability.
f. States are encouraged to provide information on all government policies, programs, schemes, etc.
to agri-entrepreneurs and also use their services in implementation of extension activities funded
by the Government.
4. Project Cost Ceiling: The ceiling of project cost for individual projects will be Rs. 10.00 lakhs. The
ceiling of project cost for group projects would be 10.00 lakhs per trained graduates, subject to an
overall ceiling of Rs. 50.00 lakhs. In case of groups having five persons, of which one is non-
agriculture graduate, the ceiling of such group projects would also be Rs.50.00 lakhs.
592 - III
5. Linkage with credit:
a. Assistance under the scheme would be purely credit linked and subject to sanction of the project by
Commercial /Cooperative/Regional Rural Banks based on economic viability and commercial
considerations.
b. The eligible financial institutions under the scheme are;

i. Commercial Banks
ii. Regional Rural Banks
iii. State Cooperative Banks
iv. State Cooperative Agriculture and Rural Development Banks: and
v. Such other institutions, which will be eligible for refinance from NABARD.
6. Term Loan:
a. The term loan would be composite in nature and participating banks would extend bank loan as per
the project cost, which would be inclusive of subsidy amount eligible, as capital subsidy is back-
ended, but exclusive of margin money as stipulated.
b. The repayment schedules will be drawn on the total amount of the loan (including subsidy) in such
a way that the subsidy amount is adjusted after liquidation of net bank loan (excluding subsidy).
c. Repayment Period will depend on the nature of activity and will vary between 5 to 10 years. The
repayment period may include a maximum, grace period of 2 years (to be decided by the financing
bank as per needs of individual projects).
d. Rate of Interest On term loan shall be as per RBI guidelines and declared policy of the bank in this
regard. Interest would be chargeable on borrower's accounts as per procedure laid down by RBI for
direct agricultural advances under priority sector guidelines.
e. The financial institutions may also provide working capital separately, if needed for the project.
7. Margin Money:
a. In case of loans up to Rs. 5.00 Lakhs, no margin money is required as per present norms. The
margin money to be contributed by the general category entrepreneur will be as per prevailing
norms.
b. However, concessions would be made in respect of SCs/STs, women and beneficiaries of North-
eastern States, Hill areas. In such cases, a maximum of 50% of the margin money prescribed by
banks could be given by NABARD to meet the shortfall in borrower's contribution, if the
bank is satisfied that the borrower is unable to meet the margin money requirements. Such
assistance to banks by NABARD will be without any interest. The banks may, however, levy a
service charge up to 2% per annum from the borrowers.
593 - III
8. Security: The security for availing the loan will be as per guidelines issued by RBI from time to time.
As most of the eligible activities pertain to agricultural input supply and services and the cost of
investment will be less than Rs. 25.00 Lakhs in most cases, the security norms applicable to tiny
industries as prescribed in RBI circular No. RPCD.PLNFS.BC.65/06/02.31/99-2000 dated
31.03.2000 would be made applicable to these units. Accordingly, up to a loan amount of Rs. 5.00
Lakhs, the loans can be secured against hypothecation of assets created and no further security would be
necessary.
9. Time limit for Completion of the Project:
a. Time limit for completion of the project would be as envisaged under the project, subject to
maximum of 6 months period from the date of disbursement of the first instalment of loan by a
further period of 6 months, if reasons for delay are considered justified by the financial institution
concerned.
b. If the project is not completed within the stipulated period, benefit of subsidy shall not be available
and advance subsidy placed with the participating bank, if any, will have to be refunded forthwith
to NABARD.
a. Projects under the scheme may be treated as direct financing to agriculture.
b. The participating banks will adhere to the norms of appraising the projects regarding technical
feasibility and commercial/financial viability.
c. The participating banks should ensure insurance of the assets created under the project, wherever
required statutorily. If beneficiary opts to buy insurance on these assets, even if insurance is not
required statutorily, such expenditure would be eligible component of ACABC project.
d. A signboard displaying “Assisted under the scheme of Agri-Clinics and Agri-Business centres,
Ministry of Agriculture, Government of India” will be exhibited at the unit.
e. Pre and post completion inspection of the project shall be undertaken by the participating bank to
verify physical, financial and operational progress as and when required.
11. Refinance Assistance from NABARD: NABARD would provide refinance assistance to commercial
banks, RRBs, SCBs SCARDBs and other such eligible institutions at the rate of 100% of the amount
financed by the banks as term loan. Rate of interest on refinance will be as decided by NABARD from
time to time.
12. Subsidy:
a. Credit linked capital subsidy @ 25% of the capital cost of the project funded through bank loan
would be eligible. This subsidy would be 33.33% in respect of candidates belonging to SC,
ST, Women and other disadvantaged sections and those from North-Eastern and Hill States.
594 - III
b. In addition, full interest subsidy would be eligible for the first two years of the project.
c. In case subsidy of whatever amount is availed of under any other scheme of Central of State
Government, subsidy will not be admissible under this scheme.
d. The benefit of subsidy will be extended only once.
e. The capital subsidy will be back ended with minimum 3 Years lock-in period.
f. The interest subsidy would, however, be concurrent.
g. The capital and interest subsidy would be admissible only if all repayments till date had been made
as per schedule.
h. The capital subsidy will be adjusted against the last few instalments of repayment of bank loan.
i. The capital subsidy admissible under the scheme will be kept in the “subsidy reserve Fund
Account” (Borrower-wise) in the books of the financing bank. No interest will be charged on this
by the bank. In view of this, for the purposes of changing interest on the loan component, the
subsidy amount should be excluded. The balance lying to the credit of the “Subsidy Reserve Fund
Account” will not form part of Demand and Time Liabilities.
j. Interest subsidy shall be provided for a period of First two Years of bank loan sanctioned as per
the net outstanding balance in the account.
k. The banks should levy interest on annual basis and claim interest subsidy accordingly during this
period.
l. Banks should prescribe interest rates as per declared policy of the bank, at the time of sanction of
the loan amount.
m. Procedure for Release of Subsidy.

i. The subsidy will be routed through NABARD by the Department of Agriculture and
Cooperation, Government of India and the amounts will be placed with NABARD in
advance.
ii. For the present, NABARD shall not change any service charge for handling subsidy under the
scheme. If at a future date, Ministry of Finance approves payment of service charge to
NABARD for handling subsidy under all the schemes similar to the Agri.-Clinics Scheme, the
matter could be revisited on the amount of advance subsidy placed with them.
n. Capital Subsidy:
i. An interested Agri.-entrepreneur will submit the project proposal for term loan and subsidy to
the bank on an application form as prescribed by the concerned bank along with the project
report and other documents for appraisal and sanction of loan.
595 - III
ii. Bank, after sanction of the project and disbursal of first instalment of loan, the project and
disbursal of first instalment of loan, will furnish a brief project profile-cum-claim form for
advance subsidy in the prescribed format as given in the Annexure-1 to this Chapter
along with a copy of a banks sanction letter to RO, NABARD, in the state where the unit is
located.
iii. NABARD, on receipt of project profile-cum-claim form from the participating bank will
sanction and release 50% advance subsidy to the participating bank for keeping the same in the
subsidy Reserve Fund A/c (Borrower-wise). The release of subsidy by NABARD will be
subject to availability of funds from GOI.
iv. When the project is nearing completion, the agri. - entrepreneur will inform the participating
bank for conducting inspection.
v. The participating bank would conduct inspection on the project site, within the overall scope
of the operational guidelines of the scheme.
vi. After inspection is conducted, the bank will submit the claim for final capital subsidy in the
prescribed format as given in the Annexure-2 and Annexure 7 to this Chapter to
NABARD, Regional Office. The inspection report and completion certificate should be
enclosed with the claim form for final subsidy.
vii. After crediting the final instalment of subsidy in the reserve fund of the Borrower, a Utilization
Certificate in the prescribed format as given in the Annexure-3 to this Chapter shall be
submitted by the participating bank to NABARD to the effect that the amount of subsidy
received by them has been fully utilized and adjusted in the books of account of the project
within the overall guidelines of the scheme.
viii. NABARD shall release the final subsidy to banks, which will be replenished by GOI or
adjusted against the subsidy amount provided to NABARD in advance.
ix. NABARD would delegate adequate powers to Chief General Managers/In charges of
Regional Offices of NABARD so as to facilitate expeditious sanction of projects and
release of refinance/subsidy amount under the scheme.
o. Interest Subsidy:
i. Interest subsidy would be released to bank(s) after completion of one year for the first year
and after completion of two years for second year, from the date of first disbursement,
based on rate of interest actually charged by the bank, on balance outstanding in the account
against principal amount of loan net of capital subsidy released.
ii. The participating bank will claim interest subsidy annually from NABARD, which was
charged to the loanee account and upon receipt of interest subsidy from NABARD, the bank
should credit the borrowers account with the interest subsidy.
596 - III
iii. The participating bank shall visit the unit on completion of one year/two years as the case may
be, and conduct inspection to satisfy that unit is physically, financially and
operationally progressing well and submit its report in prescribed format as given in the
Annexure-4 to this Chapter recommending release of first/final instalment of interest
subsidy.
iv. The participating banks should prefer claim for interest subsidy within 90 days, after
completion of the stipulated period together with the certificate/inspection report. The claims
for first/final instalment of interest subsidy may be submitted by Banks on quarterly
basis, in the prescribed format.
v. After release of capital and interest subsidy to the borrower, the participating bank shall submit
a final Utilization Certificate, in the prescribed format as given in the Annexure-5 to this
Chapter to NABARD to the effect that the amount of subsidy received by them has been fully
utilized and adjusted in the books of account under the sanctioned terms and conditions of the
project within the overall guidelines of the scheme.
13. Monitoring:
a. The participating bank shall do the monitoring of each project. Review will be undertaken on a
monthly basis by participating bank/NABARD.
b. NABARD may prescribe suitable formats for submission of various reports by participating
banks, taking in to account reporting requirements of the DAC and subject to guidance off
DAC/Empowered Steering Committee.
c. The progress report of the scheme in the prescribed format as given in the Annexure-6 to this
Chapter shall be sent to the Department of Agriculture and Cooperation, Government of India by
NABARD on monthly basis, with a copy to MANAGE.
d. The scheme of ACABC and the progress there under shall be reviewed invariably in all District
Level Consultative Committee and State Level Bankers Committee meetings with a view to
sorting problems/issues emerging in smooth implementation thereof.
14. Awareness and Training Programme:
a. General Awareness, publicity and training programmes for eligible candidates and hand holding
support would be undertaken by MANAGE Nodal Training Institutions as per the scheme.
b. MANAGE will be responsible for providing training to eligible candidates, through its Nodal
institutes and motivating them for setting up of ACABCs.
c. MANAGE will ensure sponsoring of sufficient number of cases to the participating banks for
financing under the scheme and arrange to establish required number of units at ground level, as
envisaged, to make the scheme a success.
597 - III
15. Empowering Steering Committee:
a. The following empowered 'Steering Committee' would take all important decisions within the
framework of approved scheme, for its smooth implementation:
Secretary (A&C)
Chairman Additional Secretary (Extn.) Member
AS & FA, DAC Member
DDG (Extn.), ICAR Member
DG, MANAGE, Member
ED, NABARD Member
JS (EXTN.) Member Secretary
b. Another independent evaluation of the scheme should be organized two years after
implementation of subsidy.
c. Government's interpretations of these Guidelines will be final.
d. Government reserves the right to modify, add and delete any part of the Guideline without
assigning any reason therefore.
16. Annexure/s:
a. The following Annexure/s are appended to this Chapter:
Annexure 1 : Consolidated Claim Form From the Controlling Office of the Bank for Release of
Capital Subsidy (Advance) in respect of Agri-clinic & Agri -Business Centres
(ACABC).
Annexure 2 : Consolidated claim form from the controlling office of the bank for release of
Capital Subsidy (final) in respect of Agri-clinic & Agri -Business Centres
(ACABC).
Annexure 3 : Format for Utilization Certificate for Capital Subsidy- Financing bank to NABARD
R.O.
Annexure 4 : Format for Consolidated claim from the controlling office of the bank for release of
Interest Subsidy in respect of Agri-clinic & Agri -Business Centres (ACABC) to be
submitted to NABARD R.O.
Annexure 5 : Format for Utilization Certificate -Capital & Interest Subsidy (For the use of
financing bank to be submitted, in triplicate, to the Regional Office of NABARD).
Annexure 6 : Format for submission of status Progress Report on Agri-clinic & Agri -Business
Centres (ACABC).
Annexure 7 : Format for submission of Inspection Report on Agri-clinic & Agri -Business
Centres (ACABC).
598 - III
CONSOLIDATED CLAIM FORM FROM THE CONTROLLING OFFICE

OF THE BANK FOR RELEASE OF CAPITAL SUBSIDY(ADVANCE) IN RESPECT OF
AGRICLINIC & AGRI BUSINESS CENTRES (ACABC)
NAME OF THE BANK : MONTH/YEAR OF CLAIM:

DISTRICTS COVERED TOTAL AMOUNT OF CURRENT
CLAIM :
DETAILS OF CURRENT CLAIM : [Rs. in lakh]

Particulars 1 2 3 4 5 6 7
Name and address of the Entrepreneur
Whether SC/ST/Women
Whether from North-Eastern Region
Details of training by MANAGE
From To
Bank/Branch address
Loan A/c No.
Purpose of Loan
Items of Investment
Date of Sanction
Security
Advance Capital Subsidy claimed
Rate of Interest
Any other information relevant to
the project such as potential/ Permission/
Approval to be obtained
1. We undertake having complied with all the instructions contained in NABARD circular No. NB ICD/1826/
ACABC-4/2006-07 Dated 20-12-2006 regarding operational guidelines of the scheme while
sanctioning above proposals.
2. We request you to release an amount of Rs. (Rupees) as Capital Subsidy (advance) in respect of the above
entrepreneurs.
Place :
Date :
Seal and signature of the Branch Manager (financing bank)
Encl: [1] Brief project profile
[2] Bank's Sanction letter p.t.o
599 - III
(For the use of NABARD, RO)
The above claim is scrutinised. HO is requested to confirm the release of Advance subsidy amount of
Rs. (Rupees only) to be released to (Name of the Bank).
(Signature)
AGM/DGM
(NABARD, RO)

RETURN FAX MESSAGE
Date

FOR: CGM/GM/OIC, REGIONAL OFFICE, NABARD
ACABC - Release of advance subsidy - confirmation
The claim No. is admitted. Since sufficient funds are available with NABARD,
under the scheme, the above proposal of releasing advance subsidy amount of Rs.................................
(Rupees ........................................................................................ only) is confirmed for release.
AGM / DGM
ICD, NABARD-HO,
MUMBAI
Date
600 - III
CONSOLIDATED CLAIM FORM FROM THE CONTROLLING OFFICE OF

THE BANK FOR RELEASE OF CAPITAL SUBSIDY (FINAL)
IN RESPECT OF AGRICLINIC & AGRI BUSINESS CENTRES (ACABC)
(To be submitted to the concerned Regional Office of NABARD in triplicate)
NAME OF THE BANK : MONTH/YEAR OF CLAIM:

DISTRICTS COVERED TOTAL AMOUNT OF CURRENT
CLAIM :
Whether SC/ST/Women
Whether from North-Eastern Region
From To
Bank/Branch address
Loan A/c No.
Purpose of Loan
Items of Investment
Date of Sanction
Security
Date of advance Capital Subsidy received
Date of inspection by Inspection team
Final Subsidy claimed
Any other information
DETAILS OF CURRENT CLAIM:

1. We undertake having complied with all the instructions contained in NABARD circular No.
NB.ICD/1826/ACABC-4/2006-07 Dated 20-12-2006 regarding operational guidelines of the
scheme while sanctioning above proposals.
2. We request you to release an amount of Rs. (Rupees………………….) as Capital Subsidy (Final)
in respect of the above entrepreneurs.
3. We also certify that the previous claims have been fully utilised and adjusted in the books of
account under the sanctioned terms and conditions of the project within the overall guidelines of
the scheme.
4. The inspection report and completion certificate are enclosed.
Place : Seal and signature ofthe Branch

Date : Manager
Encl:[1] Inspection Report (Financing Bank)
[2] Completion Certificate
601 - III
The above claim is scrutinised. HO is requested to confirm the release of final subsidy amount of Rs.
(Rupees only) to be released to
(Name of the Bank).
(Signature)
AGM/DGM
(NABARD, RO)
RETURN FAX MESSAGE
Date
FOR: CGM/GM/OIC, REGIONAL OFFICE NABARD
ACABC - Release of final subsidy - confirmation
The claim No. is admitted. (Ref. Claim No........................ for advance subsidy).
Since sufficient funds are available with NABARD, under the scheme, the above proposal of releasing
final subsidy amount of Rs................................. (Rupees
........................................................................................ only) is confirmed for release.
AGM / DGM
ICD, NABARD-HO,
MUMBAI
Date:
602 - III
Format for Utilization Certificate - Capital Subsidy

(For the use of financing bank to be submitted to the Regional Office of NABARD)
SCHEME FOR SETTING UP OF AGRICLINICS & AGRIBUSINESS CENTRES
1 Name, address and location of the

beneficiary and project
2 Name of the financing bank :
3 Name & address of the financing
branch:
4 Date of sanction of loan by bank :
5 Date of verification by Joint
Verification Team
6 Date of commission of the unit :
7 (i) Total financial outlay Rs. (ii) Margin Money Rs.
(iii)Bank loan Rs.
(iv) Subsidy received Date of receiptAmount Date of credit to the
from NABARD (Rs.)
"Subsidy Reserve
Fund A/C" of the
Borrower
(a) 50% Advance subsidy
(b) Final instalment of capital subsidy
8 Brief description of facilities
created with capacity etc.
9 Rate of interest charged by the
financial bank : % p.a.
10 The bank has / has not availed refinance from NABARD

11 This is to certify that the full amount of capital subsidy received in respect of the above project has
been fully utilized (by way of crediting to the "Subsidy Reserve Fund Account - borrower - wise) and
adjusted in the books of account under the sanctioned terms and conditions of the project within the
overall guidelines of the scheme.
Place:
Date : (_ _) Seal & Signature of the
Branch Manager (Financing Bank)
--------------------------------------
603 - III
CONSOLIDATED CLAIM FORM FROM THE CONTROLLING OFFICE OF

THE BANK FOR RELEASE OF INTEREST SUBSIDY IN RESPECT OF AGRICLINIC
& AGRI BUSINESS CENTRES (ACABC)

NAME OF THE BANK : MONTH/YEAR OF
CLAIM: NAME & ADDRESS OF THE BANK BRANCH :
DISTRICTS COVERED TOTAL AMOUNT OF CURRENT CLAIM :
DETAILS OF CURRENT CLAIM :

Whether SC/ST/Women
Whether fromNorth-Eastern Region
From To
Bank/Branch address
Loan A/c No.
Purpose of Loan
Items of Investment
Date of Sanction
Security
Total Amount of interest recovered from
entrepreneur
Total amount of interest subsidy eligible
Amount of interest subsidy claimed
Any other information
1. We undertake having complied with all the instructions contained in NABARD circular No.B B I C D
/1826/ACABC-4/200607Dated 20-12-2006 regarding operational guidelines of the scheme while
sanctioning above proposals.
2. We request you to release an amount of Rs. (Rupees) as Interest Subsidy in respect of the above
entrepreneurs.
3. We also certify that the previous claims have been fully utilised.
4. We certify that the unit is inspected and satisfied that the unit is physically, financially and operationally
progressing well and release of ............................. instalment of osubsidy is recommended.
Place : Seal and signature of

Date: the Branch Manager
(Financing Bank)
604 - III
The above claim is scrutinised. HO is requested to confirm the release of interest subsidy amount of
Rs. (Rupees only) to be released to
(Name of the Bank).
(Signature)
AGM/DGM
(NABARD, RO)
RETURN FAX MESSAGE

Date
FOR: CGM/GM/OIC, REGIONAL OFFICE
NABARD
ACABC - Release of interest subsidy - confirmation
The claim No. is admitted. (Ref. Claim for advance subsidy

........................................ Claim for final subsidy ................................... ). Since sufficient funds are
available with NABARD, under the scheme, the above proposal of releasing interest subsidy amount of
Rs................................. (Rupees ........................................................................................ only) is
confirmed for release.
AGM /
DGM
ICD, NABARD-HO,
MUMBAI
Date:
605 - III
Format for Utilization Certificate -Capital & Interest Subsidy

(For the use of financing bank to be submitted, in triplicate, to the Regional Office of NABARD)
SCHEME FOR SETTING UP OF AGRICLINICS & AGRIBUSINESS CENTRES

1 Name, address and location of the
beneficiary and project
2 Name of the financing bank :
3 Name & address of the financing branch:
4 Date of sanction of loan by bank :
5 Date of verification by Joint Verification
Team
6 [a] Date of commission of the unit :
[b] Date of completion of the unit:
7 Brief description of facilities created with
capacity etc.
8 (i) Total financial outlay Rs.
(ii) Margin Money Rs.
(iii)Bank loan Rs.
(iv)Subsidy received Date of receipt Amount Date of credit to from NABARD (Rs.)
A.Capital Subsidy Subsidy
Reserve
a. 50% Advance Fund A/c/ Interest
Subsidy
b. Final Instalment of Subsidy
Receivable
capital subsidy A/C. of the
Borrower
B. Interest Subsidy
a. First Instalment (Ist Year)
b. Final Instalment (IInd Year)
9 Rate of interest charged by the financial
bank : % p.a.
10 The bank has / has not availed refinance from NABARD
11 This is to certify that the full amount of subsidy received towards both capital cost and interest on bank loan in respect of
the above project has been fully utilized (by way of crediting to the ubsidy Reserve Fund Account / Interest Subsidy
receivable Account - borrower - wise) and adjusted in the books of account under the sanctioned terms and conditions of
the project within the overall guidelines of the scheme.
Place : ( ) Seal & Signature of the

Date : Branch Manager (Financing Bank)
------------------------------------------------
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PROGRESS OF SCHEME FOR SETTING UP OF AGRICLINICS

& AGRIBUSINESS CENTRES
SANCTIONED / PENDING PROJECTS (ABSTRACT)*
STATUS AS ON_______________
Amt. (Rs.)
Total Capital Subsidy released
Name of Nature of Agri amt. of to financial banks
TFO Bank
S.N State the project Location Activity Entrepreneurs eligible
Sanctioned Loan
Contribution subsidy
Advance Final Total

subsidy instal- subsidy
ment
1) The above information breakup may be furnished in the same format for schemes sanctioned in NE
States, hilly areas, SC/ST / Women & other disadvantageous entrepreneurs separately.
2) Information to be submitted by banks to NABARD, RO for submission through HO to GoI, MoA,

DoAC, with a copy to Director General, MANAGE for information on monthly basis.
3) Information to be submitted separately for (i) sanctioned projects and pending projects at
NABARD level & (ii) Capital subsidy & Interest subsidy.
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PROFORMA FOR INSPECTION REPORT for release

of final instalment of Capital Subsidy BY THE PARTICIPATING BANK
(Specify the name of Bank & address of implementing branch)
Scheme for Setting up of Agriclinics & Agribusiness Centres
A. Name and Address of Agri/Entrepreneurs :

B. Members of Inspection Team and set up by
participating bank (Name, Designation &
Address)
C. (i) Date of completion of the project :
(ii) Date of intimation of completion of project
to NABARD
(iii) Date of joint verification
D. Project at a glance
i. Location and facility created ii. Financing
Bank
iii. Total Project cost
iv. Amount of term loan provided
v. Date & amount of first instalment of
loan disbursed
vi. Date & amount of first instalment of
subsidy released.
vii. Owner's contribution in the project
E. viii. Whether project implemented as per
approval
i. If no, specify the deviations
ii. Whether project implemented in time:
F. Recommendations of the Inspection Team
G. Signature of the Inspection Team Members :
Team Members Signature & Date
(1) NABARD (DDM/DDO)
(2) Financing Bank
(3) Nodal Institute of MANAGE
608 - III
CHAPTER -39
SWAROJGAR CREDIT CARD (SCC) SCHEME
1. General:
a. Availability of adequate and timely financial resources is one of the most important factors for the
success of any venture. In almost all cases, the entrepreneurs depend on external sources for
financial support and the formal financial sector including the banks provides the needed resources
by way of credit. The banking scenario in the Country has been fast changing. The process of
financial sector reform highlighted the need for innovative credit interventions from financial
institutions. Any such innovation should comprise timely credit in adequate quantity with
operational flexibility to the borrowers and insurance protection.
b. For various reasons , credit flow from the formal system to small borrowers especially
persons of small means has not been satisfactory which has been confirmed by various studies.
Various credit delivery innovations in the form of SHG- Bank Linkage Programme for making
financial services available to the poor, Kisan Credit Card Scheme for meeting the production
credit needs of the farmers, Laghu Udyami Credit Card Scheme for SSI Sector have been
introduced. However, tiny, cottage and village industries sectors and self-employed persons were
left out from any credit card scheme. Majority of the artisans, handloom weavers, handicraftsmen,
fishermen, self-employed persons, etc. whose credit requirement is of the order of Rs.25000/
are to be given preferential treatment for easy access to credit. As far as small borrowers are
concerned, their credit needs are for investment, production and consumption purposes . If all
types of their requirements are met from one source with due flexibility, the venture undertaken by
them could be successful. Viewing from this angle, there is an urgent need to introduce an
innovative credit delivery mechanism for these groups of small borrower s in the form of a
credit card scheme. In order to meet their requirements, a new credit card scheme viz. Swarojgar
Credit Card Scheme was announced by the Hon'ble Prime Minister in his Independence Day
Speech on 15 August 2003.
2. Swarojgar Credit Card (SCC) Scheme:
a. Consequent upon the announcement made by the Hon'ble Prim e Minister on the introduction of a
suitable credit card system for artisans and other small entrepreneurs, a special meeting was held
in New Delhi in which Government of India, Reserve Bank of India and N A B A R D h a d
participated. It has been decided to implement a special credit card scheme viz. Swarojgar Credit
Card (SCC) Scheme benefitting the rural artisans and other small entrepreneurs. The salient feature
of the scheme is that it takes care of investment and working capital requirements of a wide range
of small borrower s especially in the non-farm and service sectors.
3. Model scheme:
a. NABARD has formulated a Model scheme and the same is given in Annexure-1.We request you to
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introduce a suitable Swarojgar Credit Card Scheme in your Bank on the lines of the model scheme. SCBs
may suitably advise DCCBs in this regard.
4. Review of progress:
a. Progress in issue of the SCC is required to be closely monitored and reviewed at regular intervals
as under :
At Block Level : in BL BC Meetings

At District Level : in DCC/DLRC Meetings
At State Level : in SLBC Meetings.
For RRBs : in Board Meetings of respective Banks and in State Level Coordination
Committee Meetings
Apart from the above, the progress could be reviewed at regular intervals as part of internal reviews.
b. At the National level:
 NABARD will review the progress in the implementation of the SCC Scheme at various
National/State level forums like the meeting of CEOs of SCBs , Chairman of RRBs , Board
Meetings of NAFSCOB, etc.
 GOI and RBI will be regularlykept apprised of the progress achieved and steps taken to ensure
success of the SCC scheme.
5. Role of NABARD:
NABARD will:
 Be the nodal agency and programme holder for SCC Scheme.

 Monitor the progress of the scheme.
As in the case all credit related developmental programmes, the successful implementation of the
SCC Scheme also depends on the participation of all banks.
6. Annexure:
The following Annexure/s are appended to this chapter.
Annexure-1: Model scheme for Swarojgar Gold Card.
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MODEL SCHEME FOR SWA ROJGA R CREDIT CARD
The scheme: The scheme is called Swarojgar Credit Card Scheme (SCC Scheme).
Objectives: SCC Scheme aims at providing adequate an d timely credit i.e. working capital/ or block
capital or both to small artisans , handloom weavers, service sector, fishermen, self-employed persons,
rickshaw owners, other micro-entrepreneurs , etc. from the banking system in a flexible, hassle free and cost
effective manner. The facility may also include a reasonable component for consumption needs.
Participating banks: The Scheme is to be implemented by all Commercial Banks , RRBs , State
Cooperative Banks / DCCBs /PACS, SCARDBs/PCARDBs and Scheduled Primary Cooperative Banks.
The banks will have to actively market the scheme to the eligible clientele.
Nature of financial accommodation: The credit facility extended under the Scheme is in the nature of a
composite loan including term loan /revolving cash credit.
Sanction of term loan/ Fixation of working capital limit:

 The term loan will be provided for meeting the investment requirements and it will be repaid within
five years in suitable instalments.
 The Revolving cash credit will be fixed taking into account the operating cycle/nature of the
investment and shall be fixed based on available balance after sanction of term loan.
Quantum of limit: Rs. 25,000/ per borrower as composite loan. The initial investment in fixed assets and/
or working capital requirement / recurring expenditure of the borrower are to be taken as the base for fixing
the limit. The working capital/ recurring expenditure limit may be in the form of a revolving cash credit
and fixed as a percentage of the turnover divided by the number of operating cycles per annum. A
component for consumption credit could be built in keeping in view the value of the family labour in the
productive activity. The total limit would have a relationship with the projected net earnings and the
repayment capacity of the borrower.
Validity: SCC is normally valid for 5 years subject to satisfactory operation of the account and renewed on a
yearly basis through simple review process. The operations in the account should be regular.
Issue of cards:
 The beneficiaries under the scheme will be issued with a laminated credit card and a pass book as
per specimen enclosed (Appendix). This will serve as an identity card as well as facilitate recording
of the transactions on an on-going basis. The pass book would contain the repayment schedule of
the term loan also. A passport size photograph of the holder will be affixed on the card at the space
provided for .The card holder would be required to produce the card and the pass book whenever
he/she withdraws cash from the account.
611 - III
 Self Help Groups (SHGs) can also be issued cards in their name and they will be liable jointly and
severally for repayment.
 As far as possible cluster approach will be followed in implementing the scheme.
 Fees towards issue of card/processing may not exceed Rs. 50/.
Renewal of Working Capital limits:

 Limits will be renewed annually based on the amount credited to the cash credit account and the
repayment performance in the term loan account.
 Under the Scheme, term loan component could be enhanced within the overall limit in case of need
subject to satisfactory repayment performance of the borrower.
 The Revolving cash credit to the extent of working capita l repaid may be renewed within the
overall ceiling of Rs. 25,000/ and it should be normally repaid within 12 months from the date
of drawal. However, the minimum discipline expected is that applicable to cash credit accounts.
Where necessary, the working capita l component could be enhanced within the overall ceiling to
provide for escalation in the cost of inputs, etc. subject to satisfactory repayment performance.
 No drawal will be permitted if revolving cash credit remains outstanding for more than 12 months.
 The aggregate credits in the account during the 1 2 month s period should normally be equal to
the maximum outstanding in the working capital component plus the instalment of the term
loan availed of, if any.
Operation of the scheme:

 The banks will have absolute freedom to select the clients for the card.
 There will be no subsidy from the Government under this Scheme.
 The borrower can avail the credit facility as per his/her requirements i.e. either term loan or
working capital loan or a combination of both.
 The beneficiaries under the Scheme are to be issued with a laminated credit card and a passbook
incorporating the name, address, borrowing limit, validity etc. which will serve both as an identity
card as w ell as facilitate recording of the transactions on an on-going basis.
 The issuing branch would maintain the ledger account in respect of each SCC account holder. The
term loan component and working capital component will be accounted for separately. The
operations in the account will be generally through the card issuing branch. However, the banks
ma y at their discretion permit operations through the designated branches , taking into account
the convenience of the clientele.
 Withdrawal from the account will be through withdrawal slips/cheques.
 The SCC and Pass Book should be produced each time cash withdrawal is made.
 Opening of S B A/c should not be a precondition for issue of SCC.
 However, in case SCC holder desires on his/her own to open SB A/c, he/she may be allowed to do
so.
612 - III
Insurance:
Beneficiaries under the scheme would automatically be covered under the group insurance scheme and
the premium would be shared by the bank and the borrower equally. Each bank ma y negotiate the terms
of insurance with a company of its choice o n a national or regional basis .
Security/Margin/Rate of interest /Prudential norms:
Security, Margin, Rate of interest and Prudential norms are applicable as per RBI/NABAR D norms. The
interest rate would not exceed that for comparable farm loans. At present the rate is 9% per annum. The rat e
o f interest may be linked to BPLR as per RBI directives. Interest linked incentives may be given for timely
repayment. Women borrower s may be given preference and some concession in the rate of interest. Joint
liability groups could be encouraged as a collateral substitute.
NABARD refinance:
NABAR D refinance will be provided for advances under SCC Scheme to eligible banks against their
lending to the borrowers in rural areas as per norms under the Composite Loan Scheme.
Monitoring
NABAR D being the nodal agency for monitoring the scheme in order to facilitate clos e monitoring of the
Scheme at the ground level, banks are required to report the monthly progress to the Regional Offices of
NABAR D concerned in the format enclosed (Appendix).
Medium Term Strategy:
It is expected that banks would issue 2 lakh cards during the year 200 3-
04 and achieve a target of 40 lakh before the end of the X Five Year Plan. The stat e -wise and bank -wise
targets would be proposed by NABAR D and approved by the SLBC .
613 - III
APPENDIX
Format for Swarojgar Credit Card cum Passbook
SWAROJGAR CREDIT CARD

Serial No.____________ Date :___/__/_
Bank
Operating Branch
Name of the Card Holder

Age Photograph
Father's/Husband's name of the
Address card
Village holder
Bloc k
P. O.
Valid upto Signature of the issuing
Signature/ Left Hand Thumb Authority with seal
impression of the Card holder
Page 2
Occupation
Land holding, if any
Purpose of loan
i Term loan
ii Cash Credit
(in Rupees )
Total Limit sanctioned :
Type of loan Year I Year II Year III Year IV Year V

200 -0 200 - 0 200 -0 200 - 0 200 -0
Term Loan
Cash Credit
Total 0
Signature of Issuing Authority Signature of the Secretary with
seal (in case of PACS )
614 - III
TERM LOAN REPAYMENT SCHEDUL E
Date of sanction Amount Amount Date of

(Rs) Due date Amount repaid repayment
of term loan
PASS BOOK
Left Page Right Page
Term Loan Cash Credit
Date Particulars Dr Cr Bal- Init - Date Particulars Dr Cr

Bal- Init -
ance ials ance ials
615 - III
Appendix
Progress Report under

Swarojgar Credit Card (SCC) Scheme
For the month of _
Name of the State
Name of the bank:
Aggregate credit limit sanctioned till

No of S C Cards issued till the end of
the end of the
the month of ____
the month of_____
Term Loan Cash Credit
Date
Signature of the Authorised official
NB: To be sent to the Regional Office of NABARD by 5th of the succeeding month
616 - III
CHAPTER-40
SELF HELP GROUPS & JOINT LIABILITY GROUPS
A. SELF HELP GROUPS:
1. General:
a. The Self Help Groups (SHGs) are self-managed groups of persons to help among themselves.
These groups primarily came into existence to mobilize financial resources through their own
savings and lend the same among themselves to meet credit needs of their members. It is an
informal and voluntary association of persons and homogeneous groups.
2. Parameters Working Group suggestions for organizing SHGs:
a. Hamlet basis i.e. men/women living in a cluster of houses with a common economic
activity/interest.
b. Commodity basis i.e. people producing same commodity.
c. Members of such groups may range from 10 to 20 members. Under this activity/interest around
which the groups ought to be organized warrants need for larger membership to ensure viability.
3. Tasks for Self Help Groups:
a. To act as a financial intermediary between individual members and Banks.

b. To act as a joint liability group, deposit group savings with Banks and taking group loans for all
lending to members.
c. To improve savings habits
d. To mobilize savings
e. To generate additional internal funds
f. To examine loan applications from members
g. To give loans to members
h. To decide on loan volume, maturity and internal interest rates.
i. To refer members directly to the PACS/Bank as the case may be if the financial needs surpass
handling capacity of the SHGs.
4. Operations:
a. The SHG conduct meeting once in a week/fortnight/month and transaction like collecting savings,
issuing loans and collection of repayments take place at this meeting, where all the members are
present and collectively take decisions. During the initial stages, the own funds of SHGs are
primarily used for meeting small time consumption and emergency needs. In fact, the SHGs are
617 - III
running a “micro Bank” by doing savings and lending activities.
b. In Tamil Nadu as per G.O. Ms. No.280, of Cooperation Food and Consumer Protection Dept. dated
20.12.1999, the Primary Agricultural Cooperative Banks/societies are permitted to admit the Self
Help Groups identified by the Tamil Nadu Corporation for Development of Women as members of
the Banks to enable them to avail loan from PACBs/Societies.. Subsequently the DCCBs and
Urban Banks were permitted (vide G.O. Ms. No.291, Cooperation, food and Consumer Protection
Dept. dated 8.8.2001) SHGs as their members for the purpose of availing loan from the Banks.
c. Micro Credit is defined as the provision of thrift, credit and other financial services and products of
very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their
income levels and improve living standards. Micro Credit institutions are those which provide
these facilities.
d. Interest rates applicable to loans given by banks to micro credit organizations or by the micro credit
organizations to Self-Help Groups/member beneficiaries has been left to their discretion. The
interest rate ceiling applicable to direct small loans given by banks to individual borrowers,
however, continues to remain in force.
e. The banks may formulate their own model(s) or choose any conduit/intermediary for extending
micro credit. They may choose suitable branches/pockets/areas where micro credit programmes
can be implemented. Micro Credit extended by banks to individual borrowers directly or through
any intermediary would be reckoned as part of their priority sector lending.
f. It may be desirable for banks to deal with micro credit organization having proper credentials, track
record, system of maintaining accounts and records with regular audits in place and manpower for
closer supervision and follow-up.
g. Banks may prescribe their own lending norms keeping in view the ground realities. They may
devise appropriate loan and savings products and the related terms and conditions including the
size of the loan, unit cost, unit size, maturity period, grace period, margins, etc. The intention is to
provide maximum flexibility in regard to micro lending keeping in view the prevalent local
conditions and the need for provision of finance to the poor. Such credit should, therefore, cover not
only consumption and production loans for various farm and non-farm activities of the poor but
also include their other credit needs such as housing and shelter improvements.
h. A simple system requiring minimum procedures and documentation is a pre-condition for
augmenting flow of micro credit. Hence banks should strive to remove all operational irritants and
make arrangements to expeditiously sanction and disburse micro credit by delegating adequate
sanctioning powers to branch manager. The loan application forms, procedures and documents
should be made simple. It would help in providing prompt and hassle-free micro credit.
i. NABARD had earlier, vide circular No. NB. DPD .FS.4631/92-A/1991-92 dated 26 Feb. 1992,
indicated to the banks some broad criteria for selection of SHGs for the purpose of lending. Such
criteria envisage active existence of SHGs for at least six months, successful savings and credit
operations from own resources, democratic working, maintenance of proper accounts/records,
homogeneity and affinity among members and support from NGO-SHPI in the grooming of SHGs.
Based on these indicative criteria and on their own field level experience in promotion and
financing of SHGs, certain banks/other agencies are found to have developed their own detailed
618 - III
but easy-to-use norms for identification of mature SHGs for credit linkage. Such norms not only
help in assessing the maturity of SHGs in an objective manner, but also throw up weak areas of their
functioning requiring urgent attention. Four sets of such norms developed by various
banks/agencies are given in the Annexures-1 to 4 to this Chapter.
5. Characteristics of Self Help Groups (SHGs):
a. Conduct regular meetings.

b. Direct participation of members in decision making.
c. Regular savings.
d. Internal lending.
e. Prioritisation of loans granted to members.
f. Flexible repayment terms.
g. Group norms.
h. Sharing of responsibilities in the group.
i. Common interest.
j. Mutual self-help.
k. Non-political.
l. All are poor.
6. Functions of SHGs:
a. Functions through regular meetings (weekly/fortnightly/monthly meetings)

b. Members' meet at regular intervals at a predetermined place and time
c. Contribute their savings and repay their loans and interest.
d. Loan needs range from consumption to income generation
e. Sanction and disburse loans ,fixing rate of interest and repayment period based on members' needs
and status
f. Discuss other issues,
g. Record the proceedings
h. Work through sharing of responsibilities
7. Documents to be obtained to open SB accounts:
a. Resolution from the members of the group resolving to open account with a particular PACS/CCB
b. Copy of norms of the group, if documented or a copy of the minutes of the book indicating the
names of members and norms of the group.
c. Resolution authorizing two members to open and operate the SB account of the group with the
society.
619 - III
8. Operation of SB Account:
a. Cash flow approach: Group deposits all its savings in the account and withdraw its loans
sanctioned through issue of fund withdrawal authorization, to its members
b. Balancing centre approach: Either depositing or withdrawing the net surplus or requirement of
funds from the group account.
9. Credit support to the group:
a. When the group approaches a branch of a society for credit support, observe the following in a
group meeting:
i. comparison between corpus and micro credit plan(credit needs of members)
ii. internal recovery process and performance of the group.
iii. provide credit support as a multiple of corpus *
*(corpus = internal lending +cash with group+balance with PACS / CCB)
10. Essential Documents:
a. Acceptance of terms and conditions in sanction letter.

b. Loan agreement.
c. Inter-se agreement.
d. Demand promissory note.
e. Repayment schedule linked to recovery plan of the micro credit proposal or could be a fixed period
based on corpus management process.
11. Credit needs of the group:
a. Consumption loans.
b. Small livelihood loans.
c. Small income generating activities in rural areas.
d. Loans for improving living standards.
e. Micro enterprise proposal from a sub-group with-in
f. All members need not seek credit for activities.
g. The members should have the freedom to operate at a level comfortable to them, based on their
family needs.
12. Advantages to Society:
a. Promote thrift among members.

b. Internal credit prioritisation.
c. Improves national thinking process.
d. Prompt repayment encourages banking ethics.
620 - III
e. Proper end use and prompt repayment.
f. Micro-enterprises improve rural employment opportunities.
g. Improvement in deposits of societies/CCBs.
h. Externalization of functions like collection of deposits, lending decisions and recovery loans to
members.
i. Society is a large SHG, SHG is a small cooperative with group dynamics.
13. Philosophy of the Linkage:
a. The poor has the capacity to save.

b. Savings represent mainly deferred consumption.
c. The poor is bankable.
d. The Bank lends to the Groups and not through the Group.
e. NGO functioning as a facilitator.
f. All decisions about credit as per group mechanism / wisdom.
g. Peer pressure as a substitute to collateral.
14. Strength of SHGs:
a. Propagator of volunteerism.
b. Practitioner of mutual help and cooperative principles.
c. Promotion of thrift and savings.
d. Provider of timely / emergency loans.
e. Purveyor of development credit.
15. Role of NABARD:
a. Liberal refinance assistance to commercial banks/ RRBs and cooperative Banks.

b. Promotional assistance to NGOs for capacity building.
c. Providing training opportunities to Banks / NGOs and development agencies on SHG.
d. Conducting studies / seminars and action research projects.
e. Creating policy environment for promotion of linkage of SHGs with Banks.
f. Accelerating the program through consultation / coordination and collaborative arrangements.
g. Simple procedures and automatic refinance facilities.
h. Inbuilt flexibility in the scheme.
16. Role of Banks:
a. Play a vital role in providing funds to SHGs in a quick and flexible manner.
b. External relaxation in managing security norms.
c. Establish liaison with NGOs / SHGs.
d. Oversee the healthy functioning.
621 - III
e. Credit dispensation activities through guidance and continuous rapport.
f. Make available profiles of bankable schemes.
17. Model of SHG / Bank Linkage:
a. Model 1 - NABARD BANK SHG - Bank acting as Self Help Group Promoting Institution SHPI.
b. Model 2 NABARD BANK NGO SHG - NGO acting as a facilitator.
c. Model 3 NABARD BANK NGO SHG NGO acting as facilitator and financial intermediary.
18. Self Help Group Graduation Process:
a. Forming: Identification of potential village, village resource, inventory survey, assessment of

potential, analysing data, educating target group and utilizing farmers club.
b. Storming: Identifying specific problem, identifying first person, motivation for preparing for
meeting, brainstorming the problems, finalizing list of members.
c. Norming: Evolving norms, collecting thrift, opening bank account, evolving byelaws.
d. Performing: Conducting meetings, maintaining records, loan disbursement, identifying,
communicating, rating of groups, Bank's credit linkage.
B. JOINT LIABILITY GROUPS:
1. General:
a. Innovations such as the SHG-Bank Linkage programme have proved to be successful in providing
financial services from the formal banking sector to asset-less or very poor. This is also in line with
RBI's policy of "financial inclusion". In order to develop effective credit products for clients like
the tenant farmers, oral lessees, sharecroppers and small and marginal farmers the bank is
implementing the following schemes in line with the model schemes formulated by NABARD:
i. Scheme for provision of Credit to Tenant Farmers and Oral Lessees for cultivation of crops
through Tenant Farmer Groups.
ii. Scheme for financing Tenant Farmers, Oral Lessees, Share Croppers and Small and Marginal
farmers through Rythu Mithra Groups (Implemented in Andhra Pradesh only).
b. The experience gained in the implementation of the above programmes have demon-strated that
the Joint Liability Group (JLG) approach can be successfully adopted by banks to reach clients like
tenant farmers, share croppers, oral lessees, farmers with small land holdings without proper land
records etc. Accordingly, a scheme is evolved on the lines of the model scheme prepared by
NABARD and RBI/IBA has advised all the Banks to implement the scheme. The salient features of
the scheme are as under:
2. Objectives: The scheme aims at the following objectives;
a. To augment flow of credit to tenant farmers cultivating land either as oral lessees or share croppers
622 - III
and small farmers who do not have proper title of their land holding through formation and
financing of JLGs.
b. To extend collateral free loans to target clients through JLG mechanism.
c. To build mutual trust and confidence between banks and tenant farmers.
3. General features of JLG: A Joint Liability Group (JLG) is an informal group comprising preferably of
4 to 10 individuals coming together for the purposes of availing bank loan either singly or through the
group mechanism against mutual guarantee. The JLG members are expected to engage in similar type
of economic activities like crop production. The management of the JLG is to be kept simple with little
or no financial administration within the group.
4. Criteria for selection of JLG members:
a. JLGs can be formed primarily consisting of tenant farmers and small farmers cultivating land
without possessing proper title of their land.
b. Members should be of similar socio economic status and background carrying out farming
activities and who agree to function as a joint liability group.
c. The groups must be organised by the likeminded farmers and not imposed by the bank or others.
d. The members should be residing in the same village/ area and should know and trust each other
well enough to take up joint liability for group/individual loans.
e. The members should be engaged in agricultural activity for a continuous period of not less than 1
year within the area of operations of the bank branch.
f. The group member should not be a defaulter to any other formal financial institution.
g. JLG should not be formed with members of the same family and more than one person from the
same family should not be included in the JLG.
h. There is a need for a very active member of the group to ensure leadership role and ensure the
activities of the JLG. The selection of a good/able/active leader for the JLG is an essential need,
which will ultimately benefit all the JLG members. However, care should be taken to ensure that
benami loans are not cornered by the group leader.
5. Size of the JLG: The group should be formed preferably with 4 to 10 members to enable the group
members to offer mutual guarantee. While informal group of up to 20 members could also be
considered, such large groups are found to be not effective in fulfilling mutual guarantee obligations in
the case of farmers. Therefore, smaller groups of farmers (4- 10 members) are recommended for
effective functioning of JLG.
6. Formation of JLGs:
a. Branches may form JLGs on their own or through the facilitation of intermediaries like NGOs,
MFIs etc., On formation of JLGs, the Branch Manager should discuss with the JLG members the
bank's regulations, lending procedures, services etc. The principles of self-help and group strength
need to be emphasized. Group cohesion has to be ensured. Adequate emphasis should be placed on
the roles, expectations and functions of the group/members and the benefits of group dynamics.
623 - III
b. State Government Departments like Agriculture Department also could form JLGs of tenant
farmers and small farmers not having clear land title. The JLGs of such eligible farmers can also
serve as a conduit for technology transfer, facilitating common access to market information; for
training and technology dissemination in activities like soil testing, training, health camps and
assessing input requirements.
7. Savings by JLG: The JLG is intended primarily to be a credit group. Therefore, savings by the JLG
members is voluntary. All the JLG members may be encouraged to open an individual "no frills"
account. However, if the JLG chooses to undertake savings as well as credit operations through the
group mechanism, such groups should open a savings account in the name of JLG with at least two
members being authorised to operate the account on behalf of the group.
8. JLG Models: Branches can finance JLG by adopting any of the two models.
a. Model A - Financing Individuals in the Group: The JLG would normally consist of 4 to 10
individuals. The group would be eligible for accessing separate individual loans from the financing
bank branch. All members would jointly execute one inter-se document (making each one jointly
and severally liable for repayment of all loans taken by all individuals in the group). The financing
bank could assess the credit requirement, depending on the crops to be cultivated, available
cultivable land and credit absorption capacity of the individual. However, there has to be mutual
agreement and consensus among all members about the amount of individual debt liability that will
be created.
b. Model B Financing the Group: The JLG would consist preferably of 4 to 10 individuals and
function as one borrowing unit. The group would be eligible for accessing one loan, which could be
combined credit requirement of all its members. The credit assessment of the group could be based
on the available cultivable area by each member of the JLG. All members would jointly execute the
document and own the debt liability jointly and severally. JLG is mainly a credit product. But if the
members want to save through the group, banks can open saving account in the name of the JLG to
be operated by two members of the group as decided through a resolution by the JLG.
9. Critical factors in JLG approach: The success of JLG concept depends on several factors. However,
following factors are critical:
a. The concept depends heavily on mutual trust within the group and on peer pressure for the
repayment of loans.
b. The quality of group leadership is critically important for the sustainability of the group.
c. The JLG exists only for the single purpose of expediting certain categories of loans. Generally they
are not multifunctional groups.
10. Credit Assessment:
a. Model A: The JLG would prepare a credit plan for its individual members and an aggregate of that
is submitted to the banks. Branches may use the prescribed Introduction Form and Application
624 - III
form. The individual members of JLG would be eligible for bank loan after the bank verifies the
individual members' credentials.
b. Model B: JLGs that undertake savings apart from credit are required to maintain books of
accounts. They may also be granted loans by branches on the basis of performance parameters.
(SHG grading chart may be used). However, the quantum of credit need not be linked to groups'
savings as in the case of SHGs. The credit requirements for the group may be worked out based on
combined credit plan needs of individual members. Branches may use the prescribed Introduction
Form and Application form.
11. Purposes of credit: The finance to JLG is expected to be a flexible credit product addressing the credit
requirements of its members including crop production, consumption, marketing and other productive
purposes.
12. Type of loan: Branches may consider cash credit, short-term loan or term loan depending upon the
purpose of loan.
13. Loan limit: Considering that the loan to be granted is against the mutual guarantee offered by the
group, maximum amount of loan may be restricted to Rs.50, 000/- per individual both under Models A
& B.
14. Rate of interest: As per existing norms applicable to Agricultural advances.
15. Margin and Security Norms : No collaterals are insisted upon against loans to JLGs. It may however,
be ensured that the mutual guarantees offered by the JLG members are kept on record. Margin as per the
usual norms may be applied.
16. Documents-Model A:
a. The documents to be obtained in respect of financing under Model-A
i. Demand Promissory Note (DPN)

ii. Self-Declaration Form
iii. Application cum Appraisal Form
iv. Mutual Joint Liability Agreement
v. Letter of under taking
vi. Agreement for Hypothecation - Agricultural Loans
b. Model B: Documents as applicable to SHG lending may be adopted.
17. Credit to JLGs (to form normal business activity under Priority Sector): As the programme is
intended to benefit farmers cultivating lands who may not have adequate collateral to offer to avail of
bank loan in their individual capacity, lending to JLGs are to be treated as direct agricultural advances
under priority sector advances segment.
625 - III
18. Insurance cover: The members belonging to Below Poverty Line may be encouraged to insure the
following risks, which are optional. As finance to JLG is expected to be a flexible credit product, the
premium amount may form a part of the financing package.
i. Life and Personal Accident cover under the Janashree Bima Yojana in terms of the guidelines.
ii. Health (Mediclaim) Cover under the Universal Health Care Policy in terms of the guidelines.
19. Crop insurance scheme: All the crop loan borrowers under this scheme should be given KCC and
compulsorily covered under National Agricultural Insurance Scheme (NAIS) in respect of notified
crops in notified areas depending on the type of crop cultivated by the individual JLG member and also
under Personal Accident Insurance Scheme (PAIS) as per existing guide-lines. The premium amount in
respect of NAIS, may form a part of the loan limit and in respect of PAIS, as the borrower's contribution
of premium is only Rs.5 /- per borrower, the same may be debited from the borrower's loan account/SB
account or recovered in cash from the borrower.
20. Monitoring and Review: Branch Heads should closely monitor the programme at regular intervals
and during the Branch Managers review meetings. Branches should submit a progress report to Head
Offices concerned in the prescribed format on a monthly basis as on last working day of every month so
as to reach within 7 days of completion of the month to which the report relates.
21. Annexure/s:
The following Annexures are appended to this Chapter:

Annexure 1 : Assessing SHGs under Bank Linkage Programme Illustrative Set I
Annexure 2 : Assessing SHGs under Bank Linkage Programme Illustrative Set II
Annexure 3 : Assessing SHGs under Bank Linkage Programme Illustrative Set III
Annexure 4 : Assessing SHGs under Bank Linkage Programme Illustrative Set IV
626 - III
Annexure-1 to Chapter 40
Illustrative Set - I
Sl. No Category Indicators Rating
1. Number of Members Less than 10 02

Between 10 15 03
From 16 and upto 20 05
2. Composition Target group only 05

Having 1 to 5 Target Group 03
Members 01
Having more than 5 non-
target group Members
3. Age of the SHG More than 2 years 10

1-2 years 07
6 months to 1 year 05
4. Monthly meetings during last Four and above 05

six months Two to three 03
5. Attendance of members in More than 90% 05
the groups meetings 70% to 90% 02
Less than 70% 05
6. Participation of members at High 03
group meetings (should be Medium 02
ascertained through interview) Low
7. Savings:
a) Regularity If default rate is 10
Upto 10% 07
Upto 25% 05
8. b) Quantum of Savings But default is met during succeeding
(through members only) month
Group's Internal Loaning More than Rs.5000/- 10
Between Rs.2000/- and Rs.5000/- 07
Below Rs.2000/- 05
a) Utilisation of savings by Above 90% 10
grant of internal loans 51% to 90% 07
30% to 50% 05
9. b) Interest rate on group's Depending upon purpose 05
internal loans. 18% to 30% 03
c) Group's internal loan Less than 18% 02
recovery rate. 100% 10
d) Members benefited out of between 80% to 95% 07
group's internal loaning. between 70% to 80% 05
Awareness among members; More than 50% 05
Between 25% - 50% 03
Less than 25% 02
Known to all members 05
knowledge of SHG rules, Known to 50% more 03

functions, procedure of Known to less to 50% 02
627 - III
Sl. No Category Indicators Rating
10. meeting, maintenance of If 25% or more members

books and records, etc.,
Education level
11. Rotation of group leaders Read, write, speak and sign 05

Read and sign 03
Sign only 02
Once in two years 03
12. Maintenance of books and records Between 1-2 years 04
Every year 05
Without outside assistance without
outside
assistance
a) Attendance Register 1 1
b) Minute Book 4 2
c) Loan Ledger 4 2
d) Savings Ledger 4 2
e) Internal Pass Book 2 1
Selection Criteria of SHGs for Linkage SCORING Status for Selection
1. SHG scoring more than 90 points Selection without any reservation
2. SHG scoring 60-89 points Selection with caution.
3. SHG scoring less than 60 points Not suitable for linkage.
628 - III
Illustrative Set - II
Assessing Self Help Groups under SHG Bank Linkage Programme
Sl. No Indicators Rating Key
Composition a) Membership is homogeneous 10 The rating is based on

b) No homogeneity in membership the judgement of a
assessing official.
Age of the
Group a) One year and above 5 There is no need to
b) Six months and above but less than 10 evaluate an SHG if it is
less than six months old
(ignore marginal
shortfall upto 1 month)
Group meetings a year. 5 The total number of
a) Four meetings per month 10 meetings conducted during
b) 2-3 meetings per month 8 the last 3 months
c) 1 meeting per month may be divided by 3 to
arrive at average number
of group meetings.
Attendance a) More than 90% 5 *Note: See explanation 1
b) between 70% to 90% 10 at the end
c) less than 70% 5
Minutes book a) Written in detail 3 Peruse minutes book

b) Maintained but not in detail 10 pertaining to meetings
held during the last 3
months
Participation a) participation by only a few 5 1. Peruse minutes book
in group members 5 (if rating is 10 for item
discussion b) Participating by majority of 10 5)
members 10
Savings a) 4 times a month (by majority 8 2. Observe during a

(frequency) members) couple of group
b) 4 times a month (but not by meetings.
majority members) 8 3. Interact with members
c) 2-3 times a month (but not by
majority) Step 1: Take the average
8 number of members
d) 4 times a month (but not by 8 making savings during
majority) last 3 months.
3
Step 2: Compare this
e) 2-3 times a month (by majority
with the total number of
members)
5 members.
f) 2-3 times a month (but not by
Step 3: Majority means 60%.
majority members).
Step 4: Compare this with the
g) 1 time a month (by majority members)
total number of members.
Step 5: Majority means 60%
Step 6: For average number

of meetings follow rating given
for item 3 above.
*Note: please see

explanation 2 at the end
629 - III
Savings and a) Collected in groups meetings 10 Ascertain from group

loan b) House to house collection 05 leaders and members in
recovery this regard. Also peruse
(mode of minutes book.
collection) Peruse minutes book
Style of a) democratic and transparent 10 Interact with members.

functioning b) decisions taken by few dominant 00 Observe in few group
and group members/group leaders. meetings. Ascertain
decisions whether periodical
whether periodical
elections are conducted
for the leadership and
whether all decisions are
in group meetings and
on democratic lines.
Sanction and a) Selection of borrowers in group 2 a)Ascertain in the
disbursement meetings positions from
of loans b) Sanction and disbursement 2 of 2 group leaders/members.
loans in group meetings b) Peruse minutes book
c) Loan terms and conditions 2 (each item will get marks
discussed in group meetings and shown against in if the condition
recorded in miunutes are satisfied)
d) utilization of loans reviewed peruse loan registers
regularly in group meetings. 2
e) recovery of loans reviewed
regularly in group meetings
2
Interest on I. a) Uniform rate irrespective of 5

SHG loans source of funds
b) Different rates depending on source 3 Ascertain from group
of funds. leaders/members
II. a) Interest rates vary according to 5 Peruse loan register

the purpose of loan
b) Uniform interest rate for all 3 Ascertain from group
purposes. leaders/members.
Utilisation a) Above 80 % 10 Compare savings our standing

of savings for loaning on a given date with loans
outstanding on the same date to
b) above 50% and upto 80% 5 obtain the percentage. No marks
for utilisation of savings below
50%.
Books of accounts a) attendance cum minutes book 3 Each record/register it Maintained

properly and upto date will get
b) Saving's Register 3 marks shown against each
c) loan ledger 3
d) bank passbook 1
630 - III
Bye laws/ group rules a) known to all members 10 Ascertain from the members
through interaction
b) known to most of the members 05
c) not known to many members 00
Total marks 150
Selection Criteria of SHG for Linkage to Bank Loan

1. SHG scoring more than 120 marks out of maximum of 150 marks can be chosen for linkage.
2. SHG scoring less than 120 marks will have to be further developed before linkage.
The areas of improvement may be apprised to group leaders and members. Evaluation may be again be
taken after 3 months.
*Note
Explanation 1 Please use the following formula
Total number of members attending meeting during last three months x 100
(Total no. of members in the groups) x (No. of meetings held during the last 3 months)
Explanation 2
Example 1. 12 meetings during last three months the membership of SHG is 18. The respective number
of members who saved in each meetings is 12, 14, 9, 7, 15, 17, 12, 13, 14, 9, 8 and 15 the average
number of savers works out to (145 divided by 12) 12, the group scores 10.
Example 2. In the groups, the number of members who saved in each meeting is 6, 8, 4, 9, 10, 5, 3,
4, 7, 5, 4, 7 and the average number of savers works out to (72 divided by 12) 6 the group scores 9.
631 - III
Illustrative Set - III
Assessing Self Help Groups under SHG-Bank Linkage Programme
Sl. No Category Indicator Rating
1. Group size a. members less than 10 5

b. members from 10 to 15 8
c. members from 15 to 20 10
2. Composition 1. a. Target group only 10

b. Having 1-5 non-target group 5
c. Having more than 5 non-target group 0
II. a. Homogeneous 10
b. Mixed group 8
3. Meeting 1. Monthly 1
4. meetings 10
2-3 meetings 8
1 meeting 5
II. a Irregular 5
b. Regular 10
III. Timigs
a. Night or after 6 p.m. 10
b. Evening (between 3 and 6 p.m.) 5
c. Morning (between 7 and 9 p.m.) 8
d. Other timings 3
4. Attendance of members More than 90% 10
70% to 90% 8
Less than 70% 3
5. Participation High 10
Medium 8
Low 3
6. Savings 1. Frequency-Monthly 10
4 times 8
3 times 5
2 times 3
1 time
II. Regular 10
Irregular 8
III. Fixed (Rate) 10
Optional (Rate) 8
IV. Interest on Group Loans 0

Nil 5
More than 36% 8
24% to 36% 10
Depending upon the purpose
V. Full Utilization 10
Less Utilisation 8
No Utilisation 1
632 - III
11. Group rules and knowledge of If known to all members 10

Group functions If not known to members 3
13. Awareness about a. If all are aware 10

b. If partially aware 5
Government programmes by c. If not aware 0
members and banking procedures
Selection Criteria
1. SHGs scoring more than 150 points can be selected without any reservation.
2. SHGs scoring less than 150 but more than 100 points can be selected with caution.
3. SHGs scoring less than 100 points need not be considered.
633 - III
Illustrative Set - IV
Assessing Self Help Groups under SHG-Bank Linkage Programme
1. Feeling of Very Strong 3

Homogeneity/
2. Solidarity Moderate 2
Feeling on Not very much 1
Very Strong 3
3. Relevance of group Moderate 2
formation Not very much 1
Awareness about Very Strong 3
4. objective of group Moderate 2
formation Not very much 1
Regularity in meeting <50% 1
5. Attendance in 50-75% 2
>75% 3
<50% 1
6. Meeting 50-75% 2
Regularity in >75% 3
<50% 1
7. Saving 50-75% 2
Regularity in >75% 3
<50% 1
8. repayment of loan 50-75% 2
The group has >75% 3
Has elected members 3
9. elected executive A mix of both 2
members/follows Follows only opinion of leaders 1
opinion of leaders By newly literate member 3
Record
10. keeping/Book By upper class member (not elected) 2
keeping etc. By animator / others 1
Operation of Bank
account and other
dealings with Bank
11. Awareness about loan rules and < 50% 1
12. bank loan details among the 50-75% 2

members (in case of credit > 75% 3
activity) <30% 1
Percentage of members availing
13. loan to total members 30-60% 2

Decision on loan taken during >60% 3
Meeting by all 3
14. Awareness about bye-laws and By elected leaders 2
By Opinion leaders 1
Or others 3
Written and
whether they are written or oral. Strong awareness
634 - III
15. Participation in discussion and Oral but 2

Strong awareness 1
Oral and not aware 1
<50%
16. Group Functioning by members 50%-75% 2

>75% 3
17. Creation of Emergency/core Yes 1
Fund No 0
Has the group able to Yes 3
Stand up against constraints 2
18. Imposition of sanctions and Still continuing 1
enforcement of bye-laws Moderate extent 0
No 2
Strongly enforced 1
sometimes 0
Not at all
Decisions
When all 18 parameters ranking is given, total ranking/score may be calculated. Based on the ranking,
decision to credit link immediately or to wait for further improvement can be taken.
SHGs Linkage with Bank
The following criteria is suggested for consideration by Bankers while considering SHGs for Credit
Linkage:
(i) SHGs should have been active for atleast a period of 6 months with successful savings and credit
operation with own resources.
(ii) Proper Books of accounts and lending systems should be maintained.
(iii) Group should be functioning in a democratic manner.
(iv) The SHG members should have homogeneous back ground and interest.
(v) The interest of the NGO or SHPI (Self Help Promoting Institution) in the Group should be to help
the SHG by way of training and other support for skill upgradation and proper functioning. The
credit is extended by Banks only after 6 months from the date of opening of SB A/c with them.
Quantum of Loan
First time Loan - Ratio of own fund to loan 1:1

Second time Loan - ” 1:2
Third time Loan - ” 1:4
635 - III
Purpose of Credit: It is left to the choice of the SHG.
Security
Since, SHG could not be in a position to offer any collateral security, the security norms for lending is to be
relaxed.
Documentation: The following documents are obtained

1) Loan application
2) Inter-se Agreement
3) Loan Agreement
4) DPN
5) Copy of the resolution passed in the group meeting to apply for the loan
6) Sponsorship letter from NGO, if available.
7) Open SB A/c in the name of SHG, not joint A/c.
Rate of Interest
NABARD to SCB - 7%
SCB to DCCB - 7.5%
DCCB to PACB - 9.5%
PACM to SHGs - 12%
NABARD provides 100% refinance for this SHG lending.
Advantages
1) Reduction in transaction cost by way of externalisation of a part of items of the credit cycle
(appraisal, disbursal, supervision, repayment).
2) Mobilisation of Small savings.
3) Assured and timely repayment leading to faster recycling of funds.
4) An opportunity for expansion of business and coverage of poor clientele.
5) Prospects of future quality clients.
636 - III
CHAPTER-41
FARMERS' CLUB PROGRAMME
1. General:
th
a. In terms of NABARD Circular No.23/mcid-II/2007 dated 28 February 2007, the Commercial
Banks and other promoting agencies of farmers' Clubs are expected to share the cost of promoting
and nurturing Farmers' Clubs right from the first year of formation of clubs effective from 1st April
2007. This was subsequently relaxed in the case of RRBs and Cooperative Banks. NABARD has
further reviewed its policy for supporting Farmers' Clubs, their emerging role as “Business
Facilitators”/”Business Correspondents” for institutional agencies.
2. Diversified Role of Farmers' Clubs:
a. Keeping in view the diversified role, being played by Farmers' Clubs, it may be necessary to
address specifically the following areas so as to strengthen the programme “content” and “quality”
and make it much more farmer and market friendly.
i. Capacity building of members of Farmers' Clubs especially covering aspects such as

leadership, Accounting, Communication, etc.
ii. Financial literacy and credit counselling
iii. Business and enterprise orientation
iv. Transitions with markets/corporate houses
v. Graduation of Farmers' Clubs into Producers' Groups / Companies / Federation of Farmers'
Clubs.
3. NABARD Policy:
a. NABARD has formulated a new policy for extending support for Farmers' Clubs Programme,
effective from 1st July 2008. The new policy will lay stress on linking technologies with Farmers'
Club members and also facilitating market access through the following mechanism:
i. Capacity building of members including leadership training
ii. Self Help Groups (SHG)/Joint Liability Groups (JLGs) Formation
iii. Forming federations of Farmers' Clubs/Producers' Groups/Companies
iv. Linkage with technology institutions/markets
b. NABARD has decided to support recurring expenses of farmers' counselling and training centres
set up by institutional agencies to the extent of Rs.15 lakhs or 50% of the recurring expenses p.a.,
th
whichever is lower (circular No.43/DPD.FD-02/2008 dated 27 March 2008). NABARD has also
set up a Farmers' Technology Fund (FTTF) with a corpus of Rs.25 crores to be used to facilitate
637 - III
transfer of technologies and market linkages especially through Farmers' Clubs besides need based
support for formation of Producers' Groups/Companies, Federations of Farmers' Clubs (circular
th
No.117/DPD-FS-FTTF/2008 dated 11 June 2008).
c. All Regional Rural Banks have been directed by Union Finance Minister to have at least one
Farmers' Club per Branch. In view of the importance attached to the programme, by NABARD
and GoI and also in the context of the business advantages that accrue to institutional agencies,
NABARD encourages banks to adopt the Farmers' Club Programme (FCP) as part of their
corporate goal and strategy on the lines of Self Help Groups - Bank Linkage Programme. In the
context of financial inclusion, Village Development Programme and also RBI's circular on
Business Facilitator/Business correspondent models, it would be most appropriate, if the
institutional agencies initiate efforts to form at least two-three Farmers' Clubs by each of their rural
branches.
d. Under the new policy, NABARD has segregated the requirements of Farmers' Clubs into 'routine'
and 'non-routine' activities and restrict the support to routine activities to the barest minimum, so as
to make the programme more performance and purpose oriented.
e. Highlights of the New NABARD Policy for extending support for Farmers' Club Programme:
st
i. The new policy will cover all existing and new clubs and become operative from 1 July 2008.
It will also supersede all previous instructions on the programme.
ii. All institutional agencies (Commercial Banks, Cooperative Banks and Regional Rural banks)
and all grass-root level organisations (NGOs, PRIs, State Agricultural Universities, KVKs,
ATMA, Post Offices, etc.) are eligible to form Farmers' Clubs.
iii. NABARD assistance to all agencies will uniformly be Rs.10,000/- per club per annum for a
period of 3 years irrespective of whether they are institutional or other agencies and also the
region concerned. The assistance will be towards meeting the following minimum and
mandatory expenses.
! Formation and maintenance expenses : Rs.2,000.00

! Awareness/orientation meet at base level : Rs.5,000.00
! Meet with experts programme : Rs.3,000.00
(2 programmes in a year) ------------------
: Rs.10,000.00
------------------
iv. Assistance exceeding Rs10,000/- may be met by the sponsoring agencies.
v. NABARD has segregated the requirements of Farmers Clubs into 'routine' and 'non- routine'
activities, which are listed in this chapter.
vi. All 'non-routine' activities of the clubs can be supported by NABARD on merits.
638 - III
vii. Sponsoring banks are expected to give a consent letter for maintaining the clubs beyond the
agreed period of 3 years of NABARD assistance.
viii. NABARD will release the assistance of Rs.10,000/- in two instalments (50% by way of
release in advance and the remaining 50% by way of re-imbursement).
ix. There is no restriction on number of clubs to be formed by various agencies.
x. To facilitate the graduation of Farmers Clubs into Federations of Farmers Clubs or Producers'
Group/Companies, it would be desirable for the sponsoring agencies to rate the Farmers Clubs
as per parameters indicated by Nabard. However, the rating of the clubs is not linked to any
releases to be made out of the assistance under the new policy.
xi. NABARD's CAT (Capacity Building for Adoption of Technologies) may be used for the
benefit of Farmers Club members for training and exposure visits within and outside the state.
xii. Sustainability of Farmers Clubs may be ensured through creation of a corpus at the club level
through measures such as the following:
! Token Membership fee (to be decided by club members)
! Monthly savings (to be decided by club members)
! Service charges for SHG/JLG loans recommended to banks @ 0.5% and 1%. (This is
suggestive and club members can decide themselves).
! Commission for selling insurance products (as per negotiations with individual insurance
companies)
! Incentive/commission for acting as “Business Facilitators” for banks to be negotiated with
individual banks).
! Any other charges for services provided to other agencies like Government, corporate bodies,
etc. Such steps /measures will make the Farmers' Clubs self-sustaining over a period of 3-5
years, when funding support by institutional agencies is withdrawn.
4. Farmers' Club -Routine and Non-routine Activities*:
Sl. No. Routine Non-routine

Expenses relating to -
1. Formation of Farmers' Club PRA exercise /Training
2. Maintenance of the clubs for 3-5 years Skill development training / AEDPs
3. Awareness / orientation meets Exposure visits within and outside states
4. Preparation of plans Implementation of special projects
/ programmes
5. Identification of borrowers Transfer /adoption of new /innovative
technologies
6. Maintenance of Village Profile /Data/MIS etc. Publication of materials in local languages
(on selective and need basis)
639 - III
Sl. No. Routine Non-routine
7. Recoveries Formation and nurturing of SHGs (to act
as SHPIs)
8. Any other expenses in connection with Marketing related expenditures such as
specific work assigned by banks/NGOs / participation in exhibitions / Fairs / Melas /
Govt. departments, etc. futures trading
9. Access to e-education /IT enabled
services /Kiosks.
10. Any other innovative activity
*These are only illustrative and not exhaustive.
5. Rating of Farmers' Clubs-Broad Parameters
Sl. No. Particulars Marks

1. Formation of FC (By Banks/NGOs/other Agencies)
i. Men 2
5
ii. Women 3
2. Role clarity amongst FC Members 20
3. Functions of FC
i. Normal (Routine) activity 5
ii. Non-routine activity 10 25
iii. Innovative activity 10
4. Relationship with sponsoring agencies
(Banks, NGOs, Aus, PRIs, KVKS, etc.) 5
5. Nature of work done
i. On behalf of sponsoring agencies 5
ii. On their own behalf 3 15
iii. Work done on any other agency's behalf 2
iv. Commission / fee, if any received 5
6. Any savings or corpus fund created amongst FCs
i. Yes 5 5
ii. No Nil
7. Impact on functions undertaken on behalf of
i. Increase in flow agriculture / non-farm Credit 1
ii. Increased access in terms of new and repeat borrowers 1 5
iii. Increase in deposit mobilisation 1
iv. Increase in recovey of farm and non-farm credit 1
v. Reduction in transaction cost 1
640 - III
Sl. No. Particulars Marks
8. Other Activities
i. No. of visits of agricultural experts organised 2
ii. No. of farm demonstrations conducted 2
iii. No. of exposure visits undertaken 2
iv. New technology, if any adopted 2 20
v. No. of SHGs promoted and linked with banks 2
vi. Involvement in providing backward and forward linkages to farmers 2
vii. No. of other social activities organised 2
viii. No. of meetings conducted 2
ix. Members' participation in the meeting 2
x. Maintenance of records by club 2
Total 100
Note:
Sl. No. FCs score range Category

1. More than 90 Excellent
2. Between 70 and 90 Very good
3. Between 60 and 70 Good
4. Between 50 and 60 Average
5. Between 40 and 50 Below average
6. Below 40 poor
641 - III
CHAPTER 42
APPRAISAL OF LOAN PROPOSALS OF SMALL AND MICRO UNITS
1. General:
a. Appraisal of loan proposals is an “art of lending” and requires professionalism on the part of Bank
Manager. The appraisal may vary from borrower to borrower, unit to unit, product to product,
segment to segment, type of loan to loan etc. Different tenets are to be applied accordingly while
appraising the loan proposals. In the case of micro units, sophisticated technical appraisal may not
be necessary. It may be enough to appraise the borrower and his business so as to ensure sufficient
cash accrual which will be available for repayment of Bank loans.
2. Objectives:
a. The objectives of appraisal of credit proposals are:
i. Identification of “Credit Risk” associated with the borrower and his business.
ii. Assessing whether there will be prompt repayment of loans by the borrower in time.
3. Credit Risks:
a. Credit Risks include:

i. Business Risk
ii. Financial Risk and
iii. Default Risk.
b. These risks should be identified and assessed before sanctioning of loans. The appraisal of credit
will help in this direction.
4. Appraisal Aspects:
a. Appraisal of the borrower:
i. The success or failure of a business enterprise largely depends on the capability of the
entrepreneur to manage men, money, materials, machinery, market and technology. Hence the
appraisal of the borrower occupies a first place. The tools of appraisal are;
 Application Form,
 Interview of the borrower and the Surety, if any
 Pre-sanction Inspection Report.
ii. The borrower's capital / margin money invested / proposed to be invested, his ability to
manage his business qualification and experience in the business can be assessed from the
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information provided in the application. The Assets and Liabilities of the borrower and his
surety should also be analysed from the information provided therein. The trust worthiness of
the borrower should also be assessed. Interview with the borrower / surety will enable the
Bank Manger to get clarifications and additional information required, if any. The pre-
inspection of borrower's unit and his residence will through light on:
 Borrower's life style.
 His visible wealth.
 Correctness of the information given in the application form.
 Antecedents of the borrower.
 His neighbourhood and relation with them and
 His other business or income, if any.
iii. The credit worthiness and financial position of the borrower can also be assessed by going
through the Income Tax / Sales Tax assessments and other tax receipts.
iv. The surety should also be interviewed on the same lines, besides taking the proof of his
income and the statement of Assets and Liability when a guarantee is to be obtained from him
for the repayment of loan.
b. Appraisal of the Project Proposal:
i. The appraisal of technology should relate to the following points:

 Cost effectiveness.
 Flexibility for future expansion
 Appropriate to the nature of production
 Not becoming obsolete very soon and
 Capability to produce different quantities and qualities of the same product.
ii. Infrastructure: It should be satisfied that the infrastructure like land, work shed, sufficient
power, water, other fuels etc. are available. It should also be verified whether different types of
raw materials are available freely and reasonable costs. The road / rail and other transport
facilities are also available. The availability of cheap labour in the area is also another
important factor to be reckoned.
iii. Product Quality and Quantity: We should satisfy ourselves about the feasibility of the
projected quantity and quality of the product with the given technology and raw materials
available and the capacity of the machinery.
iv. Sales and Marketing: If the products need to be sold and at a reasonable profit margin, we
must assess:
 The unit price of the product,
 The area of market,
 Easy access to the market / concerned area,
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 Marketing arrangements, whether through unit's distribution network or through agency,
if so, the commission payable to the agent,
 The period of credit to be allowed to the purchasers of the products,
 Competition of other entrepreneurs producing and selling the same product in the area. It
is not enough that the products are produced, but they should be sold within a reasonable
period, to sustain viability.
c. Financial Appraisal:
i. We have to undertake financial appraisal to assess the capital investment required to establish
the unit upto the stage of production. The capital investment should include the costs of:
 Purchase or leasing of land.
 Site development.
 Construction of work shed
 Purchase and erection of plant and machinery, tools and equipment.
 Pre-operational expenses.
 Promotional activities of marketing initiated before the commencement of production.
 The total cost of investment should be estimated by looking at the project estimates and
purchase invoices or quotations. We must assess the Bank's term loan finance after taking
into account the capital invested/ to be invested by the borrowing unit and the borrowings
from other sources, if any.
ii. Working Capital Requirement:
 The next step is to calculate the Working Capital required to sustain continuous
production. Assessment of Working Capital is to be done on the basis of “Operating
Cycle'. Working Capital is required to finance Current Assets engaged in the production
process. The Working Capital amount should be computed on the basis of “Working
Capital Turnover Ratio” which can be worked out as under: 365 ÷ length of the operating
cycle = times of rotation in a year
 If the period operating cycle is 40 days, there will be a turnover of 8 to9 times in a year.
The Working Capital required can be assessed by dividing the estimated operating
expenses by the number of turnover in a year.
iii. Margin Money: Except in the case of micro / tiny units, the margin money available in the
business should be assessed. The margin money / liquid surplus is indicated by the difference
between “Non-Current Liabilities and non-Current Assets.
iv. Current Assets: Current Assets comprise of cash and other Assets or resources commonly
identified as funds which are reasonably expected to be realised in cash or gold or consumed or
turned over during the operating cycle of the business usually not exceeding one year.
v. Current Liabilities: These are otherwise known as short term liabilities. All liabilities which
are repayable within a period of one year are grouped under current liabilities i.e. acceptances,
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sundry creditors, advance payments, unexpired discounts, unclaimed dividends, interest
accrued but not due on loans, etc. Other than the current assets and current liabilities have to be
classified as non-current assets and non-current liabilities.
 The Working Capital to be sanctioned by the Bank can be assessed as given below:
Working Capital amount required for one operating cycle :Rs………………
LESS: Credit purchases and advances against Orders :Rs……………
LESS: Margin Money :Rs………………
Net Working Capital eligible for Bank Finance :Rs……………
d. Viability Analysis:
i. The next step should be to assess the financial viability of the unit by computing the “Break-
Even Point (BEP)”. The B.E.P. indicates that level of production or sales turnover at which the
unit makes neither profits nor loss. The production / sales over and above B.E.P. level will yield
profit to the unit. The higher the production level required to meet the expenses of the unit, the
vulnerable is the unit, as even a small fall in the production level will affect the viability and
profitability.
ii. The B.E.P. can be calculated as:
 B.E.P. = Fixed Costs ÷ Value of Sales Variable Costs x 100 = ……..%
 B.E.P. Sales = Sales x B.E.P. (%)
 B.E.P. Units = Units produced x B.E.P. (%)
iii. Fixed Cost: Fixed cost are those which have to be met regardless of whether the unit operated
or not. Example: Rent, Interest on borrowings (Term Loans) salaries, wages and permanent
labour, taxes, insurance, depreciation, etc.
iv. Variable Cost: Variable costs, on the other hand, have definite relation to the volume of
production. These cost related to materials, power bill, wages to temporary employees/
labourers.
v. Margin of Safety: It indicates as to what extent the sales may decline before the unit starts
incurring losses. The distance between break-even point, and the point of actual sales indicate
the margin of safety.
 Actual sales - Rs. 75,000/-
 Sales at Break-even point - Rs.50,000/-
 excess sales - Rs.25,000/-
 Margin of safety expressed as % = Rs. 25,000 x 100 = 33.33%
75,000
 In other words, the Company will incur losses if the sales decline by more than 33.33%.
vi. Study of the B.E.P. is important to assess the viability, profitability and debt repayment
capacity of the unit.
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e. Assessment of Cash Accruals / Repayment of Debt:
i. To ensure the loan repayment capacity of the borrowing unit, cash accruals from operations
should be assessed with the help of the profitability statement. Cash should be assessed with
the help of the profitability statement. Cash surplus is generated after meeting the total cost of
production and interest payable on Cash Credit Limit etc. A Portion of the cash surplus is
available for repayment of term loans / composite loan and the balance towards depreciation
and retained profit.
ii. The amount of instalment (both principal and interest) of term loan and the repayment period
have to be fixed on the basis of Debt Service Coverage Ratio (DSCR) which can be computed
thus:
 -DSCR = Net Profit after Tax + Depreciation + Term Loan Interest
Term Loan instalment (Principal & Interest)
iii. The desired ratio is 2:1. in other words the instalment of Term Loan should not exceed 50% of
the cash accrual / surplus. The balance of cash surplus will be available to take care of the
depreciation and sustenance allowance to the proprietor(s) of the unit.
iv. In the case of small and micro units, Term Loans and Working Capital finance are sanctioned
in the form of “Composite Loan” repayable over a period of time from and out of cash surplus.
v. The DSCR will enable the Bank to fix the amount to Term Loan instalment and the period of
repayment.
vi. In the case of new units, projected average DSCR should be calculated for the period of
repayment. The repayment schedule may be reconsidered as and when DSCR changes
adversely in the future years. This is to be done to avoid any possible default of repayment of
Term Loan by the borrower.
vii. In short, the appraisal of credit proposal should focus on Man, Money, Machinery, Material,
Men, and Market. The Bank Manager should be a good lender and recovery expert.
5. Sanction of Loan:
a. After satisfying with the appraisal of loan proposal, the loan should be sanctioned by the
appropriate authority of the Bank. The letter of sanction with terms and conditions should be sent to
the borrower, advising him to sign and return the copy of the letter, thereby signifying his
acceptance to the terms and conditions.
b. NOTE: The analysis and interpretation of Balance Sheet Ratios is not done here, as the appraisal
relates to Micro and Small units. However this exercise is a must in the case of SSI units, Medium
and Large units. A case exercise on financial appraisal of a Micro Unit is given in the Annexure 1
to this Chapter.
6. Break Even and Contribution Analysis: If any concern whether Industrial or trading, a number of
decisions have to be taken by its management on the following factors:
a. The total quantum of sales which will be required to make profit.
646 - III
b. The range of prices at which the product can be sold.
c. Whether a particular product should be purchased from the market or should be manufactured by
the unit itself.
d. To help the management in taking proper decision in issues of the above nature, exercises known as
“Contribution Analysis” and “Break Even Analysis” are carried out in all progressive enterprises:
i. What is Break Even Point: The Break-even point of an enterprise may be defined as that
level of sales at which it recovers all its costs (including depreciation). At this point, the
organisation neither makes a profit nor incurs a loss i.e. it provides an effective index of the
viable or minimum level of activity that ought to be achieved by the enterprise.
ii. Calculation: Bifurcate the total costs incurred by a unit in producing the product into fixed
and variable items of cost:
BEP / BEL : Fixed Costs .

Selling price per unit Variable Cost per unit
assume : Rs.20,000/- is Fixed cost

Rs.10/- per unit selling price
Rs.6/- per unit variable cost.
BEP = 20000 = 20000 = Rs.5,000/-.

Rs.10 Rs.6 Rs.4
iii. What is contribution: Having segregated the costs into fixed and variable, the next step is to
calculate the contribution. The difference between sales revenue and variable costs is known
as “Contribution”. This represents the surplus revenue available to meet fixed costs.
Exp. :- Rs.10/- per unit Selling Price

Rs.6/- per unit - Variable cost
Rs.4/- per unit - Contribution available to meet fixed costs.
7. Annexure/s:
a. The following Annexure is appended to this Chapter:
Annexure 1 : Case Study on Financial Appraisal of an Apiary Unit
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FINANCIAL APPRAISAL OF AN APIARY UNIT
A beekeeper is having 10 beehives at present. Considering the potential and his capacity to manage more
number of beehives, he desires to expand his unit size to 60 by adding 50 more hives. The beekeeper has
estimated the project outlay at Rs.56,000/-, comprising block capital of Rs.41,000/- and recurring expenses
for the first year at Rs.15,000/-. He is eligible to avail 25% capital subsidy from the KVIC as the costs
adopted by him are in conformity with the norms of KVIC. In addition, the beekeeper is prepared to
contribute 25% of the investment cost out of his own resources. He has submitted his project report to his
Branch seeking sanction of bank loan to the extent of Rs.28,000/-. The bank loan, if sanctioned, will carry
interest at 16% p.a. and the opportunity cost of the borrower's margin money is 15% p.a. The details of initial
investment cost as well as the recurring expenses for the first year as culled-out from the project report are
furnished hereunder :
Beehives: 50 Nos. @ Rs.500/- per hive Rs.25000.00

Cost of 50 bee colonies @ Rs.200/- per colony Rs.10000.00
50 Hive stands @ Rs.80/- per stand Rs. 4000.00
Honey extractor Rs. 500.00
Knives, smokers, feeding bottles, etc. Rs. 500.00
Plastic drums for storing honey 3 Nos. Rs. 1000.00
Total Rs.41000.00
Recurring expenses for the first year

1. Feed cost @ 2 Kg sugar per hive for for 50 Bee-hive at Rs.16 per kg Rs. 1600.00
2. Labour charges for 70 days @ Rs.100 per day Rs. 7000.00
3. Migration cost Rs. 6400.00
Total Rs.15000.00
Means of finance
Borrower's margin Rs.14000.00
Capital subsidy from KVIC Rs.14000.00
Bank loan Rs.28000.00
Total Rs.56000.00
Yield of honey: 8 Kg per hive in the first year and 14 kg from the second year onwards.
Sale price of honey: Rs.50.00 per kg.
Income from wax has been ignored, as the same is not significant.
The salvage value of the 50 beehives and the colonies at the end of the fifth year can be taken at Rs.15,000/-
The Branch Manager is satisfied with the costs and prices assumed in the project report as also the
experience and managerial capacity of the beekeeper. You are requested to do a SWOT analysis of the
648 - III
proposal and appraise the same adopting the DCF criteria. The beekeeping activity is occasionally affected
due to un-seasonal rains. Assuming that there will be un-seasonal rains, which is expected to affect the yield
of honey by 10% examine whether the investment is still viable and the loan can be sanctioned.
CASE EXERCISE ON THE FINANCIAL APPRAISAL OF

AN APIARY UNIT SOLUTION
Calculation of Cost of Capital

Cost of capital = Proportion of equity & subsidy x opportunity cost +
proportion of debt x cost of debt
= 0.50 x 15% + 0.50 x 16%
= 7.5% + 8.0%
= 15.5%
Income and Expenditure (Amount in Rupees)
Items I year II year III year IV year V year

Initial investment cost 56000 - - - -
Annual recurring
Expenses - 15000 15000 15000 15000
Total Cost 56000 15000 15000 15000 15000
Expenditure
Sale proceeds 20000 35000 35000 35000 35000
of honey
Net Benefit (36000) 20000 20000 20000 20000
D.F. @ 16% 0.862 0.743 0.641 0.552 0.476
Present value 48272 11145 9615 8280 7140
of costs
Present value
of Benefits 17240 26005 22435 19320 16660
Present value of
Costs (Total): 84452
Present value of
Benefits (Total): 101660
Net Present Value (NPV) = 101660 84452 = 17208
Benefit Cost Ratio = 101660 / 84452 = 1.2
D.F. @ 40%: 0.714 0.510 0.364 0.260 0.186
NPV = - 25704 + 26400
= + 696
D.F. @ 45%: 0.690 0.476 0.328 0.226 0.156
NPV = - 24840 + 23720
= - 1120
IRR = 40 + (45 45) x 696 / (696 + 1120)
= 40 + 1.9
= 41.9%
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Sensitiveness Analysis (When the yield of honey decreases by 10%)
Item Year I Year II Year III Year IV Year V
Income 18000 31500 31500 31500 31500
Net Benefit (38000) 16500 16500 16500 16500
D.F. @ 16%: 0.862 0.743 0.641 0.552 0.476
NPV = - 32756 + 39798
= + 7042
As the IRR of the project works out to more than 16%, which is the hurdle rate, even when there is a reduction in income to the
extent of 10%, the project can be considered as financially viable.
Repayment Schedule
Year : I II III IV
Gross surplus 20000 20000 20000 20000
Repayment of principal 7000 7000 7000 7000
Payment of interest 4480 3360 2240 1120
Total outflow 11480 10360 9240 8120
Net surplus 8520 9640 10760 11880
650 - III
CHAPTER-43
SCB SPECIFIC LOAN SCHEMES
1. General:
a. Some State Cooperative Banks have been innovative in their approach and have created new
schemes and loan portfolios to assist their borrowers. Some of these innovative schemes are
described in this Chapter.
2. Revolving Cash Credit:
a. The Punjab & Haryana States have introduced and are operating a new / fresh line of credit to
farmers which is called a “Revolving Cash Credit”.
b. This facility is provided to progressive farmers against collateral securities to meet out their socio
economic requirements upto Rs. 3.00 lakhs in Punjab and upto Rs. 2.00 lakhs in Haryana.
c. Salient features of the scheme:
i. This loan facility by way of Revolving Cash Credit is provided only to owner of the land.
ii. Limit is operative for 1 year - The operations in the a/c is reviewed and renewed after 12
months from the date of original sanction.
iii. Revenue Official (Patwari) will have to certify about the land holding of the applicant.
iv. Branch Manager of the DCCB concerned issues the loan application to the individual.
v. Copy of Ration Card; recent Passport size Photos to be provided along with the limit
application.
vi. “No Dues” certificate from all banks and PACS in that area to be provided.
vii. Branch Manager after verifying all the particulars and enclosures recommends to the HO for
sanction.
viii. Individual (applicant) is admitted as a “Nominal Member”
ix. Loan application is scrutinized by the Loan Section in the HO of DCCB then sanctioned by the
authorized official of the DCCB.
x. Then DCCB HO sends the sanction letter and the relevant file to the Branch and the
xi. Branch Manager Communicates the sanction order to the applicant.
xii. Loan a/c is opened and maintained in the branch. All documents will be with the branch.
xiii. A Pass Book and one Cheque Book will be issued to the borrower.
xiv. For loan upto Rs.1 lakh one acre of land and for loans upto Rs. 3 lakhs two acres of land will
have to mortgage in favour of the DCCB and registered without stamp duty.
xv. Interest at the rate of 15% pa is charged.
xvi. This loan is in addition to regular crop loan.
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xvii.Those tenants for Temple properties or Wakf Board properties, though eligible for normal/
regular crop loan, are not eligible for availing this revolving Cash Credit.
d. The specimen of formats such as the Report of the Branch Manager, specimen of the Certificate
from the Secretary of PACS, application for nominal membership and the office note on the same,
Demand Promissory Note, Cash Credit Agreement etc. are given in the Annexures to this Chapter.
3. Kalinga Kissan Gold Card Scheme of Orissa State Cooperative Bank:
a. Scheme:
i. The Orissa SCB, considering the multi-dimensional problems faced by PACS, the DCCBs and
in turn the SCB itself in the issue and recovery of short term agricultural loans like coverage of
borrowing membership remaining static in view of increasing defaulters and mounting over
dues in certain districts there by affecting the recycling of funds / credit in the state, formulated
and launched a unique and innovative scheme called “Kalinga Kissan Gold Card” to reward
the regular repayment habits of farmer members of PACS.
b. Objectives:
i. To facilitate the Kalinga Kissan Gold Cardholders avail of a package of facilities and benefits.
ii. To create a conducive recovery climate in the State.
iii. To boost up agriculture production and productivity by facilitating increased use of hybrid
seeds, fertilizers, pesticides and advanced technology.
iv. To empower the rural people to make use of the facilities provided under different schemes
and avail of the said facilities without any hassle and without running from pillar to post in the
process.
c. Eligibility:
i. A farmer member of the PACS satisfying the following criteria shall be eligible to get a
Kalinga Kissan Gold Card:
 Member of the PACS for past 3 years.
 Should have availed SAO loans from the PACS at least for a period of two years.
 Should not have been a defaulter for the last two years.
 The Card shall be ceased to be in operation from the dare of default of the borrower.
d. Package of facilities for the “Kalinga Kissan Gold Card” holders:
i. Loans shall be available at 1% less interest than the prevalent rate.

ii. Free accident insurance of Rs. 25,000/-
iii. Consumption loan up to Rs. 3,000/- at a rate of interest at par with SAO loan.
652 - III
iv. Free membership of “Kalinga Kissan Gold Card Club” at District level. Selected card holders
shall be taken on a study tour once in a year to see advanced agricultural practices, rural
banking and agricultural Short and Long Term applications in the field etc.
v. Eligible for a lottery to be conducted among the card holders on the Foundation Day. Three
prize @ Rs. 50,000/-, Rs. 30,000/- and Rs. 20,000/- shall be distributed to the first, second and
third lucky winners.
vi. The card holders shall be free to purchase fertilizers and pesticides from the retail outlet of
MARKFED, PACS/ LAMPS/FSS/retail dealer in the market.
vii. Schematic loans shall be available on a priority basis.
4. Annexure/s:
a. The following Annexures are appended to this Chapter
Annexure 1 : Specimen of the Report of the Branch Manager for Revolving Cash Credit
Annexure 2 : Specimen of Certificate from Secretary of PACS
Annexure 3 : Specimen of the application for Membership and the report of the Branch Manager
Annexure 4 : Specimen of the Demand Promissory Note
Annexure 5 : Specimen of the Letter of Continuity
Annexure 6 : Specimen of Cash Credit Agreement
Annexure 7 : Specimen of Operational Guidelines for 'Kalinga Gold Card Scheme' of Orissa SCB.
653 - III
THE FATEHGRAPH SAHIB CENTRAL COOP. BANK LTD. B.O.

(Punjab State)
REPORT OF THE BRANCH MANAGER
Sh.____________________________S/o. Shri_______________________________ village

_____________________Tehsil___________________Dist. Fatehgraph Sahib has applied for Cash
Credit Limit of Rs. ___________________ (Rs._________________) against his land holding of
_____________acres in his name situated in village______________(Fard, Jamabandi attached). He is a
member/not a member in village _________________ (Fard, Jamabandi attached). He is a member / not a
member of the C.A.S.S. He has never defaulted in the repayment of crop loan for the last three crops. I have
personally verified all the particulars of the applicant which I certify to be correct. I have also verified the
land having Khasra No.___________________in village_______________being offered by the Borrower
as security which is accessible by pucca / kacha road and it is a good security. This case fulfils all the
conditions stipulated in the rules framed by R.C.S. Punjab issued vide No. No. 1265 dated 1.12.1997 and
Head Office instructions issued vide no. 11030-51 dated 6.1.1998. I, therefore, recommend that Cash Credit
of Rs._______________ (Rs.______________) may be sanctioned to Sh.__________________ S/o.
Sh.______________of vill._________.
BRANCH MANAGER
B.O________________
FOR HEAD OFFICE USE
The Branch Manager B.O._________________has recommended and submitted above mentioned

application for sanction of Cash Credit Limit of Rs.___________ (Rs._____________) to
Shri_________________s/o. Shri____________________. All the documents have been examined and are
correct. As per Fard JAMABANDI total land in the name of application is _____________acres. Hence
limit of Rs.____________ may be sanctioned against mortgage of land as mentioned in the application
ACCOUNTANT
DY. MANAGER
Sanctioned C.C.Limit of Rs._______________(Rs._______________________) to the above mentioned
applicant.
MANAGER H.O.
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SPECIMEN OF “CERTIFICATE FROM SECRETARY OF PACS”

CERTIFICATE
1 . C e r t i f i e d t h a t S h r i . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ S / o . S h . _ _ _ _ _ _ _ _ _ _ _ _ _ Vi l l a g e
___________P.O._________________Teh._________________________Dist. Fatehgarh Sahib is the
member of the ____________C.A.S.S. and his khata No. is __________________. He is a regular payee of
all the loan installments from the last three crops and at present he is not defaulter in any loan of the society.
He has a regular account with this society, hence the bank may advance loan under Cash Credit Limit to this
farmer. 2.Shri_____________________________S/o/ Shri.____________________ Village
__________________Post Office __________Tehsil__________Distt Fatehgarh Sahib is not member of
this society.
(Secretary)
The Pry. Agri.Ser.Society Ltd.
655 - III
SPECIMEN OF “APPLICATION FOR MEMBERSHIP / MANAGER'S REPORT”
The Manager
The Fatehgarh Sahib Central Coop. Bank Ltd.,
Sirhind.
SUBJECT: NOMINAL MEMBERSHIP
Sir,
I beg to request that I want to avail Cash Credit Limit from the Bank for Agriculture Machinery equipments,
consumption & Socio economic needs. So it is requested that I May please be admitted as Nominal member
of the Bank. I shall abide by the terms and conditions as laid down in the Punjab Coop. Societies Act 1961,
and the rules framed there under and bye-laws of the bank as amended from time to time.
Thanking you
Yours faithfully,
(Signature)
Name:
S/o.Shri.
Village
The.
Dist. Fatehgarh Sahib.
OFFICE REPORT
Shri._____________________________________S/o._______________________
Vill._____________Teh.________________Dist. Fatehgarh Sahib has deposited admission fee of Rs.1/-
on _______________.He is eligible to be enrolled as a Nominal Member of the bank. So, it is recommended
that he may please be admitted as Nominal Member. The Borrower is well known to be and he has signed in
my presence.
BRANCH MANAGER
B.O.______________
Admitted as Nominal Member
MANAGER H.O.
656 - III
SPECIMEN OF “DEMAND PROMISSORY NOTE”
Rs._______________ Place: _________

Dated: _________
On demand I promise to pay to the Fathgarh Sahib Central Coop. Bank Ltd.,
B.O______________________________or order the sum or Rs.______________for the purpose of repair
and purchase of agriculture machinery, purchase of pesticides, consumption and other socio-economic
needs with interest thereon @ 18% p.a. from the date of drawal to the date of payment in full with half yearly
rests. i.e. 30.9 and 31/3. I also undertake to pay penal interest @ 3% over and above the normal rate of
interest, in case, I fail to abide by the terms and conditions of the Agreement and Sanction letter. I also
undertake that any change in the rate of interest, penal rate of interest or any other condition for the grant of
Cash Credit Limit shall be acceptable and binding upon me.
Signature of the Borrower

Name_________________
S/o. Sh._______________
Address:______________
_____________________
_____________________
Distt. Fatehgarh Sahib.
(Affix revenue stamp)
657 - III
SPECIMEN OF “LETTER OF CONTINUITY”
Whereas on ___________________20…. ___________the Fatehgarh Sahib Central Coop. Bank Ltd.,

B.O.__________________________hereinafter referred to as Bank has agreed to open a Cash Account for
purchase and repair of Agricultural Machinery, purchase of pesticides etc. and for consumption purpose not
exceeding Rs.____________ (Rupees:__________________Sh._________________________ resident
of village ______________P.O._________________Teh.____________Dist. Fatehgarh Sahib,
hereinafter referred to as the Borrower and member, on such terms and conditions as have been set out in the
Cash Credit Agreement (Consumption purpose) dated______________Between the member and the Bank
in consideration of the said sum, the member has delivered to the Bank Demand Promissory Note for the
sum of Rs. ______________(Rupees:____________________). I, hereby agree to undertake that the said
Promissory Note for Rs._______________ (Rupees:_________________________________________)
shall operate as continuing security for all moneys existing and further which may at any time hereafter
become due in the said Cash Credit Account, not withstanding that it may in the meantime or from time to
time brought to credit.
Place: Signature of the Borrower)
Dated: Name_______________
S/o.________________
Vill.________________
P.O._______________
Dist. Fatehgarh Sahib.
658 - III
SPECIMEN OF “CASH CREDIT AGREEMENT”
An agreement made this _______day of _____20…_____ between Shri._________________, S/o

Shri.___________Vill. ____________Teh._______________Dist.________Fatehgarh Sahib (hereinafter
called the Borrower, which expression shall include its successor and assigns) of the one part and the
Fatehgarh Sahib Central Coop. Bank Ltd., having one of its branches at ______(hereinafter called the Bank,
which expression shall include its successor and assigns) of the other part. Whereas at the request of the
Borrower the Bank has agreed to advance to the Borrower by way of Cash Credit accommodation for repair
and purchase of agricultural machinery and equipment, purchase of pesticides etc., consumption purpose
and other socio-economic needs from time such sums not at any time to exceed Rs.________
(Rupees:__________) in the manner and to the extent hereinafter mentioned, now it is agreed by and
between the parties hereto as follows:-
1. That the Bank shall not under this agreement, be required to make advances exceeding the sum of
Rs.______inclusive of interest and other charges at any time.
2. That the interest at the rate of __________% per annum Shall be calculated on the daily balance of the
said Cash Credit account until the same is fully liquidated and shall be charged to the account half
yearly on the last working day of September and March each year, and it will form part of the principal
and will earn interest at the above rate. The interest rate, however, shall be subject to such variations as
per directives by the RBI/NABARD from time to time.
3. That the Borrower agrees that in case of default of any amount he shall pay penal interest. @ 3% over
and above the normal rate of the interest on the amount.
4. That on demand being made by the bank on any earlier date, the Borrower shall pay to the Bank, the
balance then outstanding and owing to the bank on the said account inclusive of interest at the rate
mentioned above to the date of payment together with all charges and expenses incurred by the Bank as
ascertained in the books of the said bank, which Borrower agrees to accept as sufficient proof of the
correctness thereof, without the production of any voucher or paper.
5. That the Head Office of the bank being at Sirhind the bank will be at liberty to sue the Borrower at
Sirhind or any place in Punjab State.
6. That in case of any dispute between the Borrower and the Bank the borrower shall be liable to pay cost
having been incurred by the Bank.
7. That the Borrower has delivered to the bank a demand Promissory Note dated ____for Rs.____ _ duly
executed and signed by him to do so to secure payment of the sum which may at any time become due to
the bank under this account and this demand promissory note will be continuing security for the Cash
Credit account notwithstanding it may in the meantime, or at any time or from time to time be brought to
credit until notice in writing that the same is closed, is given by the Bank.
659 - III
8. That the borrower has mortgaged his one acre of land in favour of the bank to avail the Cash Credit Limit
which is free from all encumbrances and mutation of the same have been recorded in the revenue
record. The said property will not be disposed off by the borrower in any way till the entire loan of the
bank along with interest and other expenses is repaid. The said properly will remain under cultivation of
the borrower and will not be given on rent by him till the realization of the Bank loan.
9. That the Borrower will pay the entire taxes etc. to the Govt. well in time and if he/she fails to pay the
same, the bank will pay the amount when required to do so, debiting the Cash Credit account.
10. That the bank shall always be at liberty to stop making advances at any time without assigning any
reason, even though the said limit of Rs._____________has not been fully availed.
11. That the Borrower shall not be entitled to any interest for any sum which may at any time stand to their
credit in this account.
12. In case of any dispute arising out of this agreement the Borrower shall be bound by arbitration under
Punjab Coop. Societies Act 19671 and undertakes not to resort any civil suit on dispute.
13. That the Borrower will abide by the Bye-laws of the Bank, Punjab Coop. Societies Act and Rules
thereof and all other conditions as member of the Bank.
14. That in case the borrower failed to repay the loan and the bank had to realize the loan by selling the land
mortgaged in favour of the bank, but the amount so realized is not sufficient to liquidate the loan in full,
then the Bank shall have every right to recover the loan from the borrower by selling other properties of
the borrower or from any dues receivable by him from any quarter.
15. That the repayment in C.C. limit shall be at least equal to the drawal or maximum limit sanctioned
whichever is less during the year. Otherwise it shall be treated as overdue and penal rate of interest. @
3% shall be charged over and above the normal rate.
16. That the terms and conditions given in the sanction letter of the bank shall also form part of this
agreement.
Witnesses: Signature of the Borrower

1. Signature Name____________________
Name S/o.______________________
S/o. Sh. R/o.______________________
Address: _________________________
District. Fatehgarh Sahib
2. Signature For and on behalf of the
Name Fatehgarh Sahib Central Coop. Bank Ltd.,
S/o. Sh. B.O._____________________________
Address
BRANCH MANAGER
660 - III
SPECIMEN OF “OPERATIONAL GUIDELINES FOR EXTENDING
VARIOUS BENEFITS TO
KALINGA KISSAN GOLD CARD HOLDERS (KKGC HOLDERS)”
OF ORISSA SCB.
Issuance of loan at a discounted rate:
i) The Gold Card holders will be charged interest at 1% less than the prevalent rate provided if he repays
the loan on or before the due date. This facility will be available to all kinds of loans availed from the
Society including schematic and non-farm sector loans. Interest incentive will also be allowed on the
existing loan outstanding from the date of issue of Gold Card.
To illustrate:
“If X has availed ST (SAO) loan in March, 2001 and the Gold Card was issued to him on 26.04.2001,
has loan outstanding from 26.04.2001 onwards shall be eligible for interest incentive. Therefore, he
will pay interest at the normal rate form the date of advance till 25.04.2001 and from 26.04.2001,
Interest Incentive will be admissible”.
ii) The Society will issue receipt showing actual interest amount at the prevalent rate and allow interest
incentive of 1% in the receipt. The discount so allowed shall be maintained in a separate register and the
Society shall submit claim statement to the DCCB on monthly basis for 90% discount allowed.
The Accounting Procedure:
In the loan ledgers, the card number of the Gold Cardholders shall be mentioned in red ink in all his loan
accounts.
At the time of repayment of the loan, interest shall be calculated at the prevalent rate and 1% interest
incentives as admissible to the Gold Card holder shall be calculated and the amount shall be shown as
interest incentive allowed to the member concerned. The cash receipt shall contain both the entries.
The following entries shall be passed at Society and DCCB Branch level.
Society Level:
Daily transaction in the Cash Book:
As and when the Gold Cardholder repays his loan, the following entries are to be passed in the cash
book of the Society.
Receipt Payment
Interest received on Interest incentive paid (The
loan entire interest incentive admissible)
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At the end of the month, the Society shall prepare a claim statement and submit the same to the DCCB
Branch after passing the following transfer entries once in a month.
Month end transaction in the

Cash Book
Receipt Payment
Interest incentive received Interest incentive
(90% of the admissible receivable from DCCB
interest incentive to the Gold
Cardholders allowed during
the month as per the cash
book)
After passing these two entries, 10% of the interest incentive admissible will automatically go to the
expenditure account whereas the balance 90% is shown receivable from the DCCB under the Scheme.
After receipt of the claim from the concerned Branch of the DCCB, the interest incentive receivable
account will be credited.
DCCB Branch Level:
On receipt of claim statement from the Society, the concerned DCCB Branch shall allow
reimbursement to the extent of 90% of the interest incentive allowed by passing the following entries
and forward the claim statement to the Head Office.
i) Branch Adjustment Account Dr.
ii) Loan a/c of the concerned society Cr.
DCCB H.O. Level:
After receipt of the claim statement from the Branches along with the advice, the H.O. of the DCCB
shall pass the following entries.
i) Interest incentive under KKGC Scheme Dr. (30% of the interest incentive admissible being the
share of the DCCB) Interest incentive receivable from OSCB (60% of the Dr. interest incentive
admissible being the share of OSCB)
ii) Branch adjustment account Cr.
The DCCB shall prefer the claim from OSCB on a monthly basis in KKGC Form No.-3. On receipt
of the claim, the interest incentive receivable account shall be credited.
Sanction of consumption loan limit of Rs. 3,000/-
i) The Gold Cardholder shall apply to the Society in the prescribed proforma enclosed for availing the
consumption loan. By virtue of the blanket resolution passed by the Society, the Chief Executive
662 - III
shall intimate the concerned DCCB Branch regarding formal sanction of the loan. The DCCB shall
authorize the Branch Managers to sanction on receipt of request from the societies.
ii) Drawals and repayments on the consumption loan shall be allowed at the Branch level and separate
account for the purpose shall be maintained in the shadow register prescribed for KCC. The
concerned DCC bank branch may prepare a voucher, make entry in the loan ledger and allow
drawals on the account without insisting on a cheque. On receipt of advice from the branch, the
Society shall maintain the detailed accounts at their level.
iii) The consumption loan account shall be operated just like a revolving Cash Credit account and
interest will be calculated on daily product basis. This consumption loan limit shall be treated as a
separate loan facility to the Gold Cardholders in addition to the normal agricultural loan as per
eligibility under KCC.
iv) The interest on consumption loan account shall be calculated on quarterly rests, but will not be
compounded in the account. The Gold Card holder is free to pay the quarterly interest once in a
quarter so that his repayment burden is evenly distributed throughout the year. Non-repayment of
quarterly interest, however, shall not make the Gold Card holder a defaulter. On 31st March every
year, the interest is to be fully paid by him, if not paid earlier, failing which the Card holder shall be
treated as a defaulter and all the facilities under the scheme shall be withdrawn.
Eligibility to participate in the Annual Lottery:
It has been arranged to award three prize first prize being Rs. 50,000/-, second prize Rs. 30,000/- and
third prize Rs. 20,000/- once in a year on lottery on the Foundation Day of OSCB i.e. on 2nd April every
year. No entry fee is required for participation in the lottery. All the Gold Card holders will be
automatically qualified to participate in the lottery. The OSCB will adopt random number generation
technique to select the winners.
663 - III
CHAPTER-44
OVERDRAFT AGAINST TERM DEPOSITS
1. General:
a. One of the two main functions of a bank is Lending and the other is Mobilisation of Resources.
b. A Bank derives its income mainly by way of interest on advances, interest on Investments,
Commission etc. The interest earnings on advances constitute a major part of the total income of a
Bank. Along with higher yield this area carries the maximum risk also. This has to be kept in mind
by the Managers at all times. They should sanction/recommend facilities only after satisfying that
the borrower is a person of high integrity and honesty, the proposal is viable, etc.
c. Under the present situation, when most of the SCBs are having surplus funds and that the
traditional way of lending for agricultural purposes proving non-remunerative and recovery of
which again causing major problem, it is the right time for the SCBs to diversify its lending.
d. Banking is essentially for the purpose of lending, by using funds mobilized through deposits. The
differential interest is the major source of income for most of the banks. Hence each SCB will have
to develop new loan schemes to cater to the needs of their customers.
e. Many SCBs have already developed such loan schemes and are operating through their branches.
A few loan schemes extended / operated as direct advance by the bank and the branches are
discussed in this Chapter and other preceding Chapters.
2. Advances against Borrower's Own Deposit:
a. Advances against Term Deposit may generally be granted to the depositors.
b. For availing such loan, the deposit holder must make a written request to the Bank to sanction a
loan against the security of his Term Deposit.
c. A Demand Promissory Note must be executed for the loan amount.
d. The Term Deposit Receipt, duly discharged over revenue stamp, as Cover / Security for the loan
must be pledged.
e. This type of advance is subject to a margin prescribed by the Management of the Bank or H.O.
f. Interest will be charged at the rates prescribed by the Bank (H.O) at its own discretion or as per the
Directives of the RBI, since RBI has deregulated the interest rate structure.
664 - III
3. Procedure:
a. When a customer having FD with the branch in his name approaches the Branch for a loan against
the security of his FD, we have to get a written request. This is normally done through the
prescribed format available with the Branches.
4. Margin:
a. Though this loan is provided to a customer against the security of the customer's own Term Deposit
Receipt with the Bank, a margin is always prescribed in order to cover the interest accruing on the
loan.
b. At present 15% margin is normally maintained for loans against FD & Cash Certificate as well as
Recurring Deposit.
c. In the case of loan against Cash Certificate reinvestment plan the accrued interest till the date of
sanctioning the loan is reckoned towards this margin.
5. Quantum of Loan:
a. In the case of loan against FD Receipt, the maximum amount of loan should not exceed 85% (if
margin is 15%) of the FD amount.
b. In the case of loan against cash Certificate Receipt though the accrued interest on the said Cash
Certificate is reckoned towards the margin, the maximum loan that can be sanctioned should not
exceed the face value (invested amount) of the Cash Certificate.
c. In the case of loan against a Recurring Deposit, the maximum amount of loan should not exceed the
balance available (total amount of instalments remitted by the account holder) in the account LESS
the prescribed (15%) margin.
d. However, it is desirable to stipulate a condition that at least 6 monthly instalments should have been
remitted to be eligible to avail loan against that RD. The RD depositor should also be advised that
he has to continue to remit the monthly instalments' for the RD account till the final instalment.
6. Rate of Interest and Periodicity of Payment:
a. The rate of interest shall be 2% above the rate applicable for the Deposit which is offered as
security for availing loan.
b. The periodicity shall be Monthly/Quarterly depending upon the periodicity at which interest is
paid on the Term Deposit. Interest on Fixed Deposits should be credited to Loan interest A/c only.
c. If the interest due on the loan amount is not paid in full, as and when due, penal interest at the rates
fixed by the Bank from time to time should be charged with effect from the due date till date of
payment.
665 - III
7. Period of Loan:
a. The period of loan account shall not exceed three years from the date of DPN or the due date of the
deposit, whichever is earlier.
b. Advances should not be allowed to continue after the date of maturity of the relative deposits.
Each deposit, as and when it matures, shall be credited to loan / OD account and the limit / drawing
power should be reduced correspondingly by such amount credited.
c. Under no circumstances, the loan on deposit account shall be allowed to go irregular.
d. In case the borrower does not clear the loan dues before the due date, the loan account dues should
be adjusted out of the proceeds of the Deposit lodged as security for the loan.
8. Issue of Loan Card:
a. A loan card with full particulars as to the names of the borrower, nature of deposit, loan amount, the
DPN date, etc. shall be issued to the borrower at the time of release of the loan, which should
invariably be got back at the time of closure of the loan account by the borrower. In case of loan
where Deposit Receipts are pledged, the loan card acts as an acknowledgement of receipt of
Deposit Receipts from the borrower.
9. Foreclosure of Term Deposit under Loan Cover:
a. When the loan is outstanding if the depositor borrower wants to fore close the Term Deposit lodged
by him as security for the loan availed, then interest on the loan amount at 2% above the rate of
interest actually allowed on the fore closed deposit should be collected.
10. Documents to be obtained:
a. The Term Deposit Receipt against which the loan is to be availed duly discharged by the
depositor(s). In the case of loan against RD, the RD Pass Book with the receipt in the last page duly
signed by the depositor over a revenue stamp.
b. A Demand Promissory Note for the loan amount duly signed over revenue stamp by the
depositor(s). A fresh promissory note should be obtained for the total loan amount when a second
loan is sanctioned against the same deposit.
c. A consent cum authorization letter by the borrower authorizing the Bank to adjust the proceeds of
the Term Deposit to the loan account dues on the due date, in case he does not clear the loan dues
before such date.
d. In case of deposits with former or survivor clause, only the former should sign the DPN.
666 - III
11. Lien:
a. The Bank's lien over the Deposit Receipt / RD account should be marked in red ink on the face of
the Deposit receipt / RD Pass Book and also in the FD/CC/RD Ledger, maturity register, standing
instructions card/ register as "Under L/C Loan Account Number. …….. .
12. Additional Loan:
a. If the borrower desires to raise additional loan against a FD/CC/RD under pledge to the Branch, the
existing loan should be closed and new loan should be issued for the aggregate amount.
13. Minors:
a. Since all contracts with minors are void ab- initio (void right from the beginning), no advance shall
be granted directly to minors, under any circumstances.
b. However, if the deposits are standing in the names of minors represented by a guardian, loans may
be sanctioned, in very special cases, for the minor through the natural or court appointed guardian,
provided the purpose of the loan is for the benefit of the minor and the guardian executes a
declaration.
c. If the deposit stands solely in the name of the minor and loan is required by the guardian, for the
benefit of the minor, the loan documents should be prepared in the name of the Natural Guardian
(or guardian appointed by court) as “(Name of the Guardian) for self and as Guardian of (Name of
the minor” and should be signed by the guardian as follows:
Sd………………………………………..
For Self and as Guardian of Minor ………………………
d. If the deposit stands jointly in the name of the minor, the loan documents should be prepared in the
joint names of the natural guardian (or guardian appointed by court) of the minor and the other
depositor and signed by them. The loan documents on behalf of the minor shall be prepared and
signed as given in the previous paragraph
14. Illiterate Depositors:
a. If the deposit stands in the name of an illiterate person, the Left Thumb impression of the account
holder should be taken in the presence of the Manager / Officer on all the loan papers and witnessed
by a person known to the Bank with full address (The pronote should not be witnessed).
15. Nominee:
a. No loan against deposit shall be released to the Nominee against the deposit for which the person is
the nominee.
667 - III
16. Legal Heirs of the Deceased Depositor:
a. No advance is to be made to the legal heirs of a deceased depositor against the security of the
deposits held in the name of deceased depositor.
17. Loan to Firm / Proprietary Concern:
a. Loan against deposit can be given to Partnership Firms / Proprietary Concerns, if depositor is a
Partner in the firm or proprietor of the firm.
18. Joint Depositors:
a. When all the Joint Depositors are alive
i. In the case of term deposit receipts, in joint names with or without a mandate payable to “either
or survivor” or any one or survivor”, advances can be granted only to all the depositors jointly
ii. Therefore, advances can be granted provided all of them sign the documents, or all the joint
depositors authorize a person to execute the documents and receive the loan.
19. Deposits of Other Banks:
a. As per existing regulation, no advance shall be made against deposit receipts issued by other banks.
20. Vouchers and Book Entries:
a. The head of account in the General Ledger may be "Depositor Loan Account" or "Loans against
Term Deposit Account" Accordingly the Debit / Credit vouchers will have to be prepared.
E. g. DEBIT: "Depositor's Loan Account"

CREDIT: "Borrowers Current or SB Account"
or
CASH (if the loan amount is paid in cash to the borrower)
b. Once the loan Debit Voucher is prepared the following details should be recorded in this Loan
Ledger:
i. Name of the borrower

ii. (i.e. the Depositor)
iii. His Residential Address
iv. Rate of Interest
v. Due date of the Term Deposit receipt lodged as security for the loan
c. Then the Date of sanction of loan, purpose for which the loan has been sanctioned and the amount
of loan disbursed should be correctly recorded in the respective columns of the Loan Ledger.
668 - III
d. The entries in the Loan Ledger should be checked and authenticated and the Loan Debit Voucher
should be passed for payment by the Authorised Officer of the Branch.
e. If the loan amount is credited to borrower's current / saving account with the Branch the relative
credit voucher should also be checked in respect of the name, account number and the amount and
passed by the Authorised Officer. In this case both the Debit as well as Credit Vouchers should be
scrolled in "TRANSFER SCROLL" and in both the vouchers "TRANSFER" stamp should be
affixed.
f. After releasing the Credit Voucher the Loan Assistant should, with the help of Loan Debit Voucher,
mark the lien as "Under L/C loan account No................" in the following:
i. Term Deposit Ledger (FD/CC/RD Ledger)

ii. Term Deposit Receipt /RD Pass Book lodged with the Bank as security.
iii. Standing Instruction Card (if there is any such instruction relating to adjustment of
iv. periodical interest thereon).
v. Maturity Register.
g. The Branch should maintain a "Securities Register" wherein all Scrips / Deposit Receipts / Pass
Book etc., lodged as security for the loans availed should be recorded. In this register the Term
Deposit Receipt / RD Pass Book against which the branch has sanctioned the "Depositor's Loan"
should be entered. Such Term Deposit Receipts / Pass Books must be kept under safe custody of the
Officer. The lodgement letter or application, DPN and other documents executed by the borrower
should be kept in separate file as "Loan Documents File".
h. When the loan dues are cleared and the loan account is closed by the borrower, the securities lodged
by him (in this case it may be Term Deposit Receipt or RD Pass Book) the lien (under L/C account
No.........) marked should be cancelled, entries in "Securities Register" should be rounded off with
the date of closing the loan account. Then the Term Deposit Receipt / RD Pass Book should be
handed over to the borrower after getting his signature in the Loan Ledger.
21. Loan Repayment:
a. Loan repayments have to be clearly entered in the Depositors' Loan Ledger. Once the loan is fully
repaid by the borrower along with the interest, the Loan a/c should be closed.
i. If the repayment is by cash, prepare Credit Voucher.
 CREDIT "Depositor's Loan Account"

(The contra being cash received).
ii. If the repayment is out of his Current / SB Account to get an authorisation letter from the
Borrower to debit his account towards loan dues.
 DEBIT: Current/Savings Account of the borrower
669 - III
 CREDIT:” Depositor's Loan Account".
b. If repayment is by cash, record the Credit Voucher in Officer's Cash Scroll.
c. Make Proper entries in Depositor's Loan Ledger towards principal amount as well as interest
amount.
d. Cancel the lien marked (under L/C Loan Account No.........) on the TD Receipt, RD Pass Book,
Term Deposit Ledger, RD Ledger, Maturity Register.
e. Cancel the Demand Promissory Note and punch the revenue stamp on this DPN and draw a line
across the signature of the borrower on this revenue stamp.
f. Affix "Account Closed" stamp on (a) this DPN, (b) Lodgement Letter/application, (c)
authorisation letter to adjust the proceeds of the TDR to the loan dues, (d) in the Loan Ledger.
g. Write "Documents received" and get the signature of the borrower as acknowledgement in the loan
ledger beneath this "Account Closed" stamp.
22. Trial Balance:
a. As at the end of each calendar quarter a Trial Balance of all outstanding Depositors Loan accounts
should be extracted and tallied with GL.
23. Other Key Points:
a. Loans and advances are normally granted at the branch where the deposits are held. Advances can
be made by a branch (Lending Branch) against term deposits with other branches of the same bank
only, subject to the following:
i. On ensuring the reasons / genuineness behind availing loan against deposits held with other
branch of the bank.
ii. After proper identification of the depositors
iii. After receipt of confirmation from the branch where the deposit is held that they have verified
the specimen signature and marked the lending branch's lien on the deposit.
iv. After verifying the signature of the officer on the deposit receipt with that in the Officer's
specimen signature book.
b. Before noting lien the deposit holding branch should verify the depositor's signature with the
specimen signature in the deposit opening form.
c. The request of the lending branch for noting lien is to be accompanied by an authorization letter
from the party to remit the proceeds of the deposit on maturity or as and when requested by the
670 - III
lending branch and also periodical interest payable on the deposit to the lending branch.
d. These loans are, generally, to be made to the depositors in whose names the deposits are held.
e. Sometimes, a depositor may offer a deposit as security for an advance to a third party. Such loans
should not be called loan against deposit.
f. The depositor should sign the loan paper as a second signatory (co-obligant / guarantor). If this is
not convenient, a separate lien letter over adequate stamp paper must be taken.
671 - III
CHAPTER - 45
CONSUMER LOAN
1. General:
a. Head Office of the Bank will frame rules and regulations for sanctioning loans to individuals for
purchase of consumer durables like TV, Fridge, Washing Machine, Furniture, Music Systems,
Water Heaters etc.
2. Persons Eligible:
a. Normally this loan is sanctioned to employees with stable income in state or Central Government,
Quasi Government, Coop. Institution, Educational Institutions, well known and established
Industries etc. Professionals like Doctors, Engineers, Architects, Advocates, Chartered
Accountants, and Businessmen are also eligible to avail this loan. Creditworthiness of the person
should be assessed first.
3. Area of Employment or Residence:
a. The applicant should either be residing or should be employed / working within the area of
operation of the Branch.
4. Application:
a. The applicant must submit his loan proposal in the application form prescribed / supplied by the
Bank.
5. Associate Membership (Nominal Member):
a. The applicant as well as the guarantors should be admitted as an Associate Member by collecting a
non-refundable, Associate Member fee of Rs.5/- or Rs.10/- per member, as the case may be.
b. At a later stage if the borrower commits any default in repaying this loan dues, the Bank can easily
arrange for attachment of the consumer article purchased out of the Bank loan or his salary through
Arbitration proceedings instead of going through Court of law which may cause lot of delay.
6. Purchase of Article:
a. Proforma Invoice from authorised dealer / Coop. Super Markets (as permitted in the bank's rules
relating to this Loan Scheme) should be submitted to the Branch along with Loan application.
7. Second Hand Goods:
a. No loan shall be granted for purchase of second hand goods.
672 - III
8. Applicant to be Customer:
a. The applicant and the guarantors must be asked to open SB accounts, if they are not already account
holders of the Branch.
9. Adequate Balance in the Account:
a. Upon sanction of this loan, the borrower should be asked to maintain adequate balance in his
Savings Account. It is desirable that he deposits his salary Cheque in this account every month, so
that the monthly instalment due under his consumer loan could be easily adjusted.
10. Guarantors:
a. The loan must be guaranteed by at least two persons having equal income / salary as the borrower.
The guarantors must be the one acceptable to the Bank. These guarantors should also be admitted
as "Associate Members".
11. Documents:
a. The following documents should be obtained from the applicant.
i. Loan application in bank's format

ii. Proforma invoice for the article proposed to be purchased from authorised dealer / Coop.
Super Market.
iii. Salary certificates of the applicant and the two guarantors if all of them are employed. It must
be ensured that the salary certificates have been issued by competent authority empowered to
issue such certificates. In the case of professionals, Income Certificate duly prepared and
signed by a Chartered Accountant, Copy of latest IT return filed or copy of assessment orders
for the last 2/3 years should be collected.
iv. Pronote duly executed jointly by the borrower and the two guarantors.
v. Hypothecation Deed, hypothecating the article purchased out of bank's loan should be
executed by the borrower in favour of the bank.
vi. Delivery Note from the supplier with the endorsement thereon by the borrower that he has
received the articles in good condition.
vii. Letter of Authority
viii. Copy of Paid Bill
ix. Insurance Policy covering the consumer article.
12. Quantum of Loan:
a. The maximum loan under this category of loan should not exceed the prescribed maximum amount
of Rs.1 lakh or 75% of the cost of the article or 3/4 times the monthly gross salary of the applicant
whichever is LESS. The applicant should remit the 25% or the difference between the loan amount
673 - III
sanctioned by the bank and the cost of the article to the Bank and the bank should issue a pay order /
Banker's cheque crossed account payee for the cost of the article in favour of the supplier.
13. Carry Home Pay:
a. In case the applicant is a monthly salary earner his carry home pay should not be below 25% or
33.33% or 35% or 40% (as may be fixed by the Bank). If the carry home pay of the applicant is
below this stipulated level then no loan should be sanctioned. However, if the spouse of the
applicant is also a wage earner, her/his take home pay may be taken (added) in to account to assess
whether the applicant, by reckoning his spouse carry home pay also, will be in a position to repay
the loan. In that case the salary certificate of his spouse may be obtained and she should also sign
the pronote and other documents along with her husband.
14. Period of Loan:
a. The duration / period of the loan in most banks is 36 months. In case the quantum of loan is high i.e.
Rs.50,000/- or more, then the Bank Management may fix suitable repayment period and the
Bank may take post-dated Cheques for repayment of the loan.
b. The Branch should follow the Rules framed by the H.O. for this Loan Scheme and accordingly fix
the repayment period. Recovery is normally by the way of equated monthly instalments.
a. The rate of interest shall be as fixed by the Bank. Under this loan scheme the interest shall form
part of equated instalment for the entire period of the loan.
16. Repayment:
a. Repayment will commence from the month following the month of availment (disbursement) of
the loan and the instalments should be paid before 10th of each month.
b. No payment of instalment on or before the stipulated due date (i.e. 10th) will attract penal interest at
the prescribed rate on the amount of defaulted instalment from the due date till date of payment, if
the instalment is not paid on date when it is due.
c. Reminder should be sent to the borrower and the guarantors if the instalment is not remitted by
the due date.
d. In case three consecutive instalments are not paid then an officer of the branch should personally
contact the borrower and the guarantors and the article hypothecated to the bank should be
inspected.
e. In case the instalment Cheque has been dishonoured then the Bank should proceed for legal action.
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f. As per the Rules of loan scheme, the Bank will have the right to recall the entire outstanding with
interest in case of default in repayment of monthly instalments. The Branch should therefore, in
respect of loan accounts where 3 consecutive monthly instalments have been defaulted, send a
notice to the borrower & the guarantors recalling the entire loan dues.
g. In case the notice does not produce positive result then the Branch must refer such loan accounts to
H.O. Legal Department for legal action.
17. Insurance:
a. The borrower shall insure the article(s), purchased out of bank loan at his cost against the risks of
fire, theft, accident etc. The policy shall be in the name of the borrower and the Bank with Bank
clause and the policy should be lodged with the Branch.
18. Accounting:
a. A separate General Ledger Account called "Consumer Loan Account" should be maintained.
When a Consumer Loan is sanctioned and disbursed the following entries should be passed.
i. STEP I :
 DEBIT : "Consumer Loan Account"
 CREDIT : Borrower's "Current/Savings Account"
ii. STEP II:
 DEBIT : Borrower's Current / S.B. account, the cost of article. (before sanction of the
loan amount the borrower should have remitted the margin or the difference amount as
explained earlier).
 CREDIT : "Pay orders / Banker's Cheque issued Account.
iii. STEP III : Whenever the monthly instalment is repaid by the borrower i.e. to the debit of his
Current / S.B. account.
 DEBIT : "Borrowers Current / S.B. account with monthly instalment amount.
(as per standing instruction of customer)
 CREDIT : (Since the recovery is in equated instalment)
 "Consumer Loan Account" with the portion of principal amount.
 "Interest on Consumer Loan Receivable Account" (with interest portion of the
instalment).
19. Loan Ledger:
a. The Branch should maintain a separate "Consumer Loan Ledger". All loans should be given serial
numbers like CL 1, CL 2, CL 3, etc.
b. The following particulars should be recorded in the Ledger:
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i. Name of the borrower with address
ii. Names of guarantors with their address
iii. Rate of interest
iv. Monthly installment
v. Period of loan & last due date
vi. Description of article purchased
vii. Bill number.
c. The date of disbursement of loan and the actual amount of loan disbursed should also be noted. The
loan amount shown as outstanding should be entered in this ledger in red ink.
d. Whenever monthly instalment is recovered, the same should be entered under "receipt column"
and the balance O/S should be reduced to that extent.
e. In the Bank's Common "Document Register" separate pages for "Consume Loan" may be allotted
and details of all documents received from the borrower should be entered in this register
prominently recording the name of the borrower and the loan account number on top.
20. Trial Balance:
a. As at the end of each calendar Quarter, Trial Balance of the loan amounts outstanding under
common loan accounts should be extracted and tallied with General Ledger.
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CHAPTER - 46
SALARY LOANS
1. General:
a. This is a loan scheme introduced mainly to cater to credit requirements of salaried employees. The
sanctioning authority for this loan shall be the Branch Manager concerned.
a. Loan may be granted to all permanent employees of State / Central Government / Quasi-
Government or Public Sector undertakings and Government aided educational institutions.
b. In certain cases even the employees of reputed Private Sector establishments are extended this loan
facility provided the Management of such institutions has to give an undertaking in writing to
recover out of the salary of each employee, availing this facility from the bank, the instalment
amount due and to remit to the Bank.
c. The applicant must be either residing or his work place must be within the area of operation of the
Branch where the loan has to be availed.
3. Purpose:
a. This loan may be sanctioned to meet urgent domestic expenses or medical treatment / educational
expenses of children etc.
4. Eligibility:
a. The applicant must be a permanent employee. Some banks stipulate that the applicant's job should
not be transferable.
b. He / She should not have borrowed from other Banks / Coop. Banks / Salaried Employees Coop.
Thrift & Credit Societies etc., for the same purpose.
c. He / She must also give an undertaking in writing to the effect that till the entire dues under the
proposed loan (once availed) is cleared will not borrow from any other financing institution
against his salary.
d. He / She should produce 'No Objection Certificate' from the Employees Coop. Society of the
institution in which he is employed, if applicable.
e. He / She should have a Carry Home Salary of not less than 67% (as prescribed by the Bank)
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f. He / She should be able to produce an undertaking in writing from his / her employer to the effect
that upon sanctioning this loan, the monthly instalments of this loan availed by their employee,
will be recovered out of his monthly salary and remitted to the Bank.
5. Guarantors:
a. The applicant should produce to the Bank Two guarantors who are Co-Employees of the applicant
with equal monthly salary (income). The guarantors must have left over service (prior to
retirement) of at least 2 years prior to retirement.
6. Associate Member (Nominal Member):
a. The borrower as well as the Guarantors should be admitted as Associate Members of the Bank by
collecting nominal non-refundable Associate Member fee of Rs.5/- or Rs.10/- per member, as
prescribed.
b. Only when they are admitted as Associate Members Arbitration action can be taken against them
through Coop. Department for recovery of loan dues in case of default. Otherwise the Bank has to
resort to legal action through Court of Law which takes longer time.
7. Maximum Loan:
a. The maximum loan amount has to be fixed by the Bank Management. At present few Private
Sector Banks are sanctioning salary loans upto a maximum of Rs.50,000/-, while few Foreign
Banks are providing up to Rs.1.00 lakh.
8. Period of Loan:
a. This loan has to be repaid within 24/36/48/60 months. The period will depend on size of
loan/retirement age/the left-over service of the borrower. The Banks while framing the Rules will
take care to specify these terms.
9. Undertaking by Employer / Pay Disbursing Officer:
a. The salary loan is generally sanctioned to a group of employees of a Department / wing of

Government / an Educational Institution i.e. School / College / an Industrial Establishment.
b. By this method the Branch will be able to disburse sizeable amount of loan as "Salary Loan". If
mutual sureties could be arranged the recovery of loan also will be easy.
c. The Pay Disbursing Officer of the establishment, whose employees express their desire to avail
"Salary Loan" from the Coop. Bank Branch, shall give an undertaking in writing that he will
recover from out of the salary the monthly instalment amount due from each employee who had
availed the "Salary Loan" from the Bank and to remit the amount to the Bank before 10th of the
following month.
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10. Loan Disbursement:
a. Individual loan application shall be sanctioned by the Authorised Officer and the loan amount is
paid / released to the borrower by way of Pay Order or credit to his Savings Bank Account with the
Branch.
b. The Branch will then prepare an institution wise consolidated statement showing the following
details and shall send the same to the Pay Disbursing Officer with a covering letter:
i. The name of the borrower with designation

ii. The name of the Department / institution in which he is working.
iii. Amount of loan disbursed to each employee borrower with his loan account number.
iv. Monthly instalment to be recovered.
v. Month of commencement of recovery
vi. Month & year in which the last instalment due.
c. In case any such borrower employee has been transferred (this will be applicable in most cases of
State/Central Government employees, Government Schools/Colleges, the fact should be
intimated to the Bank with the particulars of (i) the name of the New Pay Disbursing Officer, (ii)
postal address of the office to which he is transferred. He must also inform the New Pay Disbursing
Officer about the undertaking given by the Department and advise him to recover the monthly
instalment from out of the pay of the particular employee and to remit the amount to the Branch.
d. The Branch on its part on getting the information about the transfer of a borrower employee,
should also write to the New Pay Disbursing Officer about the loan availed by that employee from
the Bank against the written undertaking given by the appropriate officer, the amount of principal
due recovered so far, the balance amount due and the amount of monthly instalment with a request
to recover the amount of monthly instalment from the employee concerned and to remit the amount
th
to the Branch on or before 10 of the following months. DD Commission & Postage etc. will have
to be collected from the employee concerned.
11. Loan Repayment - Borrower's Responsibility:
a. Though the employer has given a written undertaking to recover the loan dues out of the salary /
wages payable to the borrower employee concerned, the primary responsibility to repay the loan
rests with the borrower.
12. Rate of Interest and Penal Interest:
a. The rate of interest should be as fixed by the Bank Management. If any monthly instalment due is
not remitted before 10th of the following month that instalment will be treated as overdue and it
will attract penal interest @ 3% above the interest rate applicable to this "Salary Loan" , from the
first day of the month in which default was committed to the date of regularization.
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13. Recovery of Overdues:
a. Whenever the borrower commits default in repayment of monthly instalments, reminder notice
should be sent to the borrower as well as guarantors and the Pay Disbursing Officer. Despite such
reminder, if the borrower does not repay three consecutive monthly instalments then the Branch
should refer such overdue cases to H.O. Legal Department for suitable recovery action like
Arbitration proceedings through the Coop. Department.
14. Documents:
a. Loan application in the form to be supplied by the Bank.
b. Salary Certificates of the applicant and the Guarantors.
c. Undertaking (in Bank's format) by the Pay Disbursing Officer of the Office where the applicant is
working.
d. Pronote jointly executed by the applicant (borrower) and the Guarantors.
e. Self-declaration of the applicant stating that he has not availed any Salary Loan from any other
institution and will not avail one till this Salary Loan is cleared.
15. Trial Balance:
a. A Trial Balance of Salary Loan Accounts should be extracted as at the end of each month and tallied
with the General Ledger balance.
680 - III
CHAPTER - 47
ADVANCES AGAINST MORTGAGES
1. General:
a. Mortgage of immovable properties is taken as primary security for advances for construction of
residential houses & shopping complexes, etc. But existing properties are also taken as collateral to
strengthen the security position of Working Capital and other limits as and when required by the
Bank.
2. Mortgager:
a. A valid mortgage can be created only by the owner(s) of the property who can be a borrower/co-
obligant/guarantor. Whenever a mortgage of security is accepted from a third party, Branches
should take the signature of such third party either as a co-obligant or as a guarantor (personal
guarantee), as the validity of the mortgage can be questioned for want of consideration in respect of
the owner of the property.
3. Margin:
a. When loans/advances are granted for the construction of buildings the Margin shall be, as decided
by the Bank, from time to time.
b. When land and buildings are offered as collateral security the margin requirement shall be
governed by the nature of the primary security viz., goods, book-debts, plant and machinery, etc.,
4. Valuation:
a. Valuation of proposed land and building shall be obtained from an Engineer or an Architect
approved by the bank, for the purpose.
b. As the valuation of immovable property is a paramount requirement to safeguard the interest of the
bank, care shall be taken that valuation shall be done reasonably and on a realistic basis taking into
consideration the recent sale price in the locality or by contacting reliable persons in that area.
c. In the case of lands situated in the rural areas, the valuation must be arrived at, on the following
basis and the least of these values can be taken for the purposes of proposal.
i. Value as compared with the recent sales of similar properties in the neighbourhood.
ii. Value as per Valuation certificate given by the Village Officer.
iii. Estimated value on personal inspection.
iv. Value obtained on enquiries from parties having good knowledge of local land values.
681 - III
v. Government guideline on value of the property can be obtained from Sub-Registrar.
vi. Allowance must always be made for the fact that the price realised under a forced sale often
falls short of the real worth of the property and that it usually takes considerable time to sell
landed property, even at a reduced price.
d. Branches should not insist on the valuation of securities to be done by the approved valuer at the
stage of appraisal. Preferably, it should be verified and assessed by the Manager himself.
Managers are expected to make a fair judgment of value after verifying the property, making proper
enquiry about the prevailing market rate and according to the area/type and age of the structure, if
any, raised on the land.
e. The valuation by the bank's approved valuer should be done after getting the credit sanctioned and
before disbursal. For any valid reasons, if the Manager prefers to have the valuation done by the
bank's approved valuer before recommending the credit, he must inform this fact to the applicant
and get his written consent to bear the expenses, whether the credit is sanctioned or not.
5. Scrutiny of Security:
a. Mortgage Property:
i. The mortgage property must be specific and identifiable.

ii. “Undivided share” in immovable property offered as mortgage security should not be
accepted.
iii. Unless the Head Office permits, leasehold interest should not normally be accepted as
mortgage security.
b. Preliminary Verifications:
i. Before considering the proposal involving offer of property by way of mortgage, the Branch
must satisfy themselves, by examination of the deeds, that the title is prima facie in order and
must ascertain that the property is unencumbered and the mortgagor is having unquestionable
title over the property.
ii. The Branch must invariably send the following particulars about the security at the time of
sending the proposal itself, in the format, as given in the Annexure-1 to this chapter.
c. Ownership of Property under Land Reforms Act:
i. In many of the States Land Reforms Law has been introduced. The effect of this Law on the
property offered as security must be taken into account by the Branch/Approved Legal
Adviser (ALA).
ii. Branches should ensure that the properties offered as security are not affected by any Land
Reforms Law and also by the provisions of the Urban Land (Ceiling and Regulation) Act 1976.
iii. If the property is in excess of the ceiling limit necessary exemption/permission should have
been obtained by the proposed mortgagor under the provisions of the Act from the Competent
682 - III
Authority. If the property proposed to be given under mortgage is situated in an area to which
the Act is applicable, prior permission of the Regional Office should be obtained for creating
mortgage.
d. Title Deeds:
i. The proposed Mortgagor is required to produce all the documents in Original.
ii. Wherever Original documents are not available, registration copies of the same may be
obtained, but proper explanation for absence of the original documents must be sought.
iii. If necessary, and whenever occasion demands, such explanation may be obtained in the form
of an affidavit on a requisite stamp paper and duly authenticated by Magistrate / Notary Public.
e. Encumbrance Certificate:
i. Whenever original documents of more than 25 years are produced, Encumbrance Certificate
for the past 13 years should be obtained and it must be seen if there are any charges.
ii. If original documents of title to the property are not produced Encumbrance Certificate for the
past 35 years must be obtained to ascertain the flow of title.
NOTE: It is likely that in the implementation of law relating to Land Reforms, title on the tenants has been
conferred by documents and if these documents are recognized as documents of title under Land Reforms
Act, the same may be accepted, in which case, scrutiny of title for previous years is not necessary. However,
lawyer's opinion should be obtained for this specifically.
f. Tax Receipts:
i. Wherever the properties are situated within Panchayat, Municipality or Corporation limits,
proposed Mortgagor must be required to give proof of the payment of tax to such authorities,
for the latest year.
g. Records for satisfaction of Prior Charges:
i. If registered charges are reported, otherwise than by a registered document, then the original
document of such charge must be produced by the proposed Mortgagor bearing the
endorsement of the charge holder that the charge has been cleared.
h. Inherited Property:
i. Whenever title is sustained on the ground of inheritance, the family genealogy must be
ascertained and flow of title considered in the light of such genealogy bearing in mind the
provisions of Succession Law applicable to the property owners. The genealogy must be
sworn to, by means of an affidavit, by the proposed Mortgagor or the eldest member of the
family.
ii. If inheritance, then the original receipt evidencing payment of assessment for the past over 15
years must be required to be produced by the party. All the assessment receipts must be either
in the name of the proposed Mortgagor or his predecessors in title.
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iii. If, for any reason, original assessment receipts are not available, the parties should be required
to produce proof of the same with reference to records maintained by Revenue Authorities.
Such record must indicate the person who has paid the assessment for the past 15 years and the
amount of assessment paid each year and the details of property to which the assessment
relates.
i. Proposed Mortgagor Being A Legatee:
i. Wherever title to the property is sustained on the ground of the proposed Mortgagor being a
legatee, then it must be seen whether the Will has been probated or Letter of Administration
obtained, wherever necessary. Without such legal document of title, the title of the legatee
cannot be accepted.
j. Income-Tax, Wealth-Tax Clearance Certificate::
i. Based on Income Tax Rules, it must be seen if the proposed Mortgagor has produced the
necessary Income-Tax, Wealth Tax clearance certificates.
k. Conveyance of Property for and on behalf of a Minor:
i. If there are any conveyance for and on behalf of minor, it must be seen whether the minor was
represented properly and validly and whether the conveyance is liable for dispute by such
minors, on attaining majority.
l. Where the Property belongs to a Company:
i. In case the property belongs to a company, then prior charges, if any, created by the company
m. Where the Property belongs to Society, Etc.,:
i. Where the property belongs to Society, Association etc., Branch must call for Bye-laws to
ascertain the competency of the applicants/executants to create a charge over the said
properties.
n. Execution of Title Deeds by Agents:
ix. If agents have executed the documents, Branches must call for a copy of the power of attorney
to ascertain that the agents were duly and adequately empowered to execute the documents.
6. Legal Opinion:
a. Forwarding the Title Deeds for Legal Opinion:
i. The title deeds obtained shall be got scrutinized by the Bank's 'Approved Legal Advisor'
(ALA).
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b. Scrutiny of Title by the Lawyer:
i. The ALA must verify that all the documents are valid. Needless to add here that a document
merely because it is registered, is not valid. It must be seen that the executants of the
documents were competent to execute the documents.
ii. ALAs must also be satisfied that the documents are properly stamped and registered by the
competent authority.
iii. The title to the property must be scrutinized for a minimum of 13 years. Title must be traced for
the said period with all the documents in original. If there are any documents executed for and
on behalf of Joint Hindu Family, it must be seen, if the document has been executed validly by
competent persons. It must also be ascertained if there are any minors and if so whether they
have attained majority or whether the sale is in order.
iv. Wherever a lawyer scrutinizes title to the property, if he has the slightest doubt, it must be got
cleared from the proposed Mortgagor.
c. Search of Records at the Registrar's Office:
i. Wherever local practice so requires, the ALA may himself visit the Registrar's Office and
ascertain the encumbrance and flow of title to the property and issue necessary certificate.
d. Content of the Legal Opinion:
i. First part should give the description of documents produced before the ALA for scrutiny, in
chronological order.
ii. Second part must give the description of the property and the extent and assessment of the
properties.
iii. Third part should analyse the flow of title for the past 13 years in the manner prescribed. The
ALAs shall reveal the names of the present owners of the properties who are competent to
create a charge over the properties.
iv. Fourth part should say about the clear and marketable title of the owner of the property and the
manner and method of creating charge over properties in favour of the bank as security for
advance, remission of stamp duty, if any, etc.,
e. ALA's Report: The ALA's report should include the following:
i. Name of the owner

ii. Name of his/ her father/ husband
iii. The status of the owner of the property. (State Individual / HUF / Firm / Limited Company/etc.
iv. Description of property in the following format:
685 - III
 Survey No. situated in (give full postal address)
 Extent of Property :
 Door/Plot No.
 Amount of tax/ Kist Rs. P.a./ per half year
 Boundaries
v. List of documents verified whether original/registration copy/photocopy/ etc., are to be
stated.
vi. History of title for a minimum period of 13 years
vii. The person in whose name the patta stands in the name of the present owner.
viii. Details of encumbrances, if any, and if so, how they were discharged (Encumbrance
Certificate for a minimum of 13 years to be verified)
ix. Whether any minor interest/litigation/attachment charge is involved in the property
x. Whether latest Tax/Kist receipts have been produced? The number of preceding years for
which Tax/ Kist receipts are produced?
xi. Whether Chitta 10(i) extract (Adangal) verified?
xii. Whether involves any excess/vacant land attracting provisions of Land Ceiling Acts?
xiii. Whether the property is affected by Urban Land Ceiling and Regulation Act, if so, whether
permission of relevant authority been obtained for creating encumbrance?
xiv. Whether the title and possession of the proposed Mortgagor to the property is clear, absolute
and marketable and valid mortgage by deposit of title deeds could be created?
xv. The list of documents which are to be deposited for creating mortgage.
xvi. The list of additional documents, Encumbrance Certificate for subsequent periods, affidavit /
indemnity required to be obtained by the bank
xvii. Any other remark which the ALA providing title deed opinion wishes to make.
f. Land Reforms Law:
i. ALA in his opinion should cover all relevant facts and provisions of Land Reforms Law. The
opinion must also say whether permission from the competent authority is necessary and if so
should state the competent authority.
g. Proof of Possession:
i. ALAs must also obtain satisfactory proof of possession of the properties and their opinion
regarding the same must be given.
h. Documents in Vernacular Language:
i. If the title deeds are in vernacular language, the ALA should give brief particulars of the title
deeds in English to render the scrutiny possible by the Bank's Inspectors.
686 - III
i. Concluding Opinion:
i. The ALA must state in unambiguous terms whether the proposed Mortgagor is having clear,
marketable and valid title over the property.
j. Retention of Documents after Opinion:
i. Once the documents were received from the proposed Mortgagor and handed over to the ALA
for legal opinion, it should NOT be handed over to the parties. It should be handed over to the
bank's authorized person.
NOTE: The ALA will have to be required to examine the title deeds and if need be, obtain clarifications from
the parties and make out an unambiguous opinion.
k. Creation of Charge:
i. Generally banks accept the creation of Mortgage by deposit of Title Deeds (Equitable
Mortgage) where permitted by the Government and in some cases insist on the registration of
the Memorandum of the Deposit of Title Deeds. It may be necessary in some cases to insist on
a simple Mortgage.
l. Types of Mortgages:
i. Types of Mortgages that can be created are Simple Mortgage (Registered Mortgage),
Equitable Mortgage (i.e. Mortgage by deposit of Title Deeds), English Mortgage, Anomalous
Mortgage, Usufructuary Mortgage and Mortgage by Conditional Sale.
ii. Simple Mortgage and Equitable Mortgage are common, whereas the others are not.
Therefore, only Simple Mortgage and Equitable Mortgage are dealt within this chapter. When
the other type of Mortgages becomes necessary, the bank should seek instructions from R.O. /
H.O., on a case by case basis.
7. Simple Mortgage (Registered Mortgage):
a. Where Equitable Mortgage not possible, the bank may insist for Simple Mortgage (Registered
Mortgage). The draft of Simple Mortgage shall be executed over a non-judicial stamp paper of
requisite value and executed by the proposed Mortgagor in favour of the bank and registered at the
Sub-Registrar's Office.
b. In case of existing Registered Mortgage, whenever there is enhancement in the value of charge
proper re-registration should be done.
687 - III
8. Equitable Mortgage:
a. Requisites of an Equitable Mortgage:
i. There must be a debt (present or future)

ii. Delivery (deposit) of documents of title, such delivery must be made:
 by the owner of the property.
 in the notified town
 to a creditor or to his agent
 to secure the debt (present or future)
iii. The delivery of documents of title should be made with intent to create a security for an
existing or future advance.
b. Procedure for Creation of Equitable Mortgage:
i. Equitable Mortgage is created when the owner of a property deposits in a Specified/Notified

town, the title deeds of his immovable property with the bank and gives his oral assent which
establishes his intent to create a security thereon.
c. Who can Deposit the Title Deeds and where:
i. The owners should be asked to personally present themselves, at the Branch on the appointed
date, to make the deposit of title deeds.
ii. When the title deeds are in favour of a partnership firm and all the partners of the firm cannot
attend the bank, they may authorize, in writing, one or more of them to attend and deposit the
title deeds on their behalf. This letter of authority must be kept along with the title deeds.
iii. In case of Limited Companies, a resolution delegating the powers to one or more of the
Directors or to any of their Officers to deposit the title deeds must be passed by the Board of
Directors as required in its Memorandum and Articles of Association. The persons authorized
to deposit the title deeds and to execute the documents, on behalf of the company, should be
specified in the resolution. The certified copy of the resolution be kept along with the title
deeds.
iv. This kind of charge can be created in respect of any advance made, at any of the Branches of
the Bank provided the deposit of title deeds is made at Branches situated in places, notified by
the State Government in this behalf. The property can be situated in any part of India.
d. How to Deposit the Title Deeds:
i. When the Lending Branch is situated at a Notified Centre: The owners should be present
to deposit the documents
688 - III
Note: The title deeds taken for obtaining legal opinion from ALA should not have been handed over to the
party other than the Bank. If handed over, a fresh EC from the date of handing over to date of deposit would
be additionally necessary at the time of deposit. The documents should be received by the Branch directly
from the ALA and may be handed over to the proposed mortgagor at the time of creation of mortgage, at the
Branch at the notified centre. After the deposit is made all the title deeds are to be entered in the Document
Register under signature of the Manager/Officer.
ii. Confirmation of Deposit of Title Deeds: Mortgage by deposit of Title Deeds is a mere oral
transaction. However, in a banking institution it may be difficult to prove this oral transaction,
on a future date. Therefore, a letter in the form of Memorandum of Deposit of Title Deeds is to
be obtained from the Mortgagor.
iii. Where Memorandum is to be Registered:
 Whenever the Mortgage by Deposit of Title Deeds is required to be registered, the

specimen of the format as given in the Annexure-2 to this Chapter is required to be used.
 Memorandum as in prescribed form should be executed by the parties. Memorandum

must be engrossed on requisite stamp paper and must be presented for registration,
immediately after execution.
 Branches must also note that all the owners of the properties must execute these forms and
NONE of the owners can be exempted. However, one or more amongst the joint owners
can authorize one or more amongst them to deposit the title deeds and execute necessary
letters and/or memorandum but this should be done by properly stamped and
authenticated power of attorney.
 Caution: In case of death of a person, the letter of authority/Power of Attorney granted

by him to a third party becomes invalid from the moment of death.
iv. When the Lending Branch is not situated at a Notified Centre:
 In case the Branch is not coming under the list of notified towns for creating equitable
mortgage, the title deeds to property must be deposited by the owner at a Branch in a
notified town.
 The title deeds should be forwarded to the Branch situated at the nearest notified place
through the staff of the concerned bank with the following documents accompanied by
proposed Mortgagor(s)
 the lawyer's opinion/certificate in original
 valuation report in original
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 a covering letter from the Branch to the effect that the title deeds have been scrutinized
by the Bank's lawyer at their end and that they convey a clear and absolute marketable
title to the owner thereof and the name/s of person/s who are required to deposit the
title deeds as per legal opinion. The Manager should also confirm that the
requirements, if any, stipulated by the lawyer have been fully complied with and
 Letter of introduction with specimen signatures of the owners who will call at the
other Branch to formally lodge the title deeds.
 As a measure of abundant caution the Branch should send the title deeds in a sealed cover.
 The owners should be asked to personally present themselves at the Branch at the notified
centre to make the formal deposit. The Manager/Officer at the notified centre Branch (or
the staff from the Branch at the non-notified centre) should provide the Mortgagor(s) the
title deeds just to make the deposit of the title deeds.
 The Branch at the non-notified area should maintain a register recording therein the list of
documents deposited at the notified center.
 The lending Branch should keep the following documents for scrutiny by the inspecting
officials
 Duplicate copy of lawyer's opinion / certificate
 Duplicate copy of valuation certificate
 Certificate confirming the deposit issued by the Branch where the documents are
deposited
 True copy of the memorandum of deposit of title deeds
 Copy of the letter forwarding the title deeds to the Branch at the notified centre.
 Copy of the Encumbrance Certificate (EC) for the broken period.
 Subsequent EC. Property tax receipts, etc.,
e. Duties of Notified Branch:
i. When the mortgagor calls at the Branch for the purpose of creating equitable mortgage, the
sealed cover (sent by the Branch in the non-notified centre through their staff member)
containing the title deeds and other documents, must be opened by the Manager/Officer in the
presence of the proposed Mortgagor and ensured that the contents are in conformity with the
covering letter. Branch should also compare the title deeds with the legal opinion and satisfy
that all the title deeds referred in the opinion are deposited by the owners of the property.
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ii. On completion of the formalities connected with the deposit of title deeds, the Branch should
issue a certificate to the Branch, where advance is to be made, that the title deeds have been
deposited by the mortgagor with an intent to create an equitable mortgage in favour of the
bank.
iii. Managers of Branches where the deposit is made (notified centre) should also furnish to the
former (lending Branch) the list of title deeds along with the certificate confirming the deposit
of title deeds made by the Mortgagor.
f. Extension of Mortgage:
i. Whenever any additional or fresh credit facility is to be granted on the security of the very
same property the Mortgage extension letter should be obtained. In case of Registered
Mortgage, re-registration should be done.
g. Obtention of Second Charge over the Property:
i. Unless sanctioned by the Head Office, only first charge on the properties must be obtained. In
case acceptance of Second Mortgage is permitted by Head Office, branches should follow the
procedures, as laid down in the Manual on Documentation, for obtaining Second Mortgage of
property.
9. Follow-Up and Supervision:
a. Latest Encumbrance and Tax Receipts:
i. Branches should call for the broken period Encumbrance Certificate from the date of coverage
under earlier Encumbrance Certificate till the date of creation of mortgage and hold it with
other documents. Encumbrance, for the further period, must be taken, once in a year or at the
time of renewal of the loan account, whichever is earlier. The obtention of the latest EC and
Property tax receipts is to be recorded in the EC/PT Verification Register.
ii. After the advance is made, during the continuance of the advance the Branch should obtain
and file the receipts in respect of periodical payments of municipal and revenue taxes in
respect of freehold properties. In case of leasehold properties along with the above receipts,
receipts from the landlord for having received the yearly rent to be obtained. All such letters
must be kept together, with the other title deeds, making necessary entries in the Register.
b. Insurance:
i. Except where insurance has been specifically waived by the Head Office, all buildings must
be kept fully insured. If the property is situated in an area where an airport is situated Branches
should arrange to take insurance cover against aircraft damages. Similarly, if the property is
situated in earthquake-prone/cyclone-prone/flood-prone area, insurance cover must be
obtained against damages by earthquake/cyclones/floods. Insurance policies must be in the
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joint names of the Mortgagor and the Bank as Mortgagee with Bank Clause. A record of
premia payable and their due date must be maintained.
c. Inspection of Building:
i. Building mortgaged should be inspected periodically (at intervals not exceeding a year) and a
report of such inspection must be sent to Regional Office retaining a copy in the borrower's
file.
ii. If any inspection has been made by the Manager, along with the Bank's Inspector during
inspection, the Manager shall send his independent report to the Regional Office retaining a
copy in the file and no separate inspection is necessary during the year.
iii. Whenever, it is found that the property has depreciated in value, a full report should be sent to
the Regional Office.
d. Return of Documents on Closure of Liability:
i. When the advance is recovered in full, the fact should be intimated to Regional Office
mentioning particulars of direct and indirect liabilities of the proposed Mortgagor and their
permission sought, to return the documents to the party. A specimen of Mortgage Discharge
format is given in the Annexure-3 to this Chapter.
e. Where Release Deeds are Required:
i. Wherever release deeds are required by the Mortgagor, the same may be executed after getting
the directions of the Regional Office at the cost of the borrower.
ii. Documents SHOULD NEVER be handed over to Mortgagor, for whatever reasons under
whatever circumstances during the currency of facility with the bank. Even after closure of all
limits, it should be examined whether the bank should exercise General Lien, if necessary for
any other irregular loan wherein the property owner(s) may be a borrower, co-obligant /
guarantor.
f. Sale of Mortgaged Property in case of Default:
i. Where it becomes necessary to recover the advance by sale of the mortgaged property, such
sale can be arranged only through court of law after filing a suit.
g. Limitation:
i. Under Article 62 of the Limitation Act 1963 money secured by mortgage becomes due for
enforcement of payment, there under, within a period of 12 years. This limitation period of 12
years applies to both Registered mortgage and Mortgage by deposit of title deeds. However,
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the limitation period to proceed against the Borrower and Guarantor personally and against
their other properties is only 3 years from the date the amount is due or execution of DPN.
10. Other Aspects:
a. Where the Advance is for Construction:
i. When the Bank advances against mortgage for construction of buildings or industrial sheds, it
has to be ensured that the borrower utilised the money for such purposes only. Therefore, in
case of such advance the borrower has to produce certificate from an approved engineer
certifying that the building has come upto the particular stage and the cost of the construction
up to the date of certificate. On the basis of the certificate, after applying the prescribed
margin, the money is to be permitted to be drawn. This will ensure the end utilisation of the
loan and also ensure that the borrower is assured of finance up to the completion stage of the
construction.
b. Insurance Cover for Buildings Under Construction:
i. There have been instances where losses have occurred due to collapse, lightning, faulty
materials, poor workmanship, explosion, storm, hurricane, tornado, typhoon, floods,
inundation, landslide, theft, burglary etc., to the buildings under construction. In the absence
of an insurance policy to cover these risks, the customer is bound to have a setback due to the
loss arising out of such calamity and it may become difficult for the Bank to recover such
advance.
11. Procedure for Sanction :
a. Before issuing Bank's pre-printed Mortgage Loan Application the Branch should collect from the
applicant (i) a preliminary letter exposing his intention to avail a "Building Mortgage Loan" from
the Bank, (ii) all relevant documents like Title Deeds with parent documents, current property tax
receipt, Encumbrance Certificate for 13 years, (iii) his income statement together with
documentary proof for the source of income like salary certificate, rent receipts etc.
b. The Branch Manager should then forward the Property Documents, property Tax receipt, E.C. etc.
to Bank's Legal Adviser for Legal opinion. For this purpose "Legal Fees" as prescribed by the
Bank will have to be collected from the applicant.
c. Upon getting the Legal Opinion the Branch Manager may issue the Building Mortgage Loan
application to that party.
d. On receipt of filled up Loan application from the party the Branch should collect "Processing fee"
from the party and then forward the Loan application, required documents furnished by the
applicant and Legal Opinion of Bank's Legal Adviser to Head Office.
e. Then the authorised officer at H.O. will arrange for inspection of the property by a Senior Officer at
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H.O. along with the Branch Manager concerned.
f. This team will inspect the property and file their "Preliminary Report" Covering:
i. Location of the property - Address.

ii. Description of the property (shop residential house etc.)
iii. Boundaries
iv. How old is the building and the present condition
v. What is the total area of site and what is the total built up area
vi. Value of land (on which the building has been constructed). For this purpose the guidelines
value issued by the Sub-Registrar (Registration) concerned should be the basis.
vii. Valuation of Building - reckoning materials used, type of construction and age of the building.
Thereafter Depreciation should also be provided. Then this team will have to issue a valuation
certificate as per their estimation.
g. On receipt of this joint inspection report the Section Officer concerned at H.O. will assess the loan
amount eligibility with reference to the least of (i) estimated value of the property, (ii) repaying
capacity of the applicant keeping in mind that the EM1 of this loan should not exceed 1/3rd of the
total monthly income of the applicant and (iii) restricting the loan eligibility to 50% of the
estimated value of the Building.
h. The Executive / Senior Officer at H.O. authorised to sanction Building Mortgage Loan should then
inform the Branch about the applicants loan amount eligibility and the other formalities like (i)
registration of Mortgage in favour of the Bank, (ii) Provision of Insurance Cover for the Building,
(iii) Production of E.L. subsequent to registration of Mortgage which have to be fulfilled by the
applicant to enable the Branch to disburse the loan. This is in effect sanction / approval of H.O.
i. On receipt of this approval or sanction order from H.O. the Branch Manager shall advise the
applicant to comply with the above requirements (detailed under "h" above).
j. Once the registered Mortgage Deed, subsequent EL and the Insurance Policy are received then the
Branch Manager should disburse the loan amount to the borrower by crediting his savings account
with the Branch under advice to him.
k. The Insurance Coverage must be for the estimated value of the building and it should be ensured
that the Insurance Cover is made available till date of clearance of this Mortgage Loan dues.
l. Branch should also ensure that the borrower pays the property Tax dues without default and copy of
the Tax paid receipt is produced to the bank which should be kept in the file relating to this
particular Mortgage Loan account.
12. Legal Fees and Processing Fees:
a. The amount, as fixed by the Bank, should be collected from the applicant towards Legal Fees. The
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Processing Fees shall be at the rate fixed by the bank should be collected from the applicant.
Normally banks charge 1/2% or 1% of the loan amount subject to a minimum & maximum. In
most cases minimum is Rs.500/- & maximum is Rs.1,500/-. These fees may be fixed on the basis of
the rates prevailing in the market.
13. Documentation:
a. Complete particulars of all documents received from the borrower should be properly recorded in
the Bank's "DOCUMENTS REGISTER".
b. All the important documents like (i) Registered Mortgage Deed, (ii) Title Deeds, (iii) EL should
be kept in a sealed cover which should be kept inside a Fire Proof Filing Cabinet or in a steel
cupboard inside Strong Room.
c. On the said sealed cover the name of the borrower and the Building Mortgage (BM & No.) loan
number should be noted.
14. Book Entries:
a. Admission of the applicant CREDIT: ASSOCIATE MEMBERS as Associate Member
DEBIT : ADMISSION FEES (Debit being cash remitted by applicant)
b. To get Legal Opinion CREDIT: LEGAL FEES
DEBIT : CASH (Debit being cash remitted by applicant)
c. Processing fees CREDIT: "Service Charges or Commission account"
- DEBIT: CASH
d. At the time of - DEBIT: BUILDING MORTGAGE
i. Disbursement of Loan - LOAN ACCOUNT
- CREDIT: Party's Savings Account
ii. While adjusting monthly - DEBIT: Party's Savings Account installments ( f o r f u l l
amount of Equated Monthly Installment)
- CREDIT: "Building Mortgage Loan" account (for
principal portion of EMI)
- CREDIT: "Interest receivable on Building Mortgage Loan
account" (for interest portion of EMI)
iii. Penal interest - DEBIT: Party's Savings Account (whenever there is
delayed remittance of monthly
- CREDIT: "Penal interest Account" instalments)
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15. Documents for Loan Application:
a. Original Sale Deed / Parent document.
b. Declaration of non-encumbrance
c. Encumbrance certificate for 13 yrs.
d. Applicant's income statement including that of his source wherever included, with valid
documents (like salary certificate) as proof. (if rental income is shown as source then valid rent
receipts, if business income is shown then IT assessment orders / copies of IT returns filed).
e. Legal Opinion on the title deeds of properties (this will have to be by Bank's Legal Advisor). This
is the responsibility of the Bank.
f. Latest / Current Tax receipts.
g. Valuation certificate by a Qualified / Certified / Competent person i.e. an approved value.
h. Demand Promissory Note (once the loan is sanctioned & prior to disbursement).
i. Registered Mortgage Deed (on approval of the loan proposal before disbursement).
j. Patta
k. Urban Land Tax receipt
l. In case the loan is for renovation / additional construction / repairs etc. the applicant will have
submit the following additional documents:
i. Building Permit issued by competent authority

ii. Plan approved by appropriate authority
iii. Estimate of construction / renovation / repair by an approved / Certified Engineer.
16. Other Key Points:
a. The maximum loan to be disbursed under this scheme will be as fixed by the Bank Management.
However it is desirable that the maximum loan limit does not exceed Rs. 10 lakhs, since this loan
will have a longer repayment period and in case of necessity, realisation of the security involves
lengthy procedure.
b. It is also desirable that the maximum loan limit is restricted to 50% of the estimated value of the
property. The bank has to ensure that the value of the property has not been artificially boosted.
c. The interest rate will be as fixed by the bank taking into account the cost of funds, risk cost, etc..
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d. Repayment period normally ranges from 5 years to 10 years. But, it is preferable to fix 5 year
repayment period.
e. The repayment should be by way of Equated Monthly Instalment. Each instalment should be
th
remitted on or before 10 of the following month.
f. Delayed payment will attract penal interest, as decided by the Board from time to time, over and
above the normal interest rate.
g. The property against which the loan is proposed to be availed should be situated within the area of
operation of the Branch where the loan is sought.
h. Loan application relating to the following properties should not be entertained (i) Vacant land, (ii)
Building constructed on Lease Land, (iii) Third Party Property.
i. For assessing the repaying capacity the applicant's self income, spouse's income, his additional
income by way of rent etc. will be ascertained. From this total income all his monthly expenses
should be deducted and if the net surplus is more than 1/3rd of his monthly total income he is
normally considered to have repaying capacity.
17. Annexure/s:

Annexure 1 : Specimen of Details of Property as Security
Annexure 2 : Specimen of Memorandum of Title Deeds Registered
Annexure 3 : Format of Discharge of Mortgage
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DETAILS OF PROPERTY PROPOSED AS SECURITY
Enclosure to proposal No. ………………
1) Name/s of Owner/s
(State clearly if there are any minors, and if so, the extent of their interest,. If property not owned by the
borrowers, the relationship, if any, between the owners and borrowers and nature of interest of the
owners in the borrower should be stated.
2) Brief Description of Property (Shop/Residential House/Open Site/ Agricultural Land/ Flat/ etc) (In
case of building age and present Condition and number of floors, building approved plan)
3) Location
4) Boundaries
5) Extent
(Total area / Built-up area/etc)
6) Leasehold Land or Freehold Land. If Leasehold Land
a) From whom taken on Lease

b) Date of lease
c) Period of lease
d) Date of expiry of lease
7) Particulars of valuation
a) Valuation done by
b) Date of valuation
c) Value of land
d) Value of construction
e) Total value
8) Particulars of scrutiny of title deeds (In case of existing securities)
a) Name of the approved Lawyer

b) Date of the opinion
c) Whether the title to the owner is perfect and certified so by lawyer
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d) Whether EC obtained till date of deposit/ upto date
e) Period covered by EC
f) Whether the property is free from encumbrance
9) a) Nature of mortgage Simple/Deposit of Title Deeds followed by Regd. Memo random/ Deposit of
Title Deeds
b) Date of Mortgage
c) Branch at which mortgage was made
10) Date of Letter of Confirmation obtained from the depositors with regard to simple deposit of title
deeds.
11) Property Tax particulars
a) Date of last payment of Property Tax

b) In whose name the Receipt is issued
c) Period covered
d) Date of verification of cash receipt by Branch official.
e) Whether the description of the property as per the receipt agrees with the title deed
12) Insurance particulars (with regard to the property)
a) Name of Insurance Company

b) Amount of Insurance
c) Date of Expiry
d) Risks Covered
13) Whether property maintained in good condition.
14) Date of last inspection of property by Branch official(s) indicating his/their designation
15) Whether charge has been registered with the Registrar of companies? If so, date of charge (in the case
of advance to companies)
16) Whether the property is situated in an area where the Urban Land (Ceilings and Regulations) Act
applies? If so, whether the permission of the competent authority has been obtained for creating
mortgage over the property in favour of the Bank
17). The particulars/description of the property as mentioned in the proposal tallies with
a) Title deeds
b) Encumbrance Certificate
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c) Tax paid receipts
d) Insurance policy
e) Legal Opinion
f) Valuation Certificate
MANAGER
Date :
NOTE :
1) A mortgage is valid only for 12 years and hence deposit of title deeds by the owner/s should be
revalidated by them before the expiry of 12 years from the date of original deposit, subject to
verification of whether Encumbrance Certificate shows NIL encumbrance. The procedure for
revalidation of mortgage is covered elsewhere.
2) Property should be insured for the full value of the superstructure.
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MEMORANDUM OF DEPOSIT OF TITLE DEEDS REGISTERED
The Title Deeds relating to the properties belonging to _____________________ S/o.__________

__________________________ residing at ______________________ specified in the Schedule hereto
have been deposited with Tamil Nadu Mercantile Bank Ltd., _________________________ to remain with
the bank as security for the repayment of a sum of Rs. ________________ (Rupees
_______________________ only) advanced by the said Tamil Nadu Mercantile bank Ltd., on
_____________ on demand promissory notes, payable on demand with interest thereon at _______ per cent
per annum and all moneys that may become due to the Bank on all transactions including Overdraft account.
I/We ______________________________________ S/o, D/o, W/o. _______________________

residing at ____________________________________ solemnly declare on this day of
__________________ 20 ___ that the properties mentioned in the Title Deeds scheduled hereto are all my
ancestral/self-acquired properties and are without encumbrance. This document is in pursuance of Section
58(F) of the Transfer of Property Act.
LIST OF TITLE DEEDS
1)
2)
3)
Schedule of Property
Sl.No., Registration District and Town or village Survey No., Extent Sub-District
IN WITNESS whereof I/We have set my/our hands this ____ day of ________ 20__
Signature
WITNESSES
1.
2.
Note: The columns given under Schedule of property is only illustrative. The Branch shall include other
relevant particulars also, if any.
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FORMAT OF DISCHARGE OF MORTGAGE:
This document executed on this ................. day of ...................... 20.......... by .................. Coop. Bank
having its registered office at .............................. and the Branch Office at .............................. represented
by its Branch Manager Shri................................ S/o. ............................................. hereinafter called the
MORTGAGEE, in favour of Shri..................................... S/o................................. (Occupation), residing at
................................. hereinafter-called MORTGAGOR, it is hereby stated that the mortgage created by the
Mortgagor in favour of the mortgagee under the Mortgage Deed dated .................... registered as document
no......................... in volume no......................... with the Sub-Registrar ..................... has been discharged
in view of the repayment of the loan secured under the mortgage.
For ........................................... Coop. Bank

Manager.
............................................... Branch.
702 - III
CHAPTER-48
ADVANCES ON HYPOTHECATION OF MOTOR VEHICLES
1. General:
a. Banks provide credit facilities to transport industry by granting direct finance to owners or
operators of vehicles and indirect finance to dealers or financiers of vehicles. Banks should,
however, show a keen interest in direct finance as this encourages self-realisation and self-
employment.
b. The guidelines given in this Chapter cover the Advances made to vehicles for commercial
purposes. Wherever advances are sanctioned for purchase of vehicle for own use, the guidelines
wherever applicable and necessary are to be followed without fail.
2. Pre-Sanction:
a. Type of Advance:
i. Advance on vehicle is extended as a term loan as the repayments can be effected only out of
income generated over a period of years with the use of the vehicle by the borrower. The
Branch Manager should study the viability/feasibility aspects of the entire proposal to ensure
income generation for future repayments.
ii. If the loan is to be sanctioned for the purchase of vehicle for own use, the repayment capacity
of the borrower out of present business line should be studied and satisfied.
b. Borrowers:
i. The borrower should be introduced properly to the bank by a responsible party. It is desirable
that the borrower has sufficient experience of, at least, one year as a driver. His success in the
trade depends very much upon his technical knowledge of the vehicle, professional skill,
experience, knowledge of trade, and the capacity for hard work. If there is a Taxi Union or
Association at the place, this will serve as a very good source of information to the bank
regarding borrower's social and personal information.
ii. A visit to the borrower's residence would indicate his life style. If the borrower is already
driving a taxi, enquiries with owner of his present vehicle or garage where the present vehicle
is serviced or the petrol bunk where he normally fills up fuel would provide information
regarding the dependability, integrity and honesty of the borrower.
c. Driving Licence A Source of Information:
i. The driving licence discloses the length of driving experience. It will show the endorsement,
thereon, by Regional Transport Authorities. The licence will reveal his accident record and the
endorsements, if any, would indicate his driving habits.
703 - III
d. Purpose:
i. Advances are considered for acquiring transport vehicles like trucks, tempos, taxis, auto-
rickshaws, etc. The general guiding principles for consideration of these advances are, the
following:
 The Motor vehicles should be a new one. However, old vehicles may be taken as
collateral security.
 The facility will generally be by way of term loans as it would be helpful in monitoring
the progress of recoveries.
 As far as possible, advances should be considered for fleet owners (for bus or trucks) or to
owners of self-driven vehicles. In the case of owner-driven vehicles, the borrower should
hold a valid driving licence.
 It is essential that the borrower has a sustained and continued stake and interest in the
business and for this purpose he should provide adequate margin towards the capital cost
of the vehicle.
e Security:
i. The primary security will be the vehicle(s) purchased out of bank finance.
f. Second-Hand / Old Vehicles:
i. If, as a special case, vehicle to be hypothecated is a second-hand/old vehicle, the year of

purchase and the normal depreciation to be allowed will have to be taken into account, to
determine the value of the security. Though, that would be the normal procedure, the market
value may also be considered for purposes of valuation. In arriving at the market value of the
vehicle, the branch should utilize the services of our Approved Engineer.
g. Margin:
i. Margin is insisted on Advances to:
 ensure that the borrowers show continued interest in the activity.

 provide cushion against fluctuations in the value of the assets financed.
 ensure a higher recovery from the forced sale of asset.
ii. During preliminary enquiries the bank has to satisfy itself whether the borrower has already
arranged for the margin money and the source of such funds. If the borrower can spare the
required margin from his savings, such savings would establish the borrower's bonafides
(genuineness) and facilitate the sanctioning process. If the borrower has to seek loans from
outsiders or money lenders, at very high rates for the margin, this will complicate recoveries
by the bank as the money lenders insist upon clearance of their loans first. The Margin may be
704 - III
maintained in the SB/CA/OD accounts, while the loan application is submitted.
h. Repayment Capacity:
i. The total period of the loan is determined by the following factors:

 The economic life of the vehicle
 The borrower's anticipated continuing ability to repay
 The restriction, if any, on the lender regarding the maximum period for which the loan can
be extended
ii. In general, long term loans are not favourable. The longer the period of the loan, the greater the
uncertainties regarding the value of the vehicle and the borrower's ability to pay. This also
locks up the lender's fund for an unduly long period and entails higher interest and service
charges for the borrowers. With a longer period, the possibility of the vehicle becoming worn
out and / or obsolete, is also greater, thereby weakening the value of the main security.
iii. In metropolitan cities and other capital towns road transport industry is very profitable and an
honest borrower can repay the loan in lesser installments. But, in places situated in towns,
where demand is not much, branches may have to give longer time to repay the loan. The bank
should be well informed of the potentiality of the area in which the borrower proposes to
operate his vehicle.
iv. The estimate of income should be made on a realistic basis taking into account the scope for
business, the number of vehicles already operating and estimated future growth of business in
the area.
v. The cost of operation of the vehicle, for the entire period of the loan, on annual basis, should be
worked out. The following operating expenses should be taken into account:
 Cost of petrol / diesel for distance traveled.
 Cost of lubricating oil.
 Salaries to driver/cleaner
 Annual tax.
 Insurance
 Maintenance
 Interest on loans from commercial banks.
 Depreciation of the vehicle at 20% of Cost.
vi. In case of truck loans, it is beneficial to find out if the borrower has made arrangements for
plying his truck with any other transport operator or whether he has any contracts with mills or
factories, so that, he is always assured of full utilization. The condition and potentiality of the
area for transport business and the expected take home monthly income should be discussed
and studied.
705 - III
i. Repayment Programme:
i. In case of new vehicles the repayment programme should be so fixed that 45% of the loan
amount is repaid in the first phase of the repayment schedule, 30% of the loan amount is repaid
in the second phase of the repayment schedule and remaining 25% of the loan amount is paid
in the third phase of the repayment schedule. Any deviations from this norm should be done
only on proper sanction from the Regional Office.
j. Forwarding Proposals for Sanction:
i. The branches shall submit the proposal to the sanctioning authority alongwith:
 Proforma Invoice of the supplier of Chasis and the body builder with necessary
information about the vehicle to be purchased by the applicant.
 Copies of driving licence
 Copy of the permit, if necessary
 Statement of Projected Income.
ii. In the case of old vehicles, a valuation report from a competent person in the prescribed form
shall be obtained. A specimen of the Valuation Report by the approved Automobile
Engineer is given as Annexure-1 to this Chapter.
3. Sanction and Disbursal:
a. Amount:
i. When the appraisal is over, the Manager decides on the amount to be advanced within the rate
of advance, as permitted by the bank. At present, margin is generally stipulated at 25% on the
net invoice value of the new vehicle. Cost of body building, and cost of meters etc., will form
part of vehicle cost.
ii. In case of old vehicles (not more than 3 years old) the advance can be made on obtaining
valuation report from an approved Automobile Engineer, retaining a margin of 50% of the
valuation report. Second advance on the security of old vehicles, already held by the borrower,
should not be encouraged.
b. Interest:
i. Interest is compounded every calendar quarter at the Bank's usual rate of interest applicable
and is payable along with the monthly instalments of the subsequent quarter. If however, the
borrower finds it difficult to pay the quarterly interest in a lump sum, he may be permitted to
pay in instalments so that the entire interest amount is paid, by the time interest is debited, for
the further quarter. The bank may fix appropriate Equated Monthly Instalments (EMI) also.
c. Disbursement:
i. After getting the sanction from the Head Office, the applicant should be intimated about the
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limit sanctioned with full particulars of the terms and conditions laid down by Head Office.
ii. Apart from the other documents branches should obtain blank T.O. form (Transfer of
Ownership) duly signed by the owner of the vehicle. This helps the bank to transfer the
ownership in case the loan becomes sticky and recourse is made against the vehicle for
recovery.
iii. The loan amount along with the margin money should be remitted directly to the dealers by
means of Demand Draft/Pay Order Crossed “A/c. PAYEE”
iv. While remitting the amount to the dealer he should be requested that at the time of registration
of the vehicle with the RTO the bank's interest should be got noted. An endorsement to the
effect that the vehicle is hypothecated to the bank should be incorporated in the Registration
Certificate. The original certificate should be verified whether the charge of the Bank has been
recorded in the RC Book and a copy of the same should be maintained with the loan papers.
v. In order to safeguard the bank's interest during the period between body building wherever
necessary and registration of the new vehicle with RTO, a letter should be addressed to the
body builder intimating the bank's charge on the truck.
d. Post-Release Documents:
i. After the loan is granted it is essential to obtain the following papers.

 Original Invoice of the vehicle
 Delivery Letter
 Receipt for the money paid
 Duplicate Key of the vehicle
 (In the case of old vehicles, if it has only a single key, a declaration from the seller to that
effect has to be obtained or noted likewise in the invoice).
 R.C. Book copy
 A comprehensive insurance policy with a bank clause
 Route Permit and Fitness Certificate
 Original Insurance Policy
e. Advance to Limited Companies:
i. If the borrower is a limited company, the charge on hypothecated vehicle should be registered
with Register of Companies under Sec. 125 of the Companies Act 1956 within 30 days from
the date of execution of documents and other requirements such as proper resolution etc.,
would have to be complied with. The other terms and conditions of the sanction should be
strictly adhered to.
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4. Follow-Up:
a. Supervision of the Credit:

i. This part of the job is even more essential than assessment of the credit. The following
important steps should be taken to ensure proper repayment and to protect the interest of the
bank
 The borrower should be educated by the branch and persuaded to credit the day's net
collection (after allowing personal expenses) to his Savings Account.
 Notice of instalment due should be sent seven days before the due date
 In case the party fails to pay the instalment on due date prompt reminders may be
necessary.
 If the reminders have no effect, visiting the borrowers personally is essential.
 A letter to the borrower with a copy to the guarantor should be sent demanding payment in
case of a continuous default for several months.
 It is essential to inspect the vehicle at regular intervals, at least, once in a month and call
for the Registration Certificate and Driving Licence from time to time to ensure that taxes
are paid regularly and vehicle is kept in good running condition.
 In case of persistent default, the bank should take possession of the vehicle by following
the procedures and arrange to sell it to realize our advance.
b. Inspection:
i. The vehicle should be inspected on delivery and a personal inspection report of the Manager
after inspecting the vehicle is to be kept on record. Further, inspection of the vehicles should be
done, once in a month, with the previous arrangement with the Borrower and a record of such
personal inspection shall be maintained.
c. Confirmation regarding Charge:
i. The recording of charge on the Registration Certificate Register at the R.T.O office should be
got confirmed by sending letter in duplicate one month after the advance, to the Regional
Transport Authority and the endorsement or acknowledgement obtained should be kept along
with the security. A specimen of the Letter to R.T.O. is given as Annexure-2 to this
Chapter.
d. Name Board:
i. Hypothecation Plate:
- A small tinplate reading “This vehicle is hypothecated to the “………………………………….
Bank Ltd.,” should be riveted inside the bonnet near the manufacturer's plate, or whosesoever
possible.
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 The hypothecation plates may be carried by Managers / Officers/ Inspectors whenever
they go for inspection, so that the plates can be fixed immediately at the time of inspection
itself.
ii. Bank's name: The banks charge over the vehicle should be displayed over the vehicle
conspicuously by painting
Note: Requirements under (i) and (ii) may be waived in case of private cars and scooters with the consent of
the appropriate Higher Authorities in the Bank.
e. Verification of Taxes Paid:
i. The Registration Certificate should also be called for and examined at periodical intervals to
ensure the payment of quarterly taxes and surcharge. This should be done within a month from
the last date of the quarter. Such verification should be recorded in the R.C. Book Verification
Register under the initials of the verifying officer. However, in the case of default in the
payment of instalment, the Registration Certificate should be called for immediate
verification.
f. Insurance:
i. The vehicle should be insured for its full value, under Comprehensive Policy with bank clause.
The expiry date of the policy should be diarised and arrangement should be made to get the
policy renewed well before the date of expiry.
g. No Objection Certificate:
i. While renewing the permit in the case of transport vehicles, R.T.Os will not renew the permit
without “No Objection Certificate” from the Bank whose charge has been noted in the
Registration Certificate of the vehicle. While issuing such certificate, where the advance is not
regular, the arrears should be reported.
h. Monitoring the financial status:
i. The financial position of the borrower and the guarantors should be periodically reviewed.
i. Realisation in case of Default:

i. Where the advance becomes overdue or irregular by non-payment of instalments and interest,
final demand notice should be sent to the borrower and surety by Registered Post A.D.
Arrangements may be made to take physical possession of the vehicle either by seizing the
vehicle under the powers vested in the Bank by the hypothecation deed or through court
attachment as may be appropriate, in such cases.
ii. Thereafter, the vehicle should be sold by public auction and the proceeds appropriated
towards the advance. Surplus, if any, may be credited to party's bank account and if there is a
shortfall, it should be recovered from the borrower/surety by taking appropriate action.
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j. When the Loan is closed:
i. On closure of an advance, the Bank's charge noted in the R.C. may be got cancelled by the
R.T.O. and the Insurance Policy, the Ignition Key etc., may be redelivered to the borrower
against his written acknowledgement, provided there is no direct or indirect liability to the
bank by the owner of the vehicle. Permission from the Regional Office must be obtained
before releasing the security.
ii. Forms prescribed for this purpose may be used.
iii. Insurance Company has to be instructed to cancel the Bank's interest in the policy.
5. Annexure/s:

Annexure 1 : Specimen of a Valuation Report of a Motor Vehicle by the Automobile Engineer.
Annexure 2 : Specimen of a letter to R.T.O. for confirmation of Registration of Bank's Charge
710 - III
FORM OF VALUATION REPORT OF A MOTOR VEHICLE BY AN

APPROVED SURVEYOR / AUTOMOBILE ENGINEER
1. Name of the Owner :

2. Full Address :
3. Particulars of the Vehicle :
4. Class of Vehicle :
5. Registration No. :
6. Type of Body :
7. Year of manufacture (model) :
8. Year of Registration :
9. Horse Power :
10. Chassis No. :
11. Engine No. :
12. Wheel Base :
13. Seating capacity :
14. Unladen weight :
15. Regd. Laden Weight :
16. Size of Tyres : Front/ Rear :
17. How used : Private Car / Taxi / Carrier / Public Carrier
18. Date of Expiry of Permit :
19. Date of expiry of Fitness Certificate :
20. Date of Expiry of Insurance :
21. Nature of Insurance Policy :
22. Immediate repairs and replacements required
i) Piston :
ii) Piston Rings :
iii) Brake Liners :
iv) Tie-Rod Ends :
v) Springs :
vi) Shock Absorbers :
vii) Battery :
viii) Tyres :
ix) Gear Box :
x) Triplex Glasses :
xi) Other Repairs :
xii) Distance Run as per meter :
xiii) Whether meter reading is genuine :
xiv) Manufacturer's Price :
xv) Price paid by the present owner :
xvi) Resale value you fixed Before / After Repairs:
xv) Whether duplicate key is in Owner's possession:
I hereby certify the correctness of the above report:
Place Signature
Date Name and address of the Surveyor
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LETTER TO REGIONAL TRANSPORT OFFICER REQUESTING CONFIRMATION FOR

REGISTERING BANK'S CHARGE
Regd. Post with A.D.
To
The Regional Transport Authority

…………………………
Dear Sir,
Motor Vehicle No.

Engine No.
Chassis No.
We shall be grateful if you can confirm whether our charge on the above vehicle stands recorded in your
registers. An endorsement below will serve our purpose.
Thanking you,
Yours faithfully,
Manager
Endorsement
Regional Transport Authority
i) A service charge of Rs.2/- may be collected for getting the charge confirmed.
ii) Two copies of the Registration Certificate are to be taken and one retained with the loan papers, while
the other sent to Head Office/Zonal Office with the Disbursal letter.
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CHAPTER-49
PENSIONER'S LOAN
1. General:
a. This facility is provided by way of a Demand Loan to the eligible pensioners to meet their urgent
Medical Expenses.
2. To Whom can be Sanctioned:
a. All individuals who are drawing their monthly pension (from Government and other Public Sector
undertaking etc.) through any SCB/ DCCB. They must also maintain an operative Current or
Savings Account with the Branch. Upper age limit 'say below 70 years' to be decided by the
respective Bank
3. Loan Amount:
a. The eligible loan amount should be restricted to an amount fixed by the Management or 5 months
pension amount whichever is less. However the minimum loan amount may be fixed as
Rs.10000/-.
4. Security:
a. The Branch need not insist on any other collateral security. Pension Pass Book has to be retained by
the bank till the loan is cleared.
5. Period of Loan:
a. Loan is repayable in equated monthly instalments. The no. of EMI may be decided by the Bank.
Repayment will commence from the succeeding month from the month of availing the loan.
6. Associate Membership:
a. The borrower and one of the legal heirs of the borrower are to be admitted as Associate Members.
As fixed by the Bank Management.
8. Penal Interest:
a. Monthly instalment will have to be paid on or before 5th of the following month. In case of default
or delayed remittance penal interest @ 3% over & above the normal rate shall be charged from the
first of the month, in which it is due, till date of remittance.
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9. Documents:
a. Application in bank's format with a medical certificate

b. DPN
c. Pension Pass Book
d. A letter of authority from the pensioner authorising the Bank to recover the loan instalment from
his account in which the pension amount is credited.
e. A letter of undertaking from the identified legal heir (who is also admitted as Associate Member) to
repay the outstanding loan amount with interest.
10. Sanctioning Authority:
a. This loan shall be sanctioned and disbursed by the Branch Manager subject to the Rules framed by
the Bank Management for this Loan Scheme.
11. Books of Accounts:
a. A separate loan ledger called as "Pensioner's Loan Ledger" shall be maintained by the Branch.
b. Details of Pension Pass Book serial number etc. should be recorded in "Documents Register" of the
Branch.
12. Vouchers / Entries:
a. Admission
i. DEBIT : "Borrower's Current or Savings Account"

ii. CREDIT : "Associate Membership Admission Fee A/C” (to be collected in respect of the
applicant & one of his legal heirs)
b. Loan Sanction
i DEBIT : "Pensioner's Loan Account"

ii CREDIT : Borrower's Current or Savings Account.
c. Repayment
i DEBIT : "Borrower's Current or Savings Account" (Towards monthly instalment)
ii CREDIT : - "Pensioners Loan account" (for the portion of principal amount out of EMI)
iii. CREDIT : - "Interest receivable on Pensioners Loan account" (for the interest portion out of
the EMI)
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d. Penal interest
i DEBIT : Borrower's Current or Savings Account
ii CREDIT : Penal interest account.
13. Overdues - Recovery Action:
a. If a borrower fails to remit a monthly instalment by the due date of the month then a reminder (in
pre-printed inland letter format) should be sent on after two days of the due date of that month
under copy to the identified legal heir who has been admitted as Associate Member.
b. If the defaulted instalment is not remitted till twenty days after the due date of that month despite the
reminder, a second reminder notice by Registered Post should be issued on after twenty two days of
that month.
c. In case three consecutive instalments are defaulted, then after sending the two reminders as stated
above, the Branch Manager should refer the case to H.O. legal department for suitable recovery
action through Arbitration proceedings.
14. Trial Balance:
a. A trial balance of all outstanding “Pensioners Loan Accounts” should be extracted as at the end of
each month and tallied with G.L. Figures.
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CHAPTER-50
JEWEL LOAN
1. General:
a. Loans may be given against pledge of gold jewels wholly belonging to the applicant / borrower.
This loan facility should be made available only to individuals.
2. Application:
a. The applicant / borrower will have to fill up the loan application provided by the Branch.
a. The borrower should be admitted as an Associate Member of the Bank against remittance of a
nominal Membership fee (which may vary according to each Bank).
4. Purpose:
a. It is mostly for meeting Medical / Educational / Agricultural activities or any other family
expenditure. At times it may be to clear prior debts to carry out repairs to homes, small extensions,
improvements to homes, to develop one's business etc.,
a. Advances against gold ornaments should be confined to parties whose bonafides and reliability are
established to the complete satisfaction of the bank / branch. He must be the true owner of the gold
ornaments which he wants to pledge to avail a loan.
6. Valuation of Articles:
a. The valuation of the ornaments must be based on the weight and fineness of gold content only.
Normally jewels with precious / semi-precious / imitation stones should be avoided.
b. It is always desirable not to entertain pledging of gold ornaments with diamonds or equally
valuable precious stones set in them.
c. Appraising of these jewels will be done by jewel appraisers engaged by the bank on commission
basis or by regular staff with that appraising skills. However banks may also train their own
Cashiers and Managers, as in the case of SBI, to be competent to value the gold ornaments.
d. The weight of all extraneous materials such as wax/strings/fastenings as well as stones (precious or
artificial) must be entirely ignored when ornaments containing them are entertained as cover,
under pledge, for the loan. The rough estimate of the weight of such items should be more liberal
716 - III
(i.e. on the high side) so that the loan sanctioned by the bank will be adequately covered by the gold
contents alone.
a. The Branch Manager will be the sanctioning authority who can sanction and disburse loans against
pledge of gold ornaments.
8. Appraiser Fee:
a. The Branch at the time of sanctioning "Jewel Loan" should collect "Appraiser Fee" from the
borrower at the rates fixed by the Bank Management along with "Associate Membership Fee".
Appraiser fee is subject to service tax.
9. Loan Amount:
a. The loan amount shall be as fixed by the Bank Management. Interest has to be charged at monthly
rests.
b. However, the loan amount per gram (22 carat-purity) shall not exceed 75% of the market value of
the gold per gram.
c. Rate per gram may be fixed by a Committee appointed by the Board and the rate may be based on
the average price for 3 years or 75% of the present market value, whichever is less.
10. Period of Loan :
This loan will have to be cleared together with interest due, within 12 months from the date of
availment. On any day the outstanding against any borrower should not exceed the maximum loan
amount prescribed by H.O.
11. Interest Rate:
This loan will carry interest at the rate fixed by the Bank Management.
12. Safe Keeping of Pledged Jewels:
The gold jewels pledged with the Bank shall be kept in a separate Iron Safe (other than cash safe) which
is also kept inside the strong room under Double Lock System, i.e. not only the Strong Room is under
Double Lock System but also the Iron Safe.
13. Custody:
a. The jewels under pledge the bank should be under the joint custody of the Branch Manager and
another officer of the Branch or the Cashier of the branch.
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b. One set of keys of the iron safe in which the gold ornaments are stored should be with the Branch
Manager and 2nd set should be with the 2nd Officer / Cashier who will be the joint custodian.
14. Loan Issue & Other Procedures:
a. The jewel loan application with round seal of the Branch and date seal with Officer's initial to be
given to the prospective borrower for filling up. This application should be kept ready by the
Branch in complete sets i.e. containing
i. Loan application,
ii. Associate Membership Application,
iii. Jewel pledge letter,
iv. Pronote.
b. The officer who receives the filled up application should verify whether the required particulars /
all columns have been properly filled up or furnished and duly signed by the borrower in the
relevant columns ascertaining his true ownership too.
c. Then the Borrower will deliver the gold ornaments to the appraiser who will weigh them in jewel
balance provided in the Branch. He will also check in the Loan application whether the gold
ornaments delivered by the borrower tally with the list he had made in the loan application in the
appropriate column.
d. The appraiser will then record under appropriate column in the application form the Gross weight
of the jewels pledged, the weight in grams to be deducted towards stones, wax, etc. and the net
weight. He will also ascertain the 22 ct purity of jewels pledged.
e. He will also record therein the loan amount based on the net weight of gold jewel pledged and the
"Loan rate" per gram of gold fixed by the Bank from time to time (This is done by H.O. based on
Market rates with reasonable margin towards fluctuations). The borrower has to sign the loan
ledger wherein entries made about the loan.
f. The appraiser or the Bank clerk attached to this section/assigned this job will then prepare the
following vouchers :
i. Associate Membership Admission Fee.

ii. Appraiser fee.
iii. Loan Voucher
iv. Credit Voucher, if the loan amount is to be credited to party's account with the Branch.
g. The officer will then check up the entries in the Loan application and loan ledger i.e. the Gross
weight & Net weight of the gold jewel and also per gram rate at which loan has to be issued, the loan
amount and then will sanction in the application itself wherein specific space/column has been
718 - III
provided. He will also pass the Loan Voucher. If the payment is in cash then he will also scroll it in
"Payment Cash Scroll". He will also issue a "Token" to the borrower to receive the loan amount at
the Cash Counter. The "Token Number" will be entered in one corner of the Debit voucher and
circled by the Officer.
h. The borrower will be paid cash at Cash Counter after collecting the token from him.
i. Cashier will either receive cash towards "Associate Membership Admission fee" and "Appraiser's
fees" from the borrower or adjust these amounts out of the jewel loan amount and pay the balance
to the borrower.
j. He should affix "Cash received" stamp on "Admission fee" & "Appraiser fees" vouchers and
"Cash paid" stamp on jewel loan Debit Voucher and sign on all these vouchers.
k. The vouchers shall be sent back to Jewel Loan Section where the clerk had already opened the loan
account in the Jewel Loan Ledger and J.L. No. (which should be in serial order). The application
form, Associate Membership Application form, Pronote, Loan debit voucher and pledge
Agreement form to contain J.L. No. He should also record the due date of the loan in the "DUE
DATE REGISTER".
l. A separate "Associate Members" register should be maintained. The membership number should
be maintained. The membership number should be given in serial order like "AM1", "AM2",
"AM3" etc.
m. As and when new member are admitted member number should be assigned in serial order against
which the name of the member and his address should be recorded. The register may have the
following column:
ASSOCIATE MEMBERS REGISTER
Date AM No. Name of the Member with address
n. He should record all relevant particulars as per column in the Jewel Loan Ledger like
i. AM No.
ii. JL No.
iii. Name of the Borrower
iv. Address
v. Full details of the gold ornaments pledged as recorded in the Loan application which entries
have been authenticated by the jewel appraiser.
o. He must then prepare "Jewel Loan Card" in triplicate. These pre-printed cards with serial numbers,
which number should be noted in Jewel loan ledger.
719 - III
p. The officer will then check the JL ledger, JL cards and deliver the third copy to the borrower against
his acknowledgement.
q. He will then crosscheck the jewels pledged with reference to the description furnished in loan
application, Loan Ledger & JL card.
r. The appraiser under the supervision of the officer place all the gold ornaments pledged by the
borrower in a strong cloth bag, he will also place first copy of the JL card inside this bag and the
second copy should be tied around on the outside of this bag.
s. Banks adopt a system wherein the gold ornaments pledged are tied together using a twine thread
and the first copy of the JL card also will be tied with this. On this card the appraiser will affix his
"Seal" on red sealing wax.
t. This "appraiser's seal" should be broken only in his presence during inspection after which a fresh
seal will be affixed by him or at the time of delivering the jewels back to the borrower when he
clears the jewel loan dues.
u. Once the jewel bag is closed, with jewels inside, and tied and the second copy of JL card is tied
outside this bag, the Manager / Officer will affix bank's seal on the Red Sealing wax poured on this
knot.
v. After the day's transactions are over, all the jewel bags relating to jewels loans issued that day will
be arranged in jewel trays in the order of the loan account numbers and the tray will be placed inside
"Jewel Safe" with strong room, by both the joint custodians.
w. A separate register called "Jewels pledge Register" with the following column should be
maintained.
JEWELS PLEDGE REGISTER:

No.of Jewel No. of JL Actual No.
No. of No. of Loan Signature of
Date JL No. Bags lodged of bags in
JL issued JL closed A/c closed bags released Custodian
the safe
This Register should be kept inside the Jewel Safe and this should be signed by both the joint custodians.
x. "JL Card" of the Bank issued to the borrower with the following particulars which will help him to
remit periodical interest on the jewel loan availed by him.
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AM No. :
JL No. :
Name :
Date of Loan :
Loan amount Repayment Balance Loan Interest accured upto Interest remitted
availed Date Amount Date Amount Date Amount Date Amount
y. On the reverse of this card, columns for Date, amounts remitted towards principal, interest and
initials of Officer should be provided so that whenever the borrower makes any payment towards
part of principal or interest due the entries would be made in this card.
15. At the time of Redemption:
a. When the borrower clears the entire jewel loan dues

i. Make appropriate closing entries in the JL ledger
ii. Withdraw the jewel bag, relating to loan accounts closed, from the Jewel Safe
iii. Make proper entries in Jewels Pledge Register (Security Register)
iv. Withdraw the documents i.e. the loan application, pledge agreement, pronote etc. submitted
by the borrower at the time of availing the loan and cancel these forms drawing two parallel
lines diagonally across these documents within which "Account Closed" should be written
using red ink, record the date of closing the loan also in these forms. After this 2/3 punch holes
should be made in the Pronote.
b. All the above cancelled documents should be kept in a separate file captioned as "JLs Closed File"
c. Borrower should surrender the JL card at the time of closing the Jewel loan account. As per the
procedure detailed above these should also be properly cancelled & filed. Officer-in-charge should
check the closing entries in JL ledger, Security Register (Jewels pledge Register). Bank's seal
outside the jewel bag should be removed by the officer. This JL bag should be opened only in the
presence of jewel appraiser. Then the seal of the appraiser should be removed. The jewels should
be delivered to the borrower after getting his acknowledgement at the appropriate place in the
jewel loan ledger.
d. In case of a borrower requesting the Bank to hand over the jewels while he/she is abroad, the
following procedures should be followed.
e.
721 - III
i. The borrower has to execute a Power of Attorney Deed in the presence of Ambassador or a
Notary Public of that country appointing any one from the legal heirs to remit the loan dues
and receive the jewels. A copy of the deed should be sent directly to the Bank.
ii. The power holder has to produce satisfactory proof of identification.
iii. The power holder has to produce an indemnity bond for the value of the jewels.
iv. In case of loss of JL identity, duplicate JL receipt can be issued under indemnity bond.
v. The copy of power of attorney deed should be compared with the original deed before
allowing the power holder to remit the dues.
16. Overdue Loan - Recovery Procedure:
a. Branch should review all the jewel loan accounts once in six (6) months and take the following
actions for the recovery of dues.
i. Issue first Demand Notice after one month before the due date.
ii. In case the borrower does not respond to the first Demand notice, issue 2nd demand notice on
the due date.
iii. In case there is no response even for the 2nd notice, issue final notice by registered post, after
15 days from the date of issue of 2nd notice, informing the borrower that in case the borrower
does not pay the dues to the bank and close his JL account within 7 days from the date of notice
the bank will arrange for the sale of pledged jewels through public auction.
iv. In case there is no response even after the final demand notice or all such demand notices are
returned undelivered to the bank, a responsible staff of the bank should personally visit the last
known address of the borrower to which address the bank had sent all the demand notices. In
case the borrower is not available in that address, he should enquire the neighbours to know the
where-about of the borrower. After such a visit and enquiries the staff concerned should file a
report to the Branch Manager.
v. All notices returned undelivered to the Branch should be kept unopened and must be kept with
other loan documents. So that it may be produced to Government, if need be, as evidence of
notice having been sent.
vi. Thereafter the Branch Manager should refer all such overdue jewel loans to H.O. So that
H.O. could either arrange for a centralized or region wise auction sale of gold ornaments
relating to overdue jewel loans.
vii. For this purpose the branches should list out all such overdue / irregular loans giving the
particulars of Loan Member, Date of issue of loan, Name of the borrower with address,
Amount of original loan, present O/S, Gross weight of jewels under pledge, Net weight &
fineness of gold etc.
b. Once the H.O. communicates its decision / agreement to arrange for sale of jewels relating to
overdue jewel loan through public auction the Branch should observe the following steps :
i. Branch should again issue a fresh Registered Notice with Acknowledgement due calling upon
722 - III
the borrower to close the loan account and take delivery of his jewels under pledge to the bank
within 15 days from the date of the letter. This notice should also advise the borrower that in
case he fails to clear the overdue jewel loan dues within the stipulated time the jewels under
pledge will be sold by public auction to recover the loan dues and in case the sale proceeds less
cost of auction fall short of the total amount due to the bank under the overdue jewel loan the
bank shall proceed against him for recovery of the balance amount due.
ii. Ten days prior to conduct of auction sale, the Commissioners/ Collector, Central Excise shall
be informed about the proposed sale giving details of jewels, weight and the name of the
borrower to whom the jewels belong.
iii. The auction sale shall be conducted by an approved auctioneer of the Central Excise
Department.
iv. Prior to actual sale in case there is no response from the borrower to the bank's registered
notice, the branch will publish the proposed auction sale in one or two local dailies, preferably
in local / vernacular language giving the details of the Name of the borrower with last known
address, description of the jewels pledged by him which are proposed to be auctioned and
Gross weight of the jewel.
v. A copy of this Notice should also be displayed in the Notice Board of the Branch together with
date of auction with the following condition:
- that immediately after the auction sale, the highest bidder should deposit 50% of the bid
amount.
- that the sale will be subject to the confirmation within 10 days by the appropriate authority of
the Bank's H.O.
- once the sale is confirmed and the bidder is informed he should deposit the balance amount
within 3/5 days from the date of receipt of intimation (such intimation should be personally
delivered by a bank staff through bank's "Local Delivery Register" against the party's
acknowledgement in the register) and in case of failure the 50% deposit amount paid by him
on the date of auction would be forfeited.
- that in case the sale is not confirmed the amount deposited by the bidder shall be returned to him
without interest.
- that the bank is not liable for the quality / quantity of the jewels.
vi. The auction should be conducted in the presence of two directors nominated by the Bank or
two respectable witnesses and full record of the auction duly authenticated by these witnesses
should be kept by the branch.
vii. While auctioning a minimum bid amount of 80% of the current market rate per gram of gold
should be insisted. The market rates will be available in all local dailies.
viii. Jewels relating to each loan should be taken for auction sale separately.
ix. On the date of auction the intending bidders should first remit a token amount fixed by the
bank as EMD and should furnish his name residential address with phone, business address
with phone, if any, and sign in the "participating bidder's List" of the branch. He will then be
given a TOKEN (as ID) by the Bank to participate in the auction sale.
723 - III
x. This EMD will be adjusted towards 50% of the highest bid, if he is the highest bidder for any of
the jewels auctioned that day. In case a bidder was not the highest bidder for any item of jewels
auctioned that day, the Branch should on the conclusion of auction sale of all the listed jewels,
refund his EMD amount against his acknowledgement in "Participating Bidders List".
xi. For each item of jewel auctioned the branch should record the bid amounts as the auction
proceeds (i.e. as per progress in the auction) noting in a separate sheet for each jewel loan
account (the jewels relating to which are auctioned) with the name of the bidder and the bid by
him. The highest bidder should sign with the date in that particular sheet against the highest
amount bid by him which should be countersigned by the Manager and another authorised
officer (authorised by the H.O. for the purpose) such sheets should be retained in bank's
records.
xii. In case a borrower had pledged many pieces (items) of jewel to avail the loan which has now
become overdue, the branch shall auction only as many items of jewellery as are necessary to
realise the entire dues under the said jewel loan account and the remaining pieces (item) of
jewellery should not be auctioned.
xiii. Care must be taken to see that the Branch realises proper prices for the jewels auctioned. If the
Manager suspects that the bidders have formed a Syndicate and feels that the highest bid for a
particular jewel is not a fair price, the sale of that jewel need not be concluded that day, but
adjourned to some later date.
xiv. When the auction sale i.e. the highest bid is confirmed by the appropriate authority in the Bank
and the confirmation of the sale had been communicated to the bidder and he remits the
balance 50% of the bid amount within the stipulated time the relative jewel should be
delivered / handed over to the purchaser after getting his acknowledgement in the jewel loan
ledger.
xv. The borrower should also be intimated of the auction sale particulars by registered post with
acknowledgement due. All charges (postal charges relating to Demand & Registered notices
sent to him etc.) should be adjusted out of auction sale proceeds after adjusting loan dues,
Balance amount of the sale proceeds, if any, should be credited to the borrower's SB account or
remitted by means of a Banker's Cheque / Pay Order Crossed account payee. In case the
auction sale proceeds is not sufficient to liquidate the dues under the J.L. account of the
borrower the branch should inform the H.O. immediately for necessary legal action by H.O.
against the borrower for recovering the short fall.
xvi. Detailed report of auction sale, adjustment of J.L. account etc. should be sent to H.O. within a
month from the date of auction.
xvii.The staff members of the Bank / Branch should not be allowed to participate in the auction
sale.
17. Insurance:
a. The gold jewels under pledge with the bank shall be insured against risks of fire and burglary for
their market value. This Insurance will be arranged by the H.O. collectively for all the branches
issuing jewel/gold loans and many banks are collecting this Insurance charge from the borrowers at
724 - III
the time of closing the J.L. account. For this purpose the J.L. issuing branches should send a
statement to H.O. at on every Friday giving the following particulars. The Branch manager will
have to follow the following important instructions to ensure effective management of jewel loan
portfolio.
Jewel loan - Jewels under pledge - Insurance cover - Statement
As on FRIDAY ...............................
Net weight of gold Net weight of gold Net weight of gold Net weight of gold
Date Day jewels pledged jewels released of jewels pledged jewels pledged
opening value during the day during the day closing value
Saturday
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
18. Gold (Jewel) Loan to Staff Members:
a. Jewel loan can be granted to the members of the staff subject to the limits fixed by the H.O. from
time to time. The rules to be followed, rate of interest to be charged, etc. should also be
communicated by H.O. through circulars / office orders. The pledged jewels should be owned by
the staff member (his spouse). Staff member availing jewel loan should become Associate
Member.
19. Verification:
a. The jewels under pledge to the Bank should be verified by the joint custodians in the presence of
the appraiser once in a quarter. They should record in the respective J.L. ledger folios "verified &
found correct" and should sign with date. The Branch should send a certificate to H.O. after each
such quarterly verification.
b. At the end of each month one of the officers in the branch (other than the joint custodian) in the
presence of the joint custodian should check the number of jewel bags inside the "Jewel Safe" and
verify whether the number agrees with the number shown in "Jewel Loan Security Register". After
verification the officer should record in this Security Register "Verified the number of Jewel bags
& found to agree with the Security Register" and affix his signature with date.
c. Inspecting Officer / Internal Auditor whenever they visit the branch for regular inspection or
conducting Internal Audit should count the number of Jewel bags inside the jewel safe and check
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with the J.L. ledger & Jewel Security Register whether both figures agree. They must also choose
20% of number of outstanding Jewel loans at random and pull out the jewel bags relating to such
randomly chosen jewel loan accounts, remove the seal in the presence of the appraiser and
physically verify the jewels under pledge to cover the respective loan amount.
20. Books of Accounts and Forms:
a. The branch should maintain the following ledgers / Books / Registers and Forms:
i. Jewel loan Ledger

ii. Associate Membership Register (Common for the Branch)
iii. Jewel Security Register
iv. Due date Register
v. Auction Sale Register
vi. Trial Balance Register.
vii. Jewel loans (net weight) Insurance purpose register
b. The following Forms should be maintained in files:
i. Jewel Loan Application Form

ii. Associate Membership Application Form
iii. Pledge Agreement Form
iv. Pronote.
c. Associate Membership application forms may be kept in a separate file. Before filing the loan
number of the first jewel loan availed by that Associate Member should be noted in the A.M.
application form. Similarly the A.M. number should be marked in the J.L. application form,
pledge agreement form and pronote. These three forms should be stapled together and kept in a file
called "J.L. applications" file.
d. As and when the jewel loans are closed (cleared) the relevant J.L. applications, Pledge Agreement
Forms and Pronotes should be removed from this file and "Account closed" stamp should be
affixed on all the said form with date of closing the loan recorded in red ink. These forms of the
closed accounts should be kept / retained in separate file called "Jewel loans closed".
21. Claims:
The claimants (legal heirs) have to submit the following documents.
1. Claim form signed by all the claimants simultaneously and notarized

2. Death certificate of the borrower
3. Legal heirship certificate
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4. Indemnity bond with two sureties for the value of the jewels
5. Proof of creditworthiness of sureties
6. Jewel loan card
7. Consent letter from the other legal heirs with notary attestation to hand over the jewels to one among
them.
8. Probate order in case the borrower had left any will and the claim is based on the Probate
9. Letter of Administration issued by a competent court in case of rival claim or the bonafides of the claim
is doubtful.
Precautions/instructions to be followed in respect of jewel loan issue:
Two Personnel should sign in all Jewel Loan applications Jewel Loan Cards and Jewel Loan Ledger
Sheets. One Officer has to authenticate the weight of Jewels, No. of Jewel Loan Item along with the
signature at the time of issue of loan to the borrower and the other has to authenticate the same at the time of
the sealing the Jewel Bags with the Jewels pledged.
Both Officers should sign the Jewel Bags Stock Register kept inside the Safe Room and similarly
Deposits and Withdrawals of Jewel Bags should be authenticated in the Register then and there. Revenue
Stamps should be insisted upon and affixed on the Pronote before disbursement of Jewel Loans, where
stamping is not exempted.
Latest address proof along with borrower's Mobile/Landline No. should be obtained every time.
For new customers, proof of identity and address along with his/her passport size photograph should be
compulsorily obtained. One photo should be affixed in the Ledger Sheet and other one in the application to
comply with KYC Norms.
Postage expenses should be collected from the borrower at the time of redemption of Jewels.
Whenever reminders/notices are returned suitable follow-up actions should be initiated by the Branch
to trace out the borrower and recover the dues to the Bank.
The Officer in-charge should take charge of overdue Jewels every month and initiate suitable follow-up
action and to realize the overdues. In case of overdues, the Officers should recommend for Jewel auction as
per the laid down rules of the Bank and ensure recovery of the dues to the Bank.
727 - III
CHAPTER-51
ADVANCES AGAINST LIFE INSURANCE POLICIES
1. General:
a. Demand Loan or OD / Cash credit may be granted to the customers against Life Insurance Policies
issued by LIC of India. The customer shall be admitted as an Associate member of the Bank.
b. Such advances should normally be granted only against Endowment Policies with profits.
c. No advance shall be granted against Life Insurance Policies having any conditional undertakings,
either as per the Insurance Act / IRDA norms or otherwise.
d. According to Sec.39(4) of the Indian Insurance Act 1988, a nomination is automatically cancelled
by subsequent transfer or assignment. As such it should be specifically ensured that all policies are
assigned in favour of the Bank and all are being effected under Sec.39(4) of Insurance Act.
e. No advance should be granted against a policy which stands assigned to a minor.
f. The policy should be carefully examined to ensure that it does not contain any special condition
which restricts its assignability and affect its value as security for bank's advance.
g. Life Insurance Policies may be accepted either as a Primary Security or Collateral Security for
advances.
2. Precautions:
a. To ascertain that no prior charge exist on the said policy.
b. Premia on the policies have been paid upto date and the policy is in force and the latest premium
receipt should be taken and retained on bank's records.
c. The original policy duly stamped and signed by the issuing authority should be obtained.
d. The age of assured must have been admitted in the policy. If not admitted it must be arranged for
before granting the advance.
f. The surrender value of the policy should be ascertained from LIC.
g. No loan can be granted against policies which have not acquired any surrender value.
h. The Policy offered as Security must be at least 3 years old.
i. If the policy stands in joint names, all of them should assign the policy jointly.
728 - III
j. No loan will be sanctioned on a policy taken by a partnership concern on its partners.
3. Maximum Amount of Advance:
a. The maximum amount of loan / advance against the security of Life Insurance Policy shall not
exceed 85% of the surrender value of the Policy or at any percentage as may be fixed by the bank
from time to time.
4. Assignment of the Policy:
a. All the policies must be assigned in favour of the Bank as Security and the assignment should be
registered with LIC before granting any advance. In the case of Postal Life Insurance Policy it
should be registered with the Post Master General of the Circle who had issued the Policy.
b. The assignment should be executed by the assured on the policy itself or on a separate stamped
paper.
c. The assignment should be witnessed by a person, other than wife or a near relative of the assured
stating his name occupation and address.
d. The assigned policy together with a notice of assignment in duplicate signed by the assignor should
be forwarded to the concerned office of the LIC by Registered Post with Acknowledgement Due
letter for registration of the assignment and return of policy along with a copy of notice of
assignment after incorporating an acknowledgement by them.
e. Due dates of premia should be properly diarised to ensure that they are regularly paid. It should
also be ensured that the policies do not lapse for non-payment of premia on time. For this purpose
standing instructions, to debit his account with the bank to remit the premia should be taken from
the borrower customer. All premia receipts as well as Bonus receipts (wherever applicable) should
be obtained and retained with the policy.
f. All the Insurance Policies held as security for advances must be recorded in bank's "Security
Register" and retained in strong room.
g. The applicant must be resident / employed within the area of operation of the branch.
5. Documents:
a. Loan application in the prescribed format.
b. Letter of pledge for advance against Life Insurance policy.
c. Single / joint and several DP Note.
d. Assignment made on policy itself or a separate assignment on stamped paper.
729 - III
e. Letter of continuity in case the facility is provided to the borrower by way of overdraft in his Current
Account.
f. Any other Document like Associate Membership form etc. as prescribed by the Bank from time to
time.
6. Loan Sanctioning Authority:
a. The Branch Manager shall be competent to sanction the loan/overdraft against the security of Life
Insurance policies. He should satisfy himself about the integrity and credit worthiness of the
borrower. The Delegation of Powers for sanction of such advances rest with the Board of
Management.
7. Period of Loan:
a. The period of the loan shall be as fixed by the Bank. Normally it is desirable to restrict the period to
3 years. Loan must be repayable either by monthly / quarterly instalments.
a. The Rate of Interest shall be as fixed by the bank from time to time. Normally, it is desirable to fix
the Rate of Interest as applicable to secured advances. Interest should be charged at the end of each
calendar month for both overdraft as well as loan accounts on the basis of products of daily
outstanding and capitalised. Interest demand notice should be issued to the borrower 15 days
before the actual date of charging of monthly/quarterly interest with a request to remit the interest
due on or before the due date prescribed.
9. Penal Interest:
a. If the interest due is not cleared on the due date, penal interest will be charged at the rate fixed by the
Bank, on the interest amount due from the due date to the date of actual remittance.
b. Similarly if the instalment of principal is not repaid on the due date, penal interest as above should
be charged.
10. When the Loan becomes Overdue:
a. Where the loan against the Life Insurance policy becomes overdue and remains so despite repeated
reminders, a final demand notice demanding the payment of the entire dues together with interest
due there on should be sent by Registered Post with acknowledgement due intimating the date by
which the borrower should settle the dues to the Bank. (normally 30 days' time may be given from
the date of Registered notice). In the same notice the borrower shall be informed that in case of
failure to clear the dues to the bank within the stipulated date the bank will surrender the policy
without further intimation to the borrower.
730 - III
b. If after the lapse of the stipulated period, the loan remains unadjusted and it is decided to surrender
the policy and realise its value, the letter addressed to the LIC of India for the purpose should
contain, inter alia, a certificate to the effect that the policy is being surrendered after due notice to
the policy holder.
11. Reassignment of Policy:
a. When an advance against a life policy is fully repaid, the policy should be reassigned in favour of
the assignor - borrower (Policy holder). The reassigned policy thereafter should be sent by the
Branch along with the notice of Re-assignment direct to the concerned office of the LIC of India for
registration of the re-assignment in their books.
b. When sending the re-assigned policies to the concerned office of LIC for registration of re-
assignment, the covering letter should specifically point out that the policy is being sent (i) for
registration of reassignment and (ii) for subsequent transmission thereof to the policy holder. The
policy holder should be suitably advised.
c. Insurance policy should be reassigned only in favour of the life assured and it should not be re-
assigned in favour of third parties even when the borrower desires the Bank to do so and issue a
letter of authority, it might impose on the Bank unnecessary liability which must be avoided.
12. Repayment:
a. If a policy matures before the due date of the advance, the Branch should address LIC of India, as to
the procedure it should follow to surrender the policy. The proceeds of the policy should then be
collected and credited to the Loan account. Any surplus should be credited to borrower's Current
or S.B. account with the Branch.
b. In the event of death of the borrower (Life Assured), the Bank is entitled to receive the Policy
Amount. The Bank should get the necessary forms from Life Insurance Policy and claim policy
amount by submitting the forms duly filled in along with the death certificate of the borrower.
c. On receipt of the policy amount, it should be adjusted to the Loan Account and if any surplus
amount is available, it should be paid to legal heirs of the borrower.
731 - III
CHAPTER-52
ADVANCES AGAINST NATIONAL SAVINGS CERTIFICATES (NSCs)

& KISAN VIKAS PATRAS (KVPs)
1. General:
a. Advances by way of Loans / Over drafts against Kisan Vikas Patras (KVP) may be granted to
i. the Bank's customers,

ii. persons of good reputation
iii. Central Government/ State Government / National Saving Certificates (NSCs) / employees of
PSUs,
iv. persons introduced by the long standing customers of the Branch
v. staff members of the Bank
2. Precautions & Procedure for sanction loan/ OD:
a. The NSC should be in the name of the Borrower

b. To ensure that the certificates offered as security for loan are the originals and not duplicates.
c. Specimen Signature of the beneficiary of the NSC should be got verified by the Post Office
concerned. However, when the identity certificate issued by the Post Office is available this is not
necessary.
d. An authorisation letter from the borrower as per specimen supplied by the Post Office without date,
addressed to the concerned Post Office for effecting transfer of the certificate in favour of the Bank
should be obtained and retained with the N.S.C.
e. A letter from the borrower requesting the Post Office to register the lien in favour of the Bank and
hand over the certificate to the Bank after such registration.
f. The Bank should obtain a letter of authority from the borrower at the time of granting the advance
and ensure collection of periodical interest from the Post Office and credit the same to the loan
account.
g. In case of NSCs in the Joint Names, Letters of Authority should be taken from all parties.
h. No loan/ OD may be sanctioned to minors, lunatics, etc.
3. Amount of Advance:
The amount of advance against NSCs may be upto 65% of the face value or at the percentage fixed by
the Bank from time to time.
732 - III
4. Period of Advance:
a. Loan against NSC may be sanctioned for a maximum period fixed by the Bank or upto the date of
maturity of the NSC, whichever is earlier.
b. O/D against NSC may be sanctioned for a period of 1 year and may be renewed every year upto the
date of maturity of the NSC.
5. Rate of Interest/Charging of Interest:
a. The rate of interest and the method of charging the interest shall be as prescribed by the Bank. The
ROI may be fixed by each bank based on the Prime lending rate of the bank.
b. Interest may be calculated on the daily outstanding and charged to the loan /OD a/c at the end of
every month/ quarter.
c. Interest Demand Notice is to be sent to the borrower advising to pay the interest to the loan / OD
A/c on or before the end of every month/ quarter as the case may be.
d. In the event of failure to pay the interest as per demand, penal interest may be charged/ collected on
the rates prescribed by each Bank.
e. The security must not be discharged by the holder at the time of pleading as security.
f. Demand Promissory Note executed by the borrower for the total amount of loan/ OD sanctioned
should be obtained.
g. The accepted N.S. Certificate should be forwarded to the Post Office which has issued the
certificate along with an appropriate transfer application form, as prescribed by the Postal
authorities for transfer of N.S. Certificates in the name of the Bank. The Bank should ensure that no
loan or advance is granted before the securities are transferred in favour of the Bank.
h. The authority to sanction loans or overdraft limits against the security of NSC/KVP will be as per
the delegation of powers as prescribed by the Bank from time to time.
i. The NSC/ KVP should be kept in safe custody with the Bank with proper entries in the Security
Register.
6. Closing of Accounts:
a. On repayment of the loan/ OD before maturity of the NSC, the Bank has to arrange for cancellation
of Lien/transfer from Bank's favour in the Books of the Post Office by executing the prescribed
forms. And on cancellation of lien, the NSC should be returned to the customer against
acknowledgement.
b. In case of default in repayment of dues till maturity of the NSC, the proceeds of the matured NSC
should be collected from the Post Office and adjusted for the dues with interest, penal interest, etc.
and the balance amount if any, may be credited to the customer's savings account or sent to the
customer by a Banker's cheque/ pay order.
733 - III
CHAPTER-53
CASH CREDIT LIMIT TO TRADERS
1. General:
a. Proposals for Cash Credit Limits from customers received by the branches should be forwarded to
HO for approval and sanction by authorised Executive of the Bank at HO.
b. After sanction full details should be placed before the Board of Management for ratification.
c. On receipt of sanction from HO, the Branch Manager will issue sanction orders to the applicant,
collect all required documents.
2. Eligibility:
a. The applicant should be a wholesale/ retail trader having a certificate of registration under the State
Sales Tax Act.
b. The applicant shall be a Sole Proprietor / Partnership Firm.
c. Any trading or business activity approved under the State's (State concerned) General Sales Tax Act
will be eligible for Cash Credit Limit.
d. The business / trading activity of the applicant should be in the area of operation of the Branch.
3. Procedure:
a. An application for Cash Credit Limit should be collected from the customer in bank's printed
Application Form.
b. The applicants / guarantors should be admitted as an Associate Member.
c. The applicant must open a Current Account (if not already an Account Holder)
d. On receipt of approval of the proposal and sanction by HO, the accommodation should be provided
by the Branch as Cash Credit facility.
e. The Cash Credit Limit should be valid only upto end of the calendar year in which it is sanctioned.
f. Renewal of the limit for subsequent year(s) will be based on the performance / operations in the
Cash Credit account during the previous year.
4. Security:
a. The primary security for the Cash Credit accommodation will be hypothecation of paid stocks in
Trade / Permissible level of book debts.
734 - III
b. Valuation of stocks will be on the basis of cost price or market price whichever is less.
c. In addition to hypothecation of stocks the borrower should furnish collateral security in the form of
urban immovable property at least equal to the Cash Credit Limit sanctioned by the Branch.
5. Limit Eligibility:
a. Limit will be assessed basing on the last two years sales turnover as reported in the State
Government Sales Tax Assessment orders. Limit will be sanctioned not exceeding 20% of the
average turnover of stocks during the previous two Sales Tax Assessment years.
b. In respect of high turnover commodities like petroleum products / cigarettes etc., limit will be
assessed at a lesser rate of turnover figures based on actual optimum level of requirements.
6. Margin:The margin shall be as prescribed by the Bank. It is desirable to have a margin of 40%.
Drawing Power will be arrived at after deducting the margin amount from the value of stocks and
permitted level of book debts.
7. Loan Limit: Minimum and maximum Cash Credit Limit to any single individual trader will be fixed by
the bank. It may be desirable to have the minimum as Rs.25,000/- and the maximum limit as Rs.10.00
lakhs.
8. Period of Limit: Initially the period of limit shall be for one year only. However, the limit shall be
reviewed for further period.
9. Rate of Interest: The rate of interest shall be as prescribed by the Bank.
10. Penal Interest:
a. Outstanding in excess of drawing power / limit as well as the O/S under the unrenewed Cash Credit
account will be considered as overdues.
b. Such overdues will attract penal interest at 3% p.a. over and above the normal interest rate from the
date of such overdue till date of regularisation of the account.
11. Documents:
a. Application for Cash Credit Limit should be in banks printed Application Form.
b. Hypothecation Agreement duly executed by the applicant.
c. Title Deed and other relevant documents relating to collateral securities offered as cover for Cash
Credit Limit.
d. Pronote for the amount of CC limit sanctioned by the Branch.
e. Original of Insurance Policy, covering the stocks in trade in the shop insured against the risks of fire
theft etc., in the joint names of the trading concern and the bank with bank's clause.
735 - III
a. Once the Cash Credit limit has been sanctioned by such authorised executive, the subject will be
placed before the Board of Management for ratification at its next meeting.
13. Insurance:
a. The borrower (Trader) should arrange for insurance cover for the stock-in-trade in his shop /
godown against the risks of fire, theft, etc. in the joint names of the bank and the trading concern
with bank's clause.
14. Utilisation of Cash Credit:
a. The Cash Credit Limit should be utilised only for the purpose for which the same has been
sanctioned.
b. Any diversion or misuse of this Cash Credit funds will render the borrower liable to repay the entire
dues to the bank immediately and the Bank will stop further operations in the CC account.
15. Stock Statement:
a. The borrower shall furnish the stock statement every month in the prescribed format to the Branch
to reach the branch on or before 10th of the succeeding month.
b. On receipt of the stock statement, the value of available stocks in the shop / godown at cost price or
market price whichever is less to be assessed out of which the prescribed margin. (may be 40%)
should be reduced and the Drawing Power should be fixed. This Drawing Power should be
communicated to the borrower and this D.P. is to be operative from 15th of the month to 14th of the
succeeding month.
c. At no point of time the outstanding in this CC account exceed the Drawing Power.
16. Procedure for Overdue Recovery:
a. If the CC account becomes overdue and the borrower does not, despite written Demand notices by
the bank, regularize the account or repay the entire dues within the stipulated period, the Branch
Manager should refer the case to HO for Legal / Arbitration action against the borrower for
recovery of dues to the bank after exhausting the following steps:
i. Issue first Demand notice within one week from the date of occurrence of overdue.
ii. If the account is not regularized issue second Demand notice, after 15 days from the date of
issue of first demand notice.
iii. Even after the second notice if the account is not regularized then issue a Registered notice
with acknowledgement due after 30 days from the date of second notice.
736 - III
CHAPTER-54
TEMPORARY OVERDRAFTS
1. General:
a. This is a facility provided to most trustworthy and credit worthy constituents of the Branch.
b. The Branch Manager should have complete knowledge about the individuals, to whom he allows
TOD facilities, such as their social status, employment, business details, monthly earnings, family
background, whether owns a house / flat, etc.
c. The TOD shall be sanctioned at the discretion of the Branch Manager.
d. Normally cash drawals should not be permitted under TOD limit.
e. Staff members of the bank are not eligible for TOD facility.
2. Application:
a, The Current Account customer should make a specific written request to the Branch Manager
seeking TOD facility mentioning the amount required, purpose and period for which the same is
required.
a. Once the Branch Manager has agreed to extend TOD facility to the customer who had applied for
the same, he should be admitted as an Associate Member.
a. The following documents should be obtained from the customer to whom TOD facility is allowed
by the Branch:
i. An application seeking TOD facility.
ii. DPN for the TOD limit sanctioned by the Branch. (As and when the existing TOD facility i.e. the
entire outstanding together with interest due is remitted by the customer by end of the period for
which the TOD had been sanctioned, the DPN covering the TOD O/S should be cancelled. Fresh
Pronote should be obtained when again the TOD facility is extended to the same customer).
5. Maximum TOD to be allowed:
a. Maximum TOD to be allowed should be as fixed by the Bank Management. In most banks a ceiling
of TOD per individual customer as well as overall ceiling for total TOD limits to be sanctioned by
each Branch are being fixed from time to time.
737 - III
b. A Cooperative Bank has to allow TOD facility to well-known borrowers based on their credit
standing and integrity as assessed by the Branch Head.
6. Period of TOD:
a. The period of TOD normally is fixed 3 months. In few banks it is 6 months. However the period of
TOD will have to be as fixed by the Bank Management.
a. The rate of interest shall be as fixed by the Bank Management with revisions from time to time.
However, the rate of interest should be highest for TOD.
b. Interest should be charged on the basis of daily outstanding.
c. Interest should be charged on the last working day of each month or as and when the outstanding is
cleared, whichever is earlier.
8. Penal Interest:
a. If the O/S amount with interest under the TOD account is not cleared within the stipulated period of
3/6 months then the outstanding is treated as overdue for which penal interest @ 3% p.a. in addition
to the normal rate should be charged from the original date of availment of TOD till date of
regularisation.
9. Operation of TOD Account:
a. On each occasion any debit or passing of a cheque drawn on the TOD account which results in
causes Temporary Overdraft i.e. debit balance in the said Current Account the same should be
recorded in cheque referred book and the approval of the Passing Officer / Branch Manager should
be obtained.
10. Outstanding in the Account:
a. The outstanding under TOD account should not be allowed to exceed the TOD limit sanctioned.
b. Since interest on the O/S in the TOD account should be charged (i.e. debited) to the account on the
last working day of each month in case such a debit of interest amount is estimated to result in an
outstanding which will exceed the sanctioned TOD limit, the customer should be asked to remit
sufficient funds.
11. Renewal of TOD limits:
a. It should be ensured that the entire O/S with interest under TOD, the limit sanctioned to any
customer is cleared within the stipulated period i.e. 3/6 months as fixed by the bank.
b. Any renewal of TOD limit should be considered only after a lapse of at least 10/15 days from the
date of repayment of dues under the previous TOD limit.
738 - III
12. Sanctioning Officer Responsible:
a. Since the TOD facility is sanctioned purely & solely on the personal assessment of an individual
customers integrity, credit worthiness the facility is sanctioned by the Branch Manager on his
personal risk and responsibility.
b. Hence the sanctioning officer is responsible for recovery of dues under the TOD limit sanctioned
by him.
13. Overdue TOD Recovery Action:
a. If the TOD is cleared within the stipulated period of 3/6 months then such account should be treated
as overdue.
b. The Branch Manager should then issue a Demand Notice to the customer within 7 days from the
date of expiry of the TOD limit advising him to clear the dues to the bank within 10 days from the
date of the Demand Notice.
c. In case he fails to respond then a second notice should be issued to the customer within 30 days
from the original date of expiry of the TOD limit.
d. If there is no response even after the second notice a final demand notice by Registered Post with
Acknowledgement Due should be issued to the customer after 15 days from the date of 2nd notice.
e. Even after this final demand notice, if the customer do not respond then the Branch Manager
should refer the case to HO after 15 days from the date of final notice for suitable Legal / Arbitration
action against the defaulted customer.
14. OD Register:
a. The Branch should maintain a register called "Current Account OD Register" wherein details of
daily O/S under both POD as well as TOD accounts should be recorded separately and the entries
should be authenticated by the Branch Manager.
15. Return:
a. The Branch should furnish a weekly return to HO showing all particulars relating to all TOD
accounts in the Branch as on each Friday.
739 - III
CHAPTER-55
LOCAL CHEQUES, DEMAND DRAFTS AND

OUTSTATION CHEQUES - PURCHASE, INSTANT CREDIT
1. General:
a. This facility can be extended to all Current Account customers and in select cases of S. B. Account
Holders, who are maintaining good operative account with good standing. This is a service
provided to customers.
b. The customer to whom this facility is extended should be in a position to make good the amount in
short notice in case the purchased instrument is returned unpaid by the Drawer bank.
2. Monetary Ceiling:
a. A monetary ceiling per customer should be fixed by the Bank.

b. This facility is not provided by way of limit. (Bills purchase / Bills discounting limits are provided
to business class of customers as a separate line of credit).
c. This is a facility provided to the customers who desire to encash the local / out station
cheques/bills/DDs drawn in their favour immediately without waiting till the proceeds of said
instruments could be realised by the bank in the normal course.
d. Since no other collateral security is available and this facility is a clean accommodation till the
realisation of the instruments deposited by such a customers, the Bank will fix a monetary ceiling
per customer for provision of this facility.
3. Safe-Guards to be observed:
a. The bank will have to establish the following in order to get a good title as "Holder for value":
i. The bank should not have notice of any previous dishonour of the cheque or any defect in the
title of the customer.
ii. It should not have given value for the cheque in good faith.
iii. It should not have paid the value under suspicion of forgery of the cheque.
iv. The cheque should not have been crossed "Not Negotiable".
v. The cheques should be drawn in favour of the customer who wants the same to be purchased.
vi. The cheques should be crossed by the constituent before tendering to the Branch.
vii. The cheques must be drawn on well-known and sound banks.
viii. If the purchased / discounted cheque is returned unpaid for want of funds or due to stoppage of
payment by the drawer (i.e. other than technical reason) the customer for whom the said
cheque has been purchased should not be extended the same facility again.
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4. Books:
a. The Branch should maintain Bills Purchased Register. This Register may be subdivided providing
few pages for recording the particulars of “Local and Out station Cheques” and “DDs purchased”.
5. Procedure:
a. To collect a request letter from the customer for purchasing the cheque / DD drawn in his favour
which he lodges for realisation and credit to his account with the branch. He must mention whether
he wants instant credit of full value or part value of the cheque lodged by him, mentioning clearly
his account number.
b. Get the authorisation from the Branch Manager.
c. Then prepare necessary vouchers for purchasing the said cheques.
d. After passing necessary "purchase" entries send the cheque to HO / Clearing House for collection
of proceeds.
e. Upon realisation of the cheque amount make necessary adjustment entries.
6. Vouchers:
a. At the time of purchasing the instrument for part value of the cheque, debit the amount paid to the
customer against the value of the cheque purchased and make entry as:
i. Debit - General Ledger Head of Account "Bills Purchased account"

ii. Credit - Customer's Current or Savings account for the amount paid Less commission.
- "Commission account" for the value of commission charged.
iii. Debit - "Clearing House Account" (GL account) for full value of the cheque.
iv. Credit - Bills purchased account (for the amount paid to customer).
- Customers account (for the balance amount of cheque).
- e.g. In case the cheque is for Rs.10,000/- but the customer wants immediate
payment of Rs.5,000/- only.
 Debit Bills purchased account for Rs.5,000/-
 Credit Customer's account for Rs.4,900/- (if Commission charged is Rs.100/)
- Commission account for Rs.100/-
 Debit Head Office account (GL account) for Rs.10,000/-
 Credit "Bills purchased account" for Rs.5,000/-
- Customer's account for Rs.5,000/-
- e.g. B. If the cheque for Rs.10,000/- is purchased for full value.
 Debit "Bills purchased account" for Rs.10,000/-
 Credit "Customer's account" for Rs.9,800/
- "Commission account" for Rs.200/-.
741 - III
CHAPTER-56
BANK GUARANTEES ON BEHALF OF CONSTITUENTS
1. General:
a. Bank Guarantees are highly remunerative business without the need for use of funds. However, the
risks and the precautions in this business are similar to fund based advances.
b. The Banks issue Guarantees on behalf of their customers, mainly favouring Government
Departments, Public Sector undertakings, Corporation and Companies / Firms in Private Sector.
These Guarantees come under various types depending upon the purpose, period and security. It is
relevant to know the difference between a Guarantee and an indemnity.
c. Banks are prohibited from issuing Guarantees favouring:
i. Financial institutions, other banks and / or other lending agencies for the loans extended by the
latter, as it is intended that the primary lender should appraise and assume the risk associated
with sanction of credit and not pass on the risk by securing themselves with a Guarantee.
ii. Chit funds for due payment of the chit amount by successful bidder.
iii. Non-Banking financial Institution in floating prize Chit Schemes.
iv. National Stock Exchange in lieu of security deposit.
d. Exceptions:
i. Issuance of Guarantee in favour of the Industrial Development Bank of India, in the case of
import of technical know-how by way of drawings and designs under the Technical
Development Scheme of IDBI, under certain circumstances and where no tangible security is
available to IDBI
ii. Issuance of Guarantee favouring different Development Agencies. Boards like Indian
Renewable Energy Development Agency, National Horticulture Board, etc., for obtaining soft
loans and / or other forms of development assistance from such Agencies / Board subject to
certain conditions such as: Banks should satisfy themselves, on the basis of credit appraisal,
regarding the technical feasibility, financial viability and bankability of individual projects
and / or loan proposals i.e. the standard of such appraisal should be the same, as is done in the
case of a loan proposal seeking sanction of term finance / loan.
iii. Banks should obtain suitable and adequate security before extending such Guarantees
2. Indemnity and Guarantee-Definitions:
a. The Indian Contracts Act, 1872 defines an indemnity and a Guarantee in Section 124 and Section
126, respectively. These Sections area reproduced here below:
742 - III
i. Indemnity (Section 124): A contract by which one party promises to save the other from loss
caused to him by the conduct of promisor himself or by the conduct of any other person is
called a contract of indemnity”.
ii. Guarantee (Section 126): “A contract of Guarantee is contract to perform the promise or
discharge the liability of a third person in case of his default. The person who gives the
Guarantee is called 'the surety', the person in respect of whose default the Guarantee is given is
called the 'Principal Debtor' and the person to whom the Guarantee is given is called the
'Creditor'. A Guarantee may be either oral or written”.
b. Distinction between Indemnity and Guarantee:
i. The distinction between indemnity and a Guarantee can be understood with an illustration. In
a contract in which A says B “If you lend Rs.5,000/- to C, I will make good any loss sustained
by you”. This is an indemnity. On the other hand, if A says to B “If you lend Rs. 5000/- to C and
If C does not repay you, I will repay”. This is a contract of Guarantee. The distinction between
the two is subtle but noticeable.
ii. In the case of an indemnity, the person who indemnifies (indemnifier in the above illustration
'A') is primarily responsible if the loss occurs, in the case of a Guarantee the liability of the
guarantor arises only of the principal debtor (in the above illustration C) makes a default.
iii. It will also be observed that in the case of indemnity, there are two parties, the person who
indemnifies (the indemnifier) and the person who is indemnified. In the case of a Guarantee
there are three persons, the debtor, creditor and the guarantor.
3. Types of Guarantees:
a. Guarantees come under two broad classifications. Financial Guarantees and Performance
Guarantees. There is also what is known as Deferred Payment Guarantees.
i. Financial Guarantees:
 These are Guarantees which are given in lieu of purely monetary obligations, e.g., the
obligation of a contractor to make an Earnest Money Deposit. E.g. If a contractor is to
submit tender for a work of Rs.5.00 lakhs for the construction of building and the
specified earnest money (which is normally 3 to 5% of the contract work) of Rs. 25,000/-
is to be deposited with the Government Department. In lieu of the Earnest Money to be
deposited with the Government, the Department would accept a Guarantee. Such
Guarantee is only upto the point of finalisation of the tender and if the tender of the bank's
customer is not accepted, the Guarantee ceases to be effective and has to be returned. Such
Guarantees are normally for a period of 3 months. In case the contractor is awarded the
work, this earnest money deposit Guarantee will continue for such period as may be
specified by the Government Department. Similar Guarantees may be required by the
customers, in favour of Customs, in lieu of duty payment, dealers of large companies as
earnest money for dealership or similar business purposes.
743 - III
ii. Performance Guarantees:
 These are Guarantees issued in respect of performance of a contract or obligation. In such
Guarantees, in the event of non-performance or short performance of the obligation, the
Bank will be called upon to make good the monetary loss arising out of the non-fulfilment
of the Guarantee obligation.
 Although, these Guarantees are for performance, the quantum of the pecuniary obligation
is reduced to money terms and a Guarantee is called for. For instance, if a party has
undertaken to supply 50 tonnes of forgings to the Railways and the contracted supply is to
be completed in six months, the Railways will require a performance Guarantee from the
company. In doing so, the money value of the loss occurring in the event of non-
performance or short performance, is measured and reduced to a definite sum of money.
In this case if the maximum loss is estimated to be Rs. 3 lakhs, a Guarantee for Rs. 3 lakhs
is demanded for awarding the contract.
 The nature of the financial Guarantee and performance Guarantee is different from each
other as can be seen from the above two illustrations.
 While recommending Guarantees for customers, performance Guarantees which are
more onerous (contain more difficult commitments / obligations) than financial
Guarantees, will have to be carefully scrutinised with reference to the nature of the
performance, competence of the contracting party to fulfil his obligation, duration of the
contract, etc. Therefore, the margin to be insisted is higher if the risk and complications
involved in the performance of the work contract is higher.
iii. Deferred Payment Guarantees:
 These Guarantees normally arise in the case of purchase of machinery or such other
capital equipment by industrial units and users of machinery (from suppliers in India or
abroad).
 In the case of these Guarantees, an advance, generally up to 10% to 15% of the entire cost
of machinery is paid and the balance of 85% to 90% of the cost and interest, thereon, is
payable in instalments spread over a period of three, five or seven years or even longer, as
the case may be. The manufacturers of the machinery supply the machinery against cash
payment, as above, and get bills executed for the balance amount. In respect of the
balance amount, the sellers of the machinery insist on a Bank Guarantee.
 The bills executed in favour of the machinery manufacturers in India can be discounted
by the sellers' Bankers with the Industrial Development Bank of India.
4. Specific and Continuing Guarantees:
a. Specific Guarantee: A Guarantee may be for a single specific transaction. For e.g. if a dealer is
called upon by the Sales Tax Officer to submit a Bank Guarantee in lieu of an advance deposit of tax
and the Guarantee is issued, the said Guarantee will be for a specific purpose and covering a single
transaction. It will get extinguished on payment of the sales tax or exemption of the payment of the
tax or partial exemption.
744 - III
b. Continuing Guarantee: A continuing Guarantee covering a number of repeated transactions. For
e.g. if an importer of raw materials requests for a Guarantee, in favour of the Customs in respect of
customs duty payable by the importer, from time to time; upto a limit of say Rs. 1 lakh, under this
Guarantee, at any time, amount upto Rs. 1 lakh can be invoked in respect of customs duty, in
arrears, by the importer. Even here, a date upto which the Guarantee is to be in force, i.e., the period
of the Guarantee is to be specified (Guarantees cannot be for an indefinite period). Such a
Guarantee will be returned if there are no dues or is cancelled by mutual consent by the Bank and
the Customs authorities. As such, it will be a continuing Guarantee upto Rs. 1 lakh.
5. Pre-Sanction Stage:
a. The purpose of the Guarantee should be productive not capital but xxxxxx. The Bank Guarantee
should assist the free flow of genuine business transactions. It should be for productive activities
rather than for consumption.
b. When a Bank Guarantee can ensure supply of goods to the borrower on credit basis either for
manufacture or resale it would be assisting business transactions.
c. When a Bank Guarantee assists in winning a Government Contract, it would be for a productive
purpose.
d. When a Bank Guarantee, favouring the sellers of machineries and equipment, ensures prompt
repayment of Hire Purchase instalments, it will be for a productive purpose.
e. The Guarantee must cover only those contracts or credit purchases to be undertaken / effected,
afresh, after the date of issue of out Guarantee and not the earlier ones made before the date of issue
of the bank's Guarantees. So, the specimen Guarantee form must be studied, thoroughly, and
amendments must be made, wherever it is required, to ensure the above.
f. The purpose may be for meeting anyone of the following requirements:
i. To perform a contract or any other obligations.
ii. In lieu of earnest money deposit.
iii. Bid Bond Guarantees.
iv. Mobilisation Guarantee to be given when the contractor receives advance payment from his
principals during the execution of the contract.
v. Shipping Guarantees to be issued when the importer wants to get delivery of imported goods
in the absence of shipping documents.
vi. Customs Guarantee to be issued to customs authorities when any goods / machinery is
imported with concession / total relief on customs duty with an obligation to export goods upto
a specified extent within a specified time frame.
vii. Suppliers Credit Guarantee to enable the buyer to get goods on credit terms.
viii. Financial Guarantee for due repayment of financial obligation.
ix. Guarantees issued to tax authorities while going on an appeal against their assessment of tax or
to get release of valuables confiscated during a raid.
745 - III
6. Precautions at the Pre-Sanction Stage:
a. While presenting any proposal for Guarantee, it should be mentioned in the report, more
particularly in the prayer column, the nature of Guarantee as described above; rather than
mentioning simply “Bank Guarantee limit”. This direction is applicable to the Regional Offices
also.
b. For Guarantee mentioned under items 3(a) above, the capacity of the party to perform the contract /
obligation must be assessed.
c. As regards Customs Guarantee, it should be enquired and reported in the proposal, the quantum
and value of export obligation and the time frame within which, it has to be performed. The
capacity of the party and arrangement made by them to fulfil the export obligation within the
allowed time frame should also be assessed.
d. While recommending for a Suppliers Credit Bank Guarantee the capacity of the party to clear the
recurring dues to be emerged on account of credit purchases vis-à-vis the liquidity position, net
working capital in the concern, normal stocking period, credit terms on sales etc. should be
assessed. For all such transactions, it is always better to recommend for an Inland Letter of Credit
facility in lieu of Bank Guarantee.
e. When a customer asks for a limit for issuing Guarantees for multifarious purposes, say for bid
bond, mobilisation advance, Performance Guarantee, etc. limits must be sought accordingly. If
found to be appropriate, sub-limits for various purposes within an overall Bank Guarantee limit
may be recommended.
7. Nature of Facility:
a. If the Guarantee is for effecting credit purchases it is always better to sanction the facility in the
form of an Inland Letter of Credit so that the branch can have an effective control and supervision
over each and every credit purchases and their settlements. If any delay is sensed in meeting the
ILC obligations, further opening of LCs may be withheld.
8. Terms of Guarantee:
a. The extent of duties and liabilities of our borrower should be known to us (the Banker), in detail,
indicating the performance commitments of the borrower very clearly. Any default by the
borrower would make the Banker directly liable to the persons in whose favour the Bank
Guarantee has been issued.
9. Analyses of Specimen of Guarantee:
a. For the reasons given in the foregoing paragraph the specimen of the Guarantee to be issued should
be meticulously scrutinized for details, specify the grounds on which the liability would devolve
on the Banker.
746 - III
10. Securities:
a. Banker should have a strong hold on the benefits arising out of the Bank Guarantee. In case Bank
Guarantee ensures supply of goods on credit basis, banker should ensure either hypothecation or
pledge of such goods in favour of the Banker.
b. If the same borrower is enjoying Cash Credit Limit, Banker should be very alert, that at no time the
goods received through Bank Guarantee is included in calculating drawing power.
c. In case of Deferred Payment Guarantee the machineries or equipment supplied on credit must be
hypothecated to the Bank.
11. Sanctioning Stage:
a. Purpose: As regards the purpose of the Guarantee, commercial banks should, as a general rule,
limit themselves to the provision of financial Guarantees and exercise due caution with regard to
their Performance Guarantee business. The following are the some of the purposes for which
Guarantees are issued by banks.
i. Bank Guarantee in lieu of Air Way Bill: Goods by air, move faster than the movement of
documents of title to goods. In such a case it is common that goods land at the recipient's
airport well before, the Air Way Bills reach him. To minimise / eliminate unnecessary
wharfage, Bank Guarantees are issued in favour of Air Port Authorities to enable party to
release goods without the relevant documents.
ii. Bank Guarantee in favour of Suppliers of Raw Materials and Other Trade Commodities:
Many of the suppliers of engineering goods and fertilizers, of late, call for Bank Guarantees in
their favour for providing supplies on credit basis to shield themselves against the possibility
of non-recovery.
12. Duration of Liability Period:
a. As regards duration (liability period) it would be advisable for banks to issue Guarantees with
shorter durations. No Bank Guarantee should normally have a duration exceeding 10 years.
13. Limit for Issuing Unsecured Guarantees:
a. Banks should limit their commitments by way of unsecured Guarantees in such a manner that 20
per cent of the bank's outstanding unsecured Guarantee plus the total of its outstanding unsecured
advances should not exceed 10 per cent of total outstanding advances.
b. This percentage will be monitored by the HO. However, branches are to be careful in
recommending unsecured Guarantees.
Note: The above guidelines are to be kept in view by the branches when recommending a one Time
Guarantee or Regular Guarantee Limit.
747 - III
14. Security for the Guarantees:
a. Secured Guarantees:
i. Guarantees may be fully or partly secured or unsecured. Security may be either deposits or
other tangible security acceptable to the Bank, such as Insurance Policies having adequate
surrender value, quoted shares or any other security like immoveable property / ies. The bank
should follow the Ratio of Securities fixed by RBI from time to time.
ii. Securities can also be by way of a Counter Guarantee from any other bank. This arises during
switchover of limits by a customer from one bank to another.
iii. Security can also be by way of Counter Guarantee from any Department of the Central or State
Government or any other Public Sector Undertaking such as Hindustan Steel Ltd., or any
Public Sector Financial Institution like the Industrial Finance Corporation. Counter
Guarantees of Insurance Companies or Banks are also accepted. In cases where the banks
have to issue Counter Guarantee, security will have to be taken just as in the case of Bank
Guarantees issued by us.
b. Unsecured Guarantees:
i. Unsecured Guarantees are normally not sanctioned except under special circumstances,
considering the relationship of the customer with the Bank, the amount of the Guarantee and
its nature, duration etc.,
15. Commission on Guarantees:
a. Commission for Claim Periods:
i. The Guarantee issued should be for a specific period. Where a Guarantee contains a clause
regarding period for lodgement of claim beyond the period of the Guarantee to prefer claim for
damages etc., occurring during the validity period of the Guarantee, commission for such
claim period should be collected at the appropriate rate.
b. Commission on Deferred Payment Guarantee:
i. In the case of Inland Deferred Payment Guarantees, Co-acceptance of bills, the instalments
should be paid on the respective due dates and the liability under the Guarantee gets
automatically reduced to that extent of the payments effected. Hence, the commission for the
Inland Deferred Payment Guarantees / Co-acceptance of bills should be collected, on yearly
basis, on the balance outstanding at the beginning of each year.
16. Restrictions on issue of certain type of Guarantees:
a. Any Guarantee for an unlimited amount or for an unlimited period.
748 - III
b. Guarantees favouring Shipping Companies to cover the issue of bills of lading without
surrendering to the shipping company of the relative mate's receipt.
c. Guarantee favouring Collector of Customs for clearance of goods without production of the
customs copy of the relative import licence. However, when the proof is produced of the issue of a
licence, Guarantee may be issued.
17. Format of the Guarantee:
a. After complying with the terms of sanction of RO/HO in all matters, Guarantee in the approved
format on stamped paper of requisite value may be issued.
b. Guarantees containing onerous (difficult obligations/ burdensome commitments) clauses should

not be issued.
c. All Guarantees should contain the following standard limitation clause restricting the Bank's
liability amount and liability period. This clause should be typed out at the end of the Guarantee
i.e., it should form part of the body of the Guarantee itself, while issuing the Guarantee:
i. “Notwithstanding anything contained in this Bank Guarantee our liability under this
Guarantee is restricted to Rs………. (Rupees……………………...........only) Our Guarantee
shall remain in force until …….and unless a demand or claim under this Guarantee is received
by us in writing on or before ……..all your rights under the said Guarantee shall be forfeited
and we shall be deemed relieved and discharged from all liabilities thereunder”
d. In order to protect the bank against possible disputes branches should incorporate the following
clause in the Counter Guarantee Form
i. That if for any reason the bank is prevented by any action initiated by me/us from making
payment to the beneficiary of the Guarantee amount. I will also be liable to pay the bank, apart
from other amounts payable to the bank, towards the costs, expenses, damages incurred by the
bank consequent to my/our proceedings to prevent payment to the beneficiary. Guarantee
commission for the extended period for which I / We delay such action, the payment or
discharge of the Guarantee.
18. Signing of Guarantees:
a. Bank Guarantees issued for Rs.50,0000/- and above are to be invariably signed by two authorized
officers. In the absence of second officer, the Guarantee shall be countersigned by an officer at
Regional Office or by an officer of a nearby branch of the bank.
a. For documentation aspects a reference shall be made to the Manual on Documentation in each
bank. If such a Manual does not exist the banks must make efforts to develop such a Manual.
749 - III
20. Accounting Procedure:
a. The particulars of the Guarantees issued should be entered in the Bank Guarantee Register. The
duly filled in register should be signed by Manager / Officer.
b. On issuing the Guarantee, debit and credit slips are to be prepared for the amount of the Guarantee,
as follows:
i. Debit: Customer's Liability Under Guarantee
ii. Credit: Banker's Liability Under Guarantee
21. Guarantee Margin:
a. Normally, a margin is to be stipulated, and such margin may vary from 5% to 10% or even full
margin may be taken, wherever necessary.
b. The cash margin collected should be held under Margin on Bills account maintained in a register.
The amount of margin, so held, may be refunded only after cancellation of the Guarantee.
c. The margin stipulated by the Head Office is only the minimum. The branch may insist on a higher
margin, if it feels necessary, depending upon the circumstances.
22. Commission:
a. The commission collected at the time of issuing / renewing the Guarantee or extending the period
of the Guarantee should be credited to Commission Account.
23. Guarantee to be sent Directly to Beneficiary:
a. As far as possible, Guarantee Bonds should be sent direct to the beneficiary.
24. Follow-Up:
a. Sale Proceeds to be Credited to the Account with the Bank:

i. In case of Bank Guarantees issued for effecting credit purchases, all sale proceeds must be
credited to the account of the party maintained at the branch and all payments must also be
made through it.
b. Operations in the Account to be monitored:
i. The operations in the accounts should be monitored to make sure that prompt payments are
being made to the supplier. Branches should devise a system to ensure that each and every
credit purchase is settled promptly. For this purpose the party must submit a statement
once in a fortnight, as per the Specimen, given in Annexure-1 to this Chapter.
ii. In case of Guarantees issued in favour of Tax and other Revenue authorities the branch should
carefully monitor each of such Guarantees and ascertain the position of the case/appeal filed
750 - III
by the party. The branches must get a declaration from the party, on a monthly basis, regarding
position of the claim / appeal.
c. Security follow up:

i. In case of Guarantees issued for the supply of goods the procedures and precautions laid down
for hypothecation/ pledge of goods as the case may be for monitoring the goods must be
followed and it should be satisfied that the stock of goods is adequate to cover the liability.
ii. In respect of DPGs., it should be followed that:
 The instalments are paid by the party as and when it fell due.
 The assets created are charged to the Bank.
25. Balancing:
a. The outstanding balance in the “Customer's Liability Under Guarantee Account” and “Banker's
Liability Under Guarantee Account” in the General Ledger should, on any date, agree with the
amount of outstanding Guarantees as stated in the register maintained at the branch. The account
should be balanced, at periodical intervals, as prescribed in this regard.
26. Renewal of Guarantees:
a. In case the limit falls beyond the discretionary powers of the Managers, renewal of Guarantee or
extending the period of the Guarantee may be done only after obtaining sanction /approval,
therefore, from R.O. by forwarding application from the customer.
b. Revised or fresh entries need NOT be passed unless a fresh Guarantee is issued.
c. Fresh documents need NOT be obtained where the period of the Guarantee is extended. However,
a requisition letter from the party countersigned by Guarantor(s), if any, should be obtained and
kept along with the original documents. The date of expiry of the extended Guarantee period
should be noted in the Register.
d. Commission should be collected for the extended period.
e. A letter, as per Annexure-2 to this Chapter, should be issued to the beneficiary regarding the
extension of the Guarantee.
27. Honouring of Commitments under invoked Bank Guarantees:
a. It is needless to say that for smooth operation of Bank Guarantee Scheme and to ensure credibility
of the Guarantee issued by the bank in business circles, prompt honouring of commitments, is
absolutely essential.
b. In the case of invoked Bank Guarantee branches shall first remit the amount under the Guarantee to
the beneficiary, immediately, on receipt of claim, if it is within the prescribed period and seek
reimbursement from the party/ies on whose behalf the Guarantee is issued.
751 - III
c. If for any reason, honouring of the commitment is not possible due to court injunctions, the
beneficiary shall be informed of the position assigning the exact reasons for the inability to honour
the commitment and also the circumstances under which payments could not be made.
d. If delays are due to court injunctions, the commitments should, however, be met no sooner the
injunctions etc., are vacated by the court.
e. The amount of the Guarantee may be paid by debiting the customer's account for the amount
payable after adjusting the margins and / or deposit held as security, irrespective of the fact,
whether there is sufficient credit balance/ O.D. account, as the case may be under information to the
customers, who should be called upon to reimburse the shortfall, along with interest, immediately.
All such cases and developments should be reported to R.O.
NOTE:
i. Branches shall not give scope for delay in order to enable the customers to obtain orders from a
court of law to restrain the bank from making payments under Guarantee.
ii. Branches should also not give scope for customers to prevail upon them to defer action on one
pretext or the other and on frivolous grounds
iii. For delays on frivolous grounds and resultant demands, if any, from the beneficiaries for
interest and / or damages, the concerned branch manager would be responsible for
consequences.
f. Where the bank is a party to the proceedings initiated by Governments for enforcement of the Bank
Guarantee and the case is decided in favour of the Government by the Court, banks should not insist
on production of certified copy of the judgement as the judgement / order is pronounced in the open
court, in the presence of the parties / their counsels and the judgement will be known to the branch.
g. In case the bank is not a party to the proceedings, a signed copy of the minutes of the order certified
by the Registrar / Deputy or Assistant Registrar of the High Court or the ordinary copy of the
Judgement / order of the High court duly attested, to be true copy, by the Government Counsel,
should be sufficient for honouring the obligation under the Guarantee unless the bank (Guarantor)
decides to file an appeal against the order of the High Court.
28. Diarising the Due Date:
a. Branches shall diarise the date of expiry of the Bank Guarantee issued by them. Whenever
additional claim period is stipulated in the Bank Guarantee, the date of expiry of claim period will
be deemed to be the date of expiry of Guarantee
29. Extinguishing of Bank Guarantee:
a. Unless otherwise specified, a Guarantee is automatically extinguished on the date specified in the
Guarantee bond. Branches shall reverse the entries relating to the concerned Guarantee, when the
Guarantee bond is received back from the beneficiary. In case of expired Guarantees where the
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Guarantee bonds are not received back the branches shall follow the procedure as laid down under
the heading “Reversal of entries where Guarantee bond is not received back”.
30. Registered Notice:
a. On the date of expiry of the Bank Guarantee, branches shall send a letter to the beneficiary by
Registered Post Acknowledgement Due requesting them to return the original Guarantee bond
within 30 days of date of the letter. The specimen of the letter to be sent to the beneficiary is
given in Annexure-3 of this Chapter. A copy of the letter and the acknowledged AD card, when
received shall be kept with the concerned BG documents. The receipt of the acknowledgement
card must be followed up as it confirms the receipt of the notice by the addressee.
31. Caution:
a. Registered notice should not be issued to courts for return Guarantees given to courts as it may be
deemed as a contempt of court. In such cases, branches should file an application before the court
requesting the court to return the original Guarantee. For this purpose, services of the bank's
approved lawyer may be utilized. The expenses incurred for filing the applications should be
collected from the party on whose behalf the Guarantee was issued.
32. Reversal of Entries where Guarantee Bond is received back:
a. Branches shall reverse the entries relating to the concerned expired Bank Guarantee as soon as they
receive the original Guarantee bond from the beneficiary.
33. Reversal of Entries where Guarantee Bond is not received back:
a. In case the original Bank Guarantee bond is not received back by the branch within 30 days of date
of the letter by the beneficiary, branches shall reverse the entries relating to the concerned expired
Bank Guarantee. This is, however, only after getting back the A.D. card from the beneficiary.
b. A letter to the beneficiary informing about the cancellation of our liability is to be sent by way of
“Registered Post with Acknowledgement Due”.
34. Maintaining Files:
a. Branches shall open a file in respect of expired Bank Guarantees and after reversal of entries, the
papers relating to the concerned expired Bank Guarantee viz. the copy of the letter sent to the
beneficiary and the Acknowledgement Card shall be filled in this file.
35. Release of Securities:
a. Branches may release the securities obtained, if any, in respect of the expired Bank Guarantees
only after reversal of the accounting entries in their books.
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36. Returns to be submitted by the Branches to Head Office:
a. Prescribed statements are to be submitted by the branches to Head Office.
b. Apart from the other statements the branches should send the “Statement of Guarantee Invoked”
on the very date of invocation of the Bank Guarantees as per the specimen format given in
Annexure-4 to this Chapter.
37. Additional Guidelines:
a. Guarantees to Govt. Department on behalf of customers, under the Bank Guarantee Scheme of the
Govt. of India:
i. The Govt. of India have, in consultation with the Reserve Bank of India, formulated a Scheme
in terms of which the Guarantees furnished by approved Banks, on behalf of their clients, will
be accepted by the Railways and such other Govt. Departments.
ii. This scheme has also been accepted by all State Governments.
iii. Under this scheme, contractors who take up Govt. contract work may furnish a Bank
Guarantee or tender Deposit Receipt (earnest money), cash Certificates etc., issued by all
approved banks to the concerned Govt. Department instead of depositing with them or Govt.
securities or making payment in cash. A specimen of the Guarantee Bond to be issued to the
Department concerned is given in Annexure -5 to this Chapter.
iv. All Ministries / Departments have instructions to accept the Bank Guarantees on the 'Model
Form' and wherever additions / alterations are found essential to the existing provisions of
Model Guarantee Forms, such additions shall be made with the prior approval of Regional
Office / Head Office. However, if any modifications are to be made in the format it should be
carefully ensured that:
 there are proper limitation clause specifying the maximum amount of the Bank's liability
under the Guarantee and the last date by which claims, if any, should be filed;
and
 there are no extraneous clauses affecting / endangering the Bank's Interest or devolving
on the Bank with any additional liability or onerous (difficult / burdensome) risks.
b. Specifying The Name Of The Beneficiary Department:
i. While issuing Guarantees to the Govt. Bodies / Departments, the name of the beneficiary
department concerned should be indicated in the Guarantee Bond. This will facilitate
identification of the specific beneficiary department/s in the course of correspondence,
complaints etc., received by the Govt.
38. Obtaining of Confirmation in respect of Bank Guarantees:
a. Procedure: Branches shall mark copies of all Bank Guarantees issued/renewed by them,
sanctioned at branch level or by higher authorities, to the concerned R.O. , furnishing the following
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details of the transactions;
i. S.No.
ii. Name of the Party.
iii. BG No.
iv. Limit, if any.
v. Amount of Guarantee.
vi. Outstanding balance.
vii. Name of the beneficiary.
viii. Sanctioning Authority.
ix. Validity of the BG.
b. The Regional Officers shall maintain a seriatum record of the Bank Guarantees issued, branch
wise, besides other details.
c. Whenever a beneficiary seeks confirmation of Guarantee(s) issued by a branch, such confirmation
shall be issued by Regional Offices to the beneficiary on the basis of the record maintained. (For
facilitating this, such letters seeking confirmation, if received by other branches / offices shall be
passed on to the concerned R.O.
d. If there is no record of a particular Bank Guarantee, sought to be confirmed, the matter shall be
immediately followed-up with the concerned branch for ascertaining the correct position. If any
discrepancy irregularity is noticed, the same shall be immediately reported to the sanctioning
authority/R.O for suitable action.
39. Bank Guarantees Favouring Customs / Excise Department:
a. Where Bank Guarantees are required to be furnished to Customs / Excise Departments on account
of any dispute arising between the Custom / Excise Departments and the applicants, Bank
Guarantees shall be issued only against100% cash margin.
b. Additional margin may be stipulated in case the interest is payable to the beneficiary as per
contract/ agreement.
c. Where such cash margin is given in the form of term deposits, refund value of the certificate /
deposit, (inclusive of accumulated interest, if any) as on the date of issue, should not be less than the
amount of the Guarantee.
40. Deferred Payment Guarantees:
a. Reversal entries should be passed, to the extent of the instalments, as and when due, and paid under
the Guarantee(s).
b. In case where instalments under the D.P. Guarantee are not paid by the customer the amount should
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be paid to the beneficiary by debiting “Demand Loan” and the fact should be informed to Regional
Office.
c. The entries are to be reversed on the expiry of the Guarantee, when the Guarantee bond is received
back for cancellation.
d. When the Guarantee is closed, the serial number should be rounded off with date of cancellation
under due verification.
41. Advance Payment / Performance Guarantees:
a. Branches should, while accepting the requests from the borrowers for Guarantee limits analyse,
thoroughly, all the risk factors and the infrastructure available for monitoring the contracts for
which Guarantees are sought. Branches should also monitor the progress of contracts for which
Guarantees have been furnished by the branch.
b. Branches should obtain a statement every month from the borrower, in the format, as given in the
Annexure-6 to this Chapter, for monitoring the progress of the contracts. Branches should obtain
an undertaking letter from the borrower, at the time of issuing Guarantee, that he would submit
such statement with the details of securities etc., regularly.
c. In the case of advance payment / Performance Guarantees, branches should monitor the progress
of the contracts by:
i. periodical site inspection.

ii. ensuring that the advance payment received for a particular contract is not diverted to other
contracts.
iii. controlling the end use of funds.
iv. scrutinising the progress made in collection of bills supported by a confirmation from the
borrower.
d. The project site must be inspected periodically to verify the execution and progress as per the
terms. Any irregularity or delayed execution sensed during Post Credit Supervision should be
taken up with the party.
42. Additional Guarantees:
a. It should be ensured that the borrower does not have unpaid dues to the government. The party must
be asked to remit the sale proceeds to the bank, on a daily basis, and the monthly rental must be paid
through the bank, promptly. If, for any other valid reason(s), the party is not able to remit the sale
proceeds daily, he must be asked to submit the receipt for payment of rental / licence fees every
month.
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43. Guarantees Issued for the release of Confiscated Goods:
a. Branches may also come across issuance of Guarantees in favour of Income Tax and other
departments for getting back the goods and other valuables, including Jewels etc., confiscated by
them during a raid. For such Guarantees, a margin of not less than 50% is to be taken. In case of gold
ornaments, the branches must get possession of such jewels and keep them under pledge as a cover
for the Guarantees issued. This is in addition to the usual cash margin to be obtained. Such
valuables should be kept under pledge till the Guarantee bond is returned to the bank. Necessary
documentation, similar to pledge, should also be obtained.
44. Annexure/s:
Annexure 1 : Specimen of Statement of Reporting on Bank Guarantees by the party which has
availed the Bank Guarantee.
Annexure 2 : Specimen of Letter of Extension / Renewal of Period of Guarantee.
Annexure 3 : Specimen of the Letter to be sent to the Beneficiary before Reversing the Accounting
Entry of the Bank Guarantee in the Bank's Books.
Annexure 4 : Specimen format of Statement of Invoked Guarantees.
Annexure 5 : Specimen of Form of Guarantee Bond in favour of Government Department.
Annexure 6 : Specimen of Statement under Advance Payment / Performance Guarantees.
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Annexure-1 to Chapter - 56
(To be submitted by the borrower once in a fortnight)

REPORTING STATEMENT ON BANK GUARANTEES AVAILED AS ON …
Name of party: (Amount in Rs..)
-------------------------------------------------------------------------------------------------------
BG.No Name of the Bank Guarantee Quantity and Amount due
Beneficiary Amount value of to supplier
Stock pur- on this
chased under Guarantee
this Guarantee
-------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
-------------------------------------------------------------------------------------------------------
Qty Value
(a) (b)
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Value of Amount outstanding Remarks(**)
stock on from the debtors
hand pro- for the supply
cured made against
against credit (*) this Guarantee
-------------------------------------------------------------------------------------------------------
(6) (7) (8)
-------------------------------------------------------------------------------------------------------
Qty Value
(a) (b)
-------------------------------------------------------------------------------------------------------
(*) Break-up for the age wise debtors outstanding against the sale of goods under the relative
Guarantee alone should be submitted along with this statement.
(**) The amount of sale proceeds held by the party, as Cash and Bank Balances, may be shown
in the remarks column.
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SPECIMEN OF LETTER FOR EXTENSION / RENEWAL OF

PERIOD OF GUARANTEE
TO
Dear Sir,
Sub: Our Guarantee No_____________________Dt_________
for Rs………………issued in your favour
on behalf of _____________________________________
towards _________________________________________
.x.x.x.x.x
This is to inform you that the period of the above Guarantee issued in your favour on behalf of
_______________________________is hereby extended for a further period upto
____________________________________________________________(@) Our liability under the
Guarantee is hereby renewed / extended and shall be restricted to an amount not exceeding
Rs________________(Rupees ______________only) and not withstanding anything stated above or in the
original Guarantee. We shall stand completely discharged from all our liabilities under the Guarantee and all
your rights under the Guarantee shall stand extinguished if not claimed or demand is made upon us, in
writing, or before _____________________________($) This letter of extension forms part of the original
Guarantee referred to above
Yours faithfully
Manager
Note: @ = Mention the date of expiry of the Guarantee period.
$ = This refers to the date of expiry of the claim period
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SPECIMEN OF THE LETTER TO BE SENT TO THE BENEFICIARY

BEFORE REVERSING THE ACCOUNTING ENTRY OF
THE BANK GUARANTEE IN THE BANK'S BOOKS
REGD. POST ACK. DUE
Ref. No.
Branch :
Date :
TO
Dear Sir/s
Sub: Bank Guarantee No…………….dated………………..
Executed by us in your favour for a sum of
Rs…………………….(Rupees…………………….)
.x.x.x.x.x.x
You are aware that the aforesaid Guarantees executed by us for and on behalf of our
client _______________ has expired on __________________ and cannot be enforced with
effect from that date.
We, therefore request you to return the said expired Guarantee within 30 days from the
date of this letter
Yours faithfully,
Manager.
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SPECIMEN FORMAT OF STATEMENT OF INVOKED GUARANTEES
PART – I
Guarantees Invoked and Not Paid (Outstanding) for the quarter ended___________________________
——————————————————————————————————————————
—————————
Sl.No. Name of the Name of the Guarantee Invoked Reasons
Party on Beneficiary Amount ————- for non-
Whose behalf and address Date Amount payment
Guarantee was
Issued
(1) (2) (3) (4) (5) (6) (7)
——————————————————————————————————————————
——————————————————————————————————————————
PART –II
Guarantees Invoked and Not Paid for the quarter ended________
——————————————————————————————————————————
Sl.No. Name of the Name of the Guarantee Invoked How the
Party on Beneficiary Amount ————- claim
Whose behalf and address Date Amount was
Guarantee was adjusted
Issued
(1) (2) (3) (4) (5) (6) (7)
——————————————————————————————————————————
——————————————————————————————————————————
——————————————————————————————————————————
If adjusted through DL
Date of Bal o/s
DL in DL
(8) (9)
——————————————————————————————————————————
In this part II the outstanding balance in the demand loan should be mentioned in Column No.9 if invoked is paid by raising
demand loan. In Column No.8 the date on which the demand loan was raised should be shown (i.e., the demand loan is raised on
__________ and adjusted on ___________ .
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FORM OF GUARANTEE BOND IN FAVOUR OF GOVERNMENT DEPARTEMENT
In consideration of the President of India (hereinafter called “the Government”) having agreed to exempt
_______ (hereinafter called “the said Contractor(s)” from the demand under the terms and conditions of an
Agreement dated ____made between _____and _____ for _______(herein after called “the said
Agreement”) of security deposit for the due fulfilment by the said Contractor(s) of the terms and conditions
contained in the said Agreement, on production of a Bank Guarantee for Rs.___ (Rupees________) we
………SC Bank Ltd., (hereinafter referred to as “the Bank”) do hereby undertake to pay to the Government
an amount not exceeding Rs____ against any loss or damage caused to or suffered or would be caused to or
suffered by the Govt. by reason of any breach by the said Contrator(s) or any of the terms and conditions
contained in the said Agreement.
We, …….SC Bank Ltd., do hereby undertake to pay the amounts due and payable under this Guarantee,
without any demur, merely on a demand from the Govt. stating that the amount claimed is due by way of loss
or damage caused to or would be caused to or suffered by the Govt. by reason of any breach by the said
Contractor(s) of any of the terms and conditions contained in the said Agreement or by reason of the
Contractor’s(s) failure to perform the said Agreement. Any such demand made on the Bank shall be
conclusive, as regards the amount due and payable by the Bank, under this Guarantee. However, our liability
under this Guarantee shall be restricted to an amount not exceeding Rs……………. We …….SC Bank Ltd.,
further agree that the Guarantee herein contained shall remain in full force and effect during the period that
would be taken for the performance of the said Agreement and that it shall continue to be enforceable till all
the dues of the govt. under or by virtue of the said Agreement have been fully paid and its claims satisfied or
discharged or till _________(Office / Department), Ministry of _______certificates that the terms and
conditions of the said Agreement have been fully and properly carried out by the said Contractor(s) and
accordingly discharges the Guarantee. Unless a demand or claim under this Guarantee is made on us, in
writing, on or before the ____________, we shall be discharged from all liability under this Guarantee
thereafter We……SC Bank Ltd., further agree with the Govt. that the Govt. shall have the fullest liberty
without our consent and without affecting in any manner our obligations hereunder to vary any of the terms
and conditions of the said Agreement or to extend time of performance by the said Contractor(s) from time to
time or to postpone from time to time any of the powers exercisable by the Govt. against the said
Contractor(s) and to forbear or enforce any of the terms and conditions relating to the said Agreement and we
shall not be relieved from our liability by reason of any such variations, or extension being granted to the said
Contractor(s) or for any forbearance, act or omission on the part of the Govt. or any indulgence by the Govt.
to said Contractor (s) or by any such matter or thing whatsoever which under the law relating to sureties
would but for this provision have effect of so relieving us “Notwithstanding anything contained
hereinbefore our liability under this Guarantee is restricted to Rs………. .(Rupees______________only).
Our Guarantee shall remain in force until_________and
unless a demand or claim under the said Guarantee shall be forfeited and we shall be deemed relieved and
discharged from all liabilities thereunder”.
We…..SC Bank Ltd., lastly undertake not to revoke this Guarantee during its currency, except with the
previous consent of the Govt., in writing
Date : For_______________________Bank
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SPECIMEN OF STATEMENT UNDER ADVANCE PAYMENT / PERFORMANCE

GUARANTEES ISSUED FOR EXECUTING CONTRACTS
PROGRESS STATEMENT
(To be submitted by the borrower once in a fortnight)
1) Contract value
2) Work executed during the month
a) Raw materials supplied by the beneficiary
b) Raw materials purchased by the party
c) Labour charges
d) Other overheads related to the contract
3) Value of bills raised during the month
4) Cumulative value of bills raised upto this month
5) Value of Bills paid by the beneficiary during the month
6) Cumulative payments received upto this month
7) Balance amount payable by the beneficiary
8) Estimates for next month
a) Expenditure unde a,b,c, & d as stated under 2 above
b) Bills estimated to be raised
c) Bills expected to be paid
9) Security position
a) Raw materials at borrower’s risk
b) Raw materials at beneficiary / work site
i. Lying unutilized
ii. Utilised in execution of the contract and bills have been raised but not yet paid
(outstanding debtors)
(If stock at beneficiary’s site are shown in the stock statement, branch should obtain NO LIEN
letter from the beneficiary)
10) Certificate to be obtained from the beneficiary regarding percentage of work executed and for
proportionate reduction of the Advance Payment Guarantee to the extent of the bills and accepted by the
beneficiary
11) Certificate should be obtained from the beneficiary regarding progress of the work.
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Nature of Guarantee Name of the Period of the contract (bar
(Advance payment / Beneficiary chart should be submitted for
performance / security and nature execution of the contract –
deposit / Earnest of contract as contract may not be executed
money) secured throughout the year on an
Uniform basis –
eg. during monsoon season
execution of contract may be
suspended / slowed down)
(1) (2) (3)
Amount of the Guarantee Date of advance Validity Claim

Issued (% of the Amount received period period
Contract value) by the if any
Borrower
(4) (5) (6) (7)
Value of Bills Bills Balance Balance Security

Work raised paid due after work
Certificate so far so far deducting to be
So far advance completed
Payment
(a) (b) (c) (d)
(8) (9) (10)
Add.period whether the project If no, reason Remarks

Required to has been implemented for the delay
Complete the as per schedule and steps taken
Work for timely
Execution of
Work
(11) (12) (13) (14)
764 - III
CHAPTER-57
INLAND LETTER OF CREDIT

1. General:
a. A letter of credit is a payment term generally used for international/ internal sales transactions. It is
basically a mechanism, which allows importers/ buyers to offer secure terms of payment to
exporters/ sellers in which a bank (or more than one bank) gets involved. The technical term for
letter of credit is “Documentary Credit”. At the very outset what one must understand is that
Letters of Credit deals in documents, not goods. The idea is to shift the risk. Thus a L/C is a
payment undertaking given by a bank to the seller and is issued on behalf of the applicant i.e. the
buyer.
How L/C works
Stage I - After a contract is concluded between buyer and seller, a buyer's Bank supplies a letter of
credit to the seller.
Stage II - Seller consigns the goods to a carrier in exchange for a Bill of Lading.
Stage III - Seller presents Bill of Lading for payment from buyer's Bank. Buyer's Bank exchanges Bill of
Lading for payment from the Buyer.
Stage IV - Buyer provides bill of lading to carrier and takes delivery of goods.
2. Contingent Liability:
a. In undertaking the responsibility to pay bills drawn under the Letter of Credit the issuing bank
assumes liability. When the bills drawn in accordance with the terms and conditions of the credit,
are paid by the negotiating bank/branch, the transaction becomes an advance extended by the
issuing bank against documents, similar to purchase of documentary bills, Hence, due precautions
should be taken by branches in respect of documents under the LCs, as applicable to documents
under Bills Purchased category.
3. Parties to a Letter of Credit (LC) :
a. A Letter of Credit has the following parties:
i. Applicant (Buyer) - the party on whose behalf the LC is issued.

ii. Issuing (opening) Bank / Branch-the bank / branch which issued the LC and thus guarantees
payment.
iii. Beneficiary (Seller) -the party to whom the L/C guarantees payment.
iv. Negotiating Bank / Branch -the bank / branch which is designated in the LC credit, to
negotiate the documents drawn under the LC i.e. to make payment on submission of
documents by the beneficiary.
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4. Classification of Letter of Credit:
a. Letter of Credit may be broadly classified under two Heads:
i. Foreign Letter of Credit

ii. Inland (Domestic) Letter of Credit
b. This chapter will deal with Inland (Domestic) Letter of Credit only. 'Foreign Letter of Credit' are
dealt with in the Manual of Instructions on Foreign Business.
c. An Inland Letter of Credit is one which is issued by a Bank at the request of its customer (buyer) in
favour of the seller within the same country.
5. Types of Letter of Credit:
a. Irrevocable Letter of Credit:
i. It cannot be revoked, cancelled or amended, without the consent of all the parties to the Letter
of Credit and the LC issuing bank is irrevocably committed to pay the beneficiary upon
presentation of the documents specified in the LC drawn strictly as per terms and conditions of
the Letter of Credit.
b. Revocable Letter of Credit:
i. It can be revoked, cancelled or amended, at any time, by the bank without prior notification to
the beneficiary and without obtaining prior consent from parties other than the customer on
whose behalf the Letter of Credit has been issued. However, the bills negotiated by the
negotiating bank / branch prior to receipt of such notification, should be honoured by the LC
issuing bank.
c. Revolving Letter of Credit:
i. Under Revolving L/C the amounts to the extent of the bills negotiated under the overall limit
of the credit and honoured by the issuing bank/branch are automatically renewed/reinstated
and made available to the beneficiary for further drawings during the currency of the L/C. This
facilitates continual drawings / negotiation of bills without having to establish fresh L/C, each
time the facility is fully utilised, by negotiation of bills to the extent of the original credit.
6. LCs on DP/DA basis:
a. A LC may be established either on DP terms or on DA terms. In the case of LCs established on DP

terms, the payment will be due within 24 hours of the presentation of the documents for payment.
The bills along with RRs/ approved LRs shall be delivered to the party only against payment of the
entire amount.
766 - III
b. In the case of LCs on DA terms the payment will be due on the last day of the usance period from the
date of negotiation. In this case the documents along with RRs / approved LRs shall be delivered to
the party against acceptance.
a. Contingent Liability:
i. Letter of Credit is a non-fund based facility with the possibility of turning into a fund based
facility. It is a contingent liability and at any time can become an actual liability. The necessity
for issuing of LCs arise in conjunction with acquisition of moveable assets, purchasing of
inventories or services.
ii. Therefore, it can give rise to term loan commitments or result in working capital requirements.
It is either a component of Term Loan or Working Capital requirements. So, it is to be summed
up that the proposal for sanction of LC should take into consideration all the parameters
observed in connection with the sanctioning of the Term Loan and Working Capital facilities.
b. General observations:
i. Limits should be sanctioned for issuing ILCs generally in favour of beneficiaries who are
Govt. or Semi-Govt. undertakings and with sufficient ratings. In other cases, status reports on
the beneficiaries should be obtained from their bankers and ILCs should be issued only if such
reports are worthy. This is necessary to safeguard the interest of the bank, as the goods covered
by the negotiated bills are charged to the Bank as security and the bank has to rely on the
integrity of the supplier (beneficiary) for the quality and type of goods despatched. In the event
of the buyer not honouring the bills drawn under the credit, the Bank has recourse only to the
goods covered by the documents. Though, the documents may conform to the credit, the
interests of the Bank would be endangered, if the goods turnout to be inferior or if the value of
the goods is inadequate to cover the liability.
c. ILCs may lead Inventory Finance:

i. Inland Letter of Credit ultimately may lead to inventory finance and the goods received under
the Inland LC may be pledged / hypothecated to the Bank under the inventory limit. It is
therefore essential to examine ILC at the proposal and ILC issuing stages itself, as to whether
the goods would be acceptable for finance under the key Loan / Cash Credit limit. Due
consideration should be given to the following factors:
 As to whether the party actually requires for his business operations, the commodities
proposed under the ILC and the extent to which it is to be purchased.
 The previous experience of the branch with regard to the commodities pledged/
hypothecated by the party under PL / CC or goods received under ILCs previously issued
by the branch on behalf of the party.
 The previous experience of the branch in respect of the ILCs issued for similar purchases,
on behalf of other parties or in favour of the same beneficiary.
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 Whether the party is capable of meeting the LC obligations from his own sources.
or
 Whether suitable back-up facility is needed.
8. Nature of Credit:
a. Letters of Credit are opened under the following circumstances:

i. One time Letter of Credit: For acquisition of capital goods like machineries for industries etc.,
ii. Letters of Credit at time: For acquisition of inventories, for use, spread over a period of time. It
is opened as and when required as a permanent operative limit.
iii. Continuous Letter of Credit: it is satisfied by the revolving Letter of Credit. It is usually in
connection with the purchase of inventories for trade or manufacture.
b. Letters of Credit are opened with the following stipulations:
i. Branches should specifically mention the type of Letter of Credit required

ii. Letters of Credit accompanied by Demand Documentary Bills and Document of title to goods
i.e. RR/BL/LR and invoices and other documents or Drawing by Clean Bills not accompanied
by documents of title to goods
iii. Documentary Usance bills with DA terms or DP terms
iv. Nature of credit such as one time, or revolving Letter of Credit etc.,
c. Documents that can be presented for payment:
i. Financial Documents Bills of Exchange, Co-accepted Draft

ii. Commercial Documents Invoice, Packing List
iii. Shipping Documents Transport Documents, Insurance Certificate, Commercial, Official or
legal Documents.
iv. Transport Documents Bill of Lading (ocean or multi-nodal or charter party), Airway Bill,
Lorry/ truck receipt, railway receipt, forwarding cargo receipt, delivery challan, etc.
v. Official Documents - License Embassy Legalization, origin certificate, inspection certificate,
phyto sanitary certificate.
vi. Insurance Documents Original policy/ certificate and not cover note
9. Arrangements for meeting the LC Obligations:
a. The proposals for establishing LCs, should clearly indicate the sources of funds for payment of LC
bills, i.e., whether the party proposes to retire the bills from own funds or whether any back up
finance is necessary.
b. Normally LC should be issued for acquisition of capital equipment, only if back up finance by way
of term loan is sanctioned either by the Bank or by any financial institution.
768 - III
c. In the case of LCs for purchase of raw materials, it is necessary to examine whether any back up
finance by way of CC/KL is necessary. It is essential that all such limits should be considered along
with the proposal for LCs. It is not a desirable practice to recommend fresh credit limits or
enhancement in credit limits to meet the commitment under LC, when the goods actually arrive.
d. In all cases where back up finance is not considered, branch manager should ensure that adequate
funds are made available by the party, for retirement of LC bills, on due date.
10. Sanction and Release:
a. Commission on LC:
i. LC commission and negotiation charges, etc., should be collected at the rates stipulated by
HO. LC commission is to be recovered, in advance, before the Letter of Credit is issued.
b. Margin on Letter of Credit:
i. While sanctioning / recommending limits for ILCs, suitable margin should be prescribed as
applicable in the case of CC / KL / TL against the goods / machineries / etc., which are
proposed to be covered under the ILC
ii. Margin may be accepted by way of term deposits of the Bank standing in the name of the party,
properly discharged in favour of the Bank together with appropriate lien letter. Lien should be
noted on the deposit receipts and in the ledger folio.
iii. Notwithstanding the margin stipulated in the sanction, Branches may obtain, at their
discretion, higher margin depending upon the financial position of the party, the marketability
of the commodity etc., at the time of opening the ILC
iv. The margin held in respect of an LC should be released to the party (buyer / opener) only after
the final bill under LC is paid by him.
c. Period of ILC: i.The ILCs should be issued for a period not exceeding the period stipulated in the
sanction letter.
d. Procedure for issuing of Letter of Credit:
i. The officer in charge of the section should prepare an “ILC ISSUE NOTE” as per the
specimen given in Annexure 1 to this Chapter.
ii. ILCs should be issued strictly in accordance with the terms of sanction. It should be verified
that there is sufficient limit available for issuing of the ILC.
iii. Since all the LCs issued are subject to Uniform Customs and Practice for Documentary
Credits branches should ensure that all the ILCs issued carry the following notation:
“Expressed so far as otherwise expressly stated it is subject to uniform customs and practice
for Documentary Credits (1993 Revision) ICC, Paris, France publication no. 500 and engages
us in accordance with the terms there of.”
769 - III
iv. Before issuing the ILC margin as stipulated in the terms of sanction should be collected.
Commission for issuing the ILC should be collected as per the bank's procedure.
v. Apart from other documents the following documents are also to be obtained:
 Letter of Credit Agreement: Stamped Agreement Form should be obtained for the total
ILC limit, only once. The original ILC should be stamped with the adhesive stamp of
requisite value as applicable to the concerned state. The cost of stamps is to be recovered
from the applicant.
 Letter of Credit Application Form: As and when party requests for issue of ILCs
“Application Form” is to be obtained, duly filled in incorporating the instructions that are
required to be conveyed by the buyer (applicant) to the beneficiary (seller) and a reference
is to be made, therein, regarding execution of the stamped agreement.
 The following particulars should be set out in the application:
 Name of the Applicant with full address.
 Name and address of the consignor (beneficiary) in whose favour the Letter of Credit
is to be issued.
 Amount of L/C.
 Documents to be submitted with the bill and whether Transit Insurance Policy is to
accompany the documents.
 Term of the L/C, i.e., the period for which it is valid.
 Particulars of goods and price agreed to be paid.
 Amount of advance, if any, paid to the consignor as margin.
 Copy of agreement between the buyer / seller should be obtained so as to find out the
basic clauses affecting the LC.
 Each ILC should be given a serial number and recorded in ILC Issue Register. Margin,
commission and other charges collected should also be noted therein.
 Contra entry for contingent liabilities are to be passed as and when Letter of Credit are
opened.
 Dr. Constituent Liability for Acceptance on account of Letter of Credit
 Cr. Acceptance for Constituent on account of Letter of Credit
 All the instructions should be incorporated in the ILC. Specimen form of Inland LC is
given in Annexure-2 to this Chapter. Negotiations under the L/C should, normally, be
restricted to the bank's own branch at the place of the beneficiary. Where we have no
branch, or in exceptional cases, negotiations at other banks may be permitted.
 When all the documents are obtained, the ILC may be issued in favour of the beneficiary
under advice to the applicant (customer) at whose instance it was issued, retaining a copy
in the file to be maintained for the purpose. The Letter of Credit should be signed by two
authorised officers, their names and signing power number should be mentioned.
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e. Protective Clause:
i. The following protective clauses should invariably be incorporated in the Revolving ILCs:
 The amount of drawings made under a Revolving Letter of Credit is reinstated and made
available to the beneficiary again for further drawings during the currency of the L/C,
subject to certain conditions specified in the ILC by way of protective clause as “The
amount utilised under this credit shall be again available for utilisation only on receipt, by
the negotiating branch / bank, of the advice that the draft already drawn by the beneficiary
has been reimbursed by the buyer (applicant)”
Note: Reinstatement of Amount: When a bill under a Revolving ILC is paid by the drawee (buyer / applicant
of the ILC), the ILC issuing branch should send an advice to that effect, by way of a letter, to the negotiating
branch / bank. The ILC negotiating branch / bank should reinstate and make available the amounts drawn,
only on receipt of a specific advice from the ILC issuing branch that the bill has been paid by the buyer.
f. Advising of the ILC: The ILC should be advised to the beneficiary through the negotiating branch.
The opening branch should forward the original and second copy of the ILC to the negotiating
branch along with a covering letter. Where negotiating is permitted at another bank, the ILC is to be
advised through that bank.
11. Amendments to the Letter of Credit:
a. Amendments to 'Letter of Credit' into an 'Irrevocable Letter of Credit' becomes effective only if the
amendments are acceptable to the beneficiary. Otherwise, the documents negotiated in accordance
with the terms and conditions already existing, will have to be honoured.
b. Requests from the opener (buyer) for amendments should be obtained in Amendment Application.
Where an application for amendment involves increase in the amount of Inland Letter of Credit,
additional margin money wherever applicable should be collected and such enhancement should
also be within the available limit. The procedure and other instructions in respect of opening of an
Inland LC should also be followed in the case of amendments to the Inland LC.
c. Inland LC amendment advice should be prepared (with suitable modifications) signed and sent to
the negotiating Branch / Bank in the same manner as in the case of the relative LC.
d. Amendments to an Inland LC should be recorded in the ILC Issue Register. Where the amount of
the credit is amended, the liability of the party should be correspondingly adjusted and accounting
entries passed.
e. The amendment application/s and copies of amendment advice should be kept along with other
documents relating to the Inland Letter of Credit.
12. Custody of Documents:
a. The following set of documents in respect of ILC should be kept in double lock:
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i. Stamped Agreement Form
ii. Application for issue of ILC
iii. Copy of the ILC issued
iv. Acknowledgement of the ILC received from the negotiating branch / bank
v. Application for Amendment (of ILC), if any, and
vi. Copy of the Amendment Advice
b. For the purpose of easy follow-up, an additional copy of the ILC issued and also amendment
advice, may be maintained in a separate file, in serial order, together with all correspondences in
respect of the ILC. When the ILC is fully utilised, and / or expired, the entire set of these papers may
be transferred to the “Closed ILC” file or to the party's file.
13. Procedure to be adopted by the Advising / Negotiating Branch:
a. Sending Acknowledgement:
i. On receipt of the ILC the advising / negotiating branch should send an acknowledgement to
the ILC issuing branch / bank.
b. Entries in the Inland Letter Of Credit Issue Register:
i. The ILC should be entered in the 'Inland Letter of Credit Issue Register' to be maintained by
the advising / negotiating branch. The round seal of the branch should be affixed on the ILC
and on its copy, noting the advising / negotiating branch's reference number.
c. Confirmation of LCs:
i. Sometimes, the beneficiary may insist on confirmed ILCs to ensure payment of the amount
“without any recourse”. Such confirmation should be at the request of the issuing branch /
bank. The issuing branch has to take a careful decision based on the financial standing and
integrity of the buyer as by confirmation the bank would lose the opportunity of recovery from
beneficiary in the event of default. Hence branches have to consult H.O. for extending
confirmation.
ii. Adequate care should be taken while confirming the LC. Once confirmation is made by the
Advising Bank / Branch or Negotiating Bank / Branch, it is the responsibility of the Bank /
Branch to make payment to the beneficiary.
iii. While negotiating the bills under LCs of the bank's own branch, Manager / Officer should
verify the signature/s of the signatory/ies who has / have issued the LC and affix the “Signature
Verified Stamp” under his initials.
iv. The original ILC (Beneficiary's copy) should be immediately delivered to the beneficiary,
against acknowledgement, after necessary identification. The other copy of the ILC should be
retained by the branch.
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d. Documents to be Maintained:
i. The advising / negotiating branch should maintain the following documents, in a folder or a
separate file, in safe custody:
 Copy of the ILC received from the issuing branch / bank (i.e. negotiating branch's copy /
bank's copy)
 Acknowledgement of the beneficiary for having received the original ILC
 Copies of Amendment Advices, if any, received and delivered to the beneficiary with
acknowledgement, and
 All correspondence relating to the ILC
e. Documents after utilization of ILC:
i. When the ILC is fully utilized, and / or is expired the entire set of these papers may be kept
along with the concerned vouchers.
f. Advice /s of Amendment:
i. Advices of amendment to the ILC should also be recorded in the ILC register in the 'Remarks'
column and dealt with, as stated in the foregoing paragraphs.
14. Negotiation of Documents:
a. A Letter of Credit is an authority to the designated branch/bank therein to negotiate the documents
drawn in accordance with the terms and conditions of the L/C and to claim reimbursement from the
issuing branch / bank. Hence, documents tendered by the beneficiary should be paid by the
negotiating branch / bank, if they conform to the terms and conditions of the L/C.
b. No L/C limits or separate permission of the Head Office is needed for negotiation of documents
under Inland LCs opened by the bank's branches.
c. The negotiating branch/bank is bound by the terms and conditions of the ILC. When it receives
documents from the beneficiary, for negotiation, the documents should be scrutinised. It should be
ensured that the drafts and documents are drawn and presented exactly in accordance with the
terms and conditions of the ILC. Where there are discrepancies in the documents the beneficiary
should be advised to get them rectified.
d. When the drafts drawn under the L/C are paid, the fact should be endorsed on the Inland Letter of
Credit and returned to the Branch which has issued the Inland Letter of Credit (if the limit is already
fully utilised) with the relative debit advice.
e. Care should be taken by the Branch paying the drafts to examine that the following points are
complied with and all the terms and conditions mentioned in the ILC have been fulfilled.
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i. The term of the ILC has not expired and that the same is in force at the time when the drafts
drawn under the ILC are presented for payment.
ii. That all documents accompanying the draft and required to be submitted under the ILC are
apparently in order and conform to the ILC terms.
iii. When several bills have to be honoured under one ILC, care has to be taken to see that the total
amount of all the bills does not exceed the amount of the ILC.
iv. In the case of revolving ILC, fresh bills may be paid only on receipt of a specific advice from
ILC issuing branch that the bill has been paid by the buyer.
v. When all the drafts drawn under the ILC are paid and duly endorsed on the back thereof, it
should be filed in the relative file.
f. The negotiating branch should insist on the production of the original ILC along with the
documents at the time of negotiation. The particulars of negotiations, such as date of negotiation,
amount of negotiation and balance available should be recorded on the reverse of the original ILC,
under the authentication of an officer and seal of the branch, and also on the office copy of the ILC
with the negotiating branch. Payments should also be noted in the 'ILC Received Register'.
g. Payments to the beneficiary should be made by debiting Head Office account of the opening
branch. If the beneficiary is not a customer of the negotiating branch, payment should be made by a
Pay Order, crossed “Account Payee”.
h. In case of partial drawings, the original ILC is to be returned to the beneficiary after noting the
particulars on it, as stated above. When the drawings are for the full amount of the ILC, the balance
in the ILC is exhausted by negotiation. The original ILC should be obtained by the negotiating
branch and forwarded to the opening branch along with the last set of documents negotiated. A note
has to be made in the ILC Received Register in the 'Remarks Column' in this regard.
i. The negotiated bill and document should be forwarded to the ILC issuing branch/bank with the bill
covering letter mentioning the details of ILC.
j. If there are discrepancies in the documents presented for payment under the ILC, the discrepancies
should be pointed out to the Beneficiary and the Beneficiary should be asked to get them rectified.
If, however, the discrepancies cannot be rectified and if the beneficiary is a valued customer and
creditworthy, payment may be made, under reserve, after obtaining an indemnity for the
discrepancies. In the case of other beneficiaries, indemnities should be obtained from their bankers
before making 'payments under reserve'.
k. While forwarding the bill to the ILC issuing branch / bank, list of the discrepancies in respect of
which indemnity is obtained, should be sent stating that the payment has been made under reserve.
l. In the case of revolving ILC the amount reinstated should be recorded on the reverse of the ILC
copy with the negotiating branch and in the ILC Received Register.
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15. Procedure on receipt of Documents at Issuing Branch:
a. Scrutiny:
i. The documents should be scrutinised to ensure that they are in conformity with the terms and
conditions of the ILC. All other precautions should be taken in the case of bills and documents
under ILCs, as applicable to IBCs.
ii. If the documents are not in accordance with the terms and conditions of LCs issued, the
documents should be rejected and intimation of such rejection should be given to the
negotiating bank / branch by the quickest means within 7 banking days. However, this does
not preclude the branch from referring the discrepancies to the opener in writing and also
obtain his acceptance or otherwise in writing. If the opener accepts the discrepancies and
communicate their acceptance in writing to the branch such acceptance and its due date, if any,
payment should be informed to the negotiating bank / branch immediately
b. Lodging:
i. On receipt of documents at the ILC issuing branch, the bills should be entered in the 'ILCBR
register' with all the relevant particulars. Each bill should be given a number in the serial order
with the prefix 'ILCBR'. Bills under ILCs should receive the special attention of the ILC
issuing branch, as these bills are to be honoured, in terms of the Bank's commitment under the
ILC and in turn reimbursement is to be claimed from the drawee (applicant / buyer). The
particulars of the bills should also be noted in the ILC ISSUE REGISTER. The following
entries are to be made at the time of receipt of bills under LCs issued.
-Dr: Acceptance for Constituent on account of Letter of Credit
-Cr: Constituent Liability for acceptance on account of Letter of Credit
-Dr: Constituents Liability on Inland Bills under LC
-Cr: Acceptance on account of Inland Bills under LC
ii. The relative entries made at the time of presentation for booking of the bills received under
ILCs should be reversed at the time of payment either by the applicant or the bank on behalf of
the applicant by debit to back-up facilities Account / Advance against overdue bills under ILC
account.
c. Presentation for Payment and Scrutiny by Drawee:
i. Bills under ILCs should be presented to the drawee on the day it is received,mentioning
therein, “Bills drawn under ILC Number _____________________.” The particulars of
commission and interest etc., due should be incorporated in the demand notice and the drawee
should be called upon to pay the bill within 24 hours of presentation, if it is a demand bill. List
of discrepancies should also be sent.
d. Discrepancies in Documents:
i. If there are discrepancies in the documents they should be notified to the applicant (buyer) of
775 - III
the ILC (drawee) immediately on receipt of the documents. The drawee (applicant-buyer)
should be asked to reply within 24 hours as to whether the documents are acceptable to him. If
the documents are not acceptable to the applicant, the negotiating branch/bank should be
informed for getting the reimbursement from the beneficiary, immediately, if payment has
been made under reserve.
e. Where the Buyer (Applicant) Delays Payment:
i. The opening branch should reimburse the negotiating branch / bank in terms of its obligations
under the ILC within 24 hours or receipt of the bill, irrespective of whether the drawee (buyer)
has paid it or not. Thus, the bill should be paid by the opening branch on the day, following the
day of receipt thereof, even if the drawee has not paid it.
ii. In such cases, bills should be reimbursed by debiting the “Advance Against Overdue Bills
under ILC”, under information to the Regional Office. Particulars of reimbursement should be
noted in 'ILCBR register', 'ILC Issue Register' and on the reverse of the office copy of the ILC.
Manager should ensure that such accounts are closed with the least possible delay. This should
deem to be an overdue account and steps should be taken to compel the borrower to provide
necessary funds.
iii. If it is found that the party is frequently in the habit of not providing funds, ILC will haveto be
made a sub-limit under the inventory limit so that the margin to cover cost of goods and duty is
provided for, in advance.
iv. When the bill is finally paid by the drawee, the “Advance Against Overdue Bills under ILC”
A/C should be credited. If the LCs are opened with backup finance, necessary authority should
be obtained from the opener, at the time of opening of LCs itself debiting the account for
adjustment.
v. For the information of the negotiating branch and the drawer of the bill, it should be
mentioned in the branch advice to the negotiating branch, as to whether the bill is actually paid
by the drawee or reimbursed by the opening branch. This is particularly essential in the case of
Revolving ILCs.
vi. If the terms of ILC requires the collection of negotiating commission, interest etc., from
drawee (buyer) such negotiating commission and interest, as eligible, is to be collected from
the drawee from the date of negotiation till the date of realisation of the Bill and credited to the
income account under the appropriate head.
vii. The branches should submit the “Statement of Devolved Letter Of Credit” on the very date
of invocation, as per the format given in Annexure-2 to this Chapter.
f. Payment by the Drawee:
i. The drawee should retire the bills under ILC within 24 hours of presentation either by cash
payment or by way of finance from the Bank under CC/KL limits extended to the party. If the
bill is adjusted to the negotiating branch by debiting the “Advance Against Overdue Bills
under ILC” as stated in the foregoing paragraphs the proceeds should be credited to the
776 - III
“Advance against Overdue Bills under ILC” Account. Otherwise the proceeds should be
remitted to the negotiating branch/bank.
ii. The applicable interest should be collected from the date of payment by the Bank till the date
of payment by the applicant. This interest should be credited to the interest received on
overdue bills A/c of the ILC opening branch.
iii. When the bill is paid by the drawee, entries should be made in the ILC issue register, ILCBR
register and on the office copy of the ILC.
iv. An acknowledgement of the customer should be obtained in token of having received the
documents.
v. Accounting entries should be passed and the party's liability reduced.
vi. In the case of Revolving ILC, the amount reinstated should be recorded in the ILC Ledger
maintained account wise and on the office copy of the ILC and necessary entries passed. An
advice of payment by way of a Letter should be sent to the negotiating branch / bank.
vii. In addition to negotiation charges and commission, the branch has to collect interest for the
transit period i.e., from the date of negotiation till the date of reimbursement of funds. If the
bills are not paid, on presentation, overdue interest should also be collected.
16. Other Aspects Under ILC:
a. Drawing by Usance Bills:
i. As stated earlier specific sanction is required for issuing ILCs stipulating drawings by
documentary usance bills (i.e. with DA terms).
ii. Documents relating to goods received under ILC on DP basis (Documents against Payment)
should not be handed over to the party before receiving payment, inspite of the fact that the
relative goods can be hypothecated / pledged subsequently. Where circumstances necessitate
handing over of such documents to party (applicant / buyer), specific permission from the
appropriate sanctioning authority must be obtained, for Trust Release, at the time of sanction
of the ILC limit itself.
iii. In cases where ILCs call for usance bills with DA terms (Documents Against Acceptance) the
goods covered by the usance bills should be hypothecated to the Bank. A hypothecation
agreement should be got executed by the party (applicant / buyer) for this purpose. The
hypothecation agreement should be adequately stamped and should be obtained for the total
ILC limit.
b. Other Precautions:The procedures / safeguards as applicable to Cash credit / key loan accounts
viz., insurance, stock verification, etc., are also to be followed. Where the party (applicant buyer) is
also enjoying CC /KL limits, the stocks received under the usance bills with DA terms are to be held
separately and also shown separately in the relative stock statements. For the purpose of
determination of drawing limit, such stocks received under ILCs usance should be EXCLUDED.
c. Balancing: Balancing of ILCs issued, Bills received under ILC and Advance Against Overdue
777 - III
Bills under ILC should be done as on last Friday of each month. The liabilities of individual parties
should be taken separately, account wise. The total of outstanding LCs of each party should tally
with the party's outstanding liability. The summation of liabilities of all the parties should tally with
the balance in the General Ledger.
d. Negotiation of Bills under ILCS issued by another Bank: Where bills are negotiated under ILCs of
other banks, negotiating branch should ensure that transit interest and negotiation charges are
invariably collected from the other bank.
e. Issuing of duplicate ILCs in lieu of Lost Originals: Before issuing a duplicate of an ILC, the party at
whose instance the credit was established as also the beneficiary, should execute an indemnity
letter in the form that will be supplied by the Head Office, on request.
f. Follow-up of ILCs:
i. The branch has to verify whether the assets, covered by the ILC, is duly received by the
Applicant (buyer) and that the ILC is utilised for the purpose for which it was issued.
ii. In case of Letter of Credit issued for supply of goods, the procedures and precautions laid for
hypothecation / pledge of goods as the case may be for monitoring the goods must be followed
and it should be confirmed that the stock of goods is adequate to cover the liability.
iii. Stock / Debtors statement should be obtained once in fortnight.
g. Risks:
i. Fraud Risk:
 The payment will be obtained for non-existent or worthless merchandise against
presentation by the beneficiary of forged or falsified documents.
 Credit itself may be forged.
ii. Sovereign and Regulatory Risk:
 Performance of L/C may be prevented by Govt. action.
iii. Legal Risk:
 May be disturbed by legal action.
iv. Force Majeure and Frustration of Contract:
 External factors Natural disasters, armed conflicts.
v. Risks to the applicant:
 Non delivery of goods
 short shipment
 inferior quality
 early/ later shipment
 damaged in transit
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 Foreign Exchange
 Failure of Bank/ issuing bank/ collecting bank
vi. Risks to the Issuing Bank:
 Insolvency of the applicant
 Fraud Risk, Sovereign and Regulatory/ Legal Risk
vii. Risk to the Reimbursing Bank
 no obligation to the reimburse the claiming bank unless it has issued an undertaking.
viii. Risk to the Beneficiary
 Failure to comply with credit conditions
 Failure of or delay in payment from the issuing Bank
 Credit issued by party other than Bank.
ix. Risk of Confirming Bank
 Insolvency of the issuing Bank
 Results in not getting reimbursement.
17. Annexure/s:

Annexure 1: Specimen of ILC Issue Note.
Annexure2: Specimen of Statement of Devolved Inland Letter of Credit.
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ILC ISSUE NOTE

………………..….SC BANK LTD., _____________BRANCH
1) Name of Party
2) Particulars of sanction – ILC limit
a) Amount
b) Date of sanction
c) Sanctioning Authority
d) Dt. of first availment
e) Due date
f) Commodity to be dealt with
As per sanction
g) Margin
3)Present outstanding under
a) ILC
b) DP Bills
c) DA Bills
d) Overdue Bills
e) Trust Release
4) Present Request
a) Amount
b) Commodity
c) DA / DP
d) Validity
e) Commission
5) Reasons for earlier crystallisation, if any and how it was / will be recovered The total liability including
the present limit is within the sanctioned limit
OFFICER HANDLING THE ISSUE COUNTER SIGNED
MANAGER
780 - III
SPECIMEN OF STATEMENT OF
DEVOLVED INLAND LETTER OF CREDIT
PART I
Devolved and Liability outstanding for the quarter ended_______
Sl.No. Name of the Name of the LC Devolved Outstanding

Party on Beneficiary Amount ----------------- balance
Whose behalf and address Date Amount as on____
L.C. was issued in DL / BP raised to
adjust the
devolved LC
---------------
Date Amount
(1) (2) (3) (4) (5) (6) (7) (8)
How the claim was adjusted Remarks

DL Amount DL Raised Closed
On on
(7) (8) (9) (10)
PART II
Devolved and Liability closed for the quarter ended……………
Sl.No. Name of the Name of the Beneficiary LC Amount Devolved

Party on and address
Whose behalf
Date Amount
(1) (2) (3) (4) (5) (6)
How the claim was adjusted Remarks

DL Amount DL
Closed on
(7) (8) (9) (10)
In part II under Column 8 the amount of demand loan raised for LC devolvement must be shown In Part II Column 10 the account
in which the amount is debited and on which date should be given.
(i.e. liability was closed by debiting CA, CC or paid by party on __________)
781 - III
CHAPTER-58
ADVANCE AGAINST GOODS

1. General:
a. This facility of advances against goods can be in two ways.

i. Pledge
ii. Hypothecation of Goods
2. Pledge:
a. A pledge is said to be created, when the goods are physically handed over by the borrower or the
prospective borrower to the lender or to someone as authorised, on his behalf, with the intention of
the goods being treated as security for the repayment of the advance. Legal delivery actual or
constructive, is an essential part of a contract of pledge.
b. Sections 148 to 179 of the Indian Contract Act are related with the bailment and pledge. The
definitions given in the Indian Contract Act create a relation of bailor and bailee between the
borrower and the lender [Banker].
3. Hypothecation:
a. Hypothecation is the creation of an equitable charge over the goods, the borrower having
possession of the goods. A breach of contract under hypothecation, usually leaves only a right to
sue for damages, but the agreement of hypothecation incorporates a binding on the borrower that
the banker will be allowed to enter the premises and that the possession of the goods will be given
to the banker who called upon to do so. As soon as the possession is handed over to the banker,
hypothecation becomes pledge.
b. The difference between a pledge and hypothecation is that in the case of a pledge, the borrower's
goods are in the Bank's own lock and key whereas, in the case of hypothecation, the stocks remain
in the possession of the borrowers and are merely equitably charged to the bank under documents
signed by them. In actual practice, it may be difficult to take possession of the goods, when it
becomes necessary for the bank to do so, if the borrowers resist, even though, the bank is
empowered to do so under the documents executed by the borrowers. It would even be necessary to
secure the consent of the borrower for obtaining valid possession of such goods.
c. Advances are also made against document of title to goods i.e. Bill of Lading, Railway Receipts and
Warehouse Receipts.
4. Categories of Advances on Produces:
a. Cash Credit against hypothecation of goods
b. Key Loans against pledge of goods

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a. Eligible Borrowers are those customers of the bank,
i. Who are entirely trustworthy

ii. Who are regular dealers in the line of goods against which advances are granted
iii. Who have adequate resources to pay the shortfall in margins, without difficulty, if the prices of
goods tend to fall
iv. Who can be thoroughly relied upon for the repayment of the advances, without recourse to
forced sale of goods, by the bank and
v. who are solvent (if the borrower's own funds (tangible networth) is negative they are not
solvent and cash credit facility should be denied / terminated.
vi. Who are empowered to have the share of goods
b. Purpose:
i. Credit facilities against goods are granted to increase the working capital resources of the
applicant and thereby, increase the turnover leading to an overall growth in profitability and
/or productivity
c. Limit:
i. Limit is fixed taking into consideration the various aspects of lending and upon the genuine
business requirements of the customer. Banks never lend a sum beyond the customer's needs.
For a manufacturing unit, the cash credit facility is linked to the level of inventories.
6. Security
a. Primary Security:
i. The grant of this facility is linked to the stock holdings including raw materials, Work-in-
process and finished goods. So, the primary security is goods.
b. Essential Qualities of the Security i.e. Goods:
i. The goods are ordinarily those on the approved list of Bank and in case of other readily
marketable goods, not subject to wide fluctuations, approval of the competent authority has to
be taken for accepting them as security.
ii. The goods accepted belong to the borrower (except in the cases of advances granted to a
Mercantile Agent).
iii. The Bank maintains with it original invoices or authenticated copies thereof, in respect of
goods pledged.
iv. The goods should be lying in the custody and possession of the borrower. These advances
783 - III
should not be granted against goods, which are lying in the possession / premises of third
parties, viz:- borrower's suppliers or borrower's job workers.
v. No advance should be granted against goods whose quality, quantity and value cannot be
easily ascertained. The goods should be of good quality, of adequate quantity and without wild
fluctuation in value.
vi. Goods should be readily marketable. There should not be rapid deterioration in quality.
Perishable goods and goods of inflammable character should not be accepted as security
without prior approval of R.O./H.O.
vii. The goods should not be very old. No. goods should be allowed to be held for an unduly long
period (say) more than 6 months
viii. Seasonal goods should be cleared at the end of the season and not continued, beyond, to the
next season.
ix. Proper storage facility must be available
x. The goods should be cash paid goods (and not those obtained on credit basis) and free from
any encumbrance
xi. Goods should not be that manufactured against a particular specific order for a particular
buyer only eg. Calendar, cakes.
xii. Goods are kept adequately insured against fire risks and where necessary, cover against other
types of risks is also obtained. Insurance policies are in joint names of the Bank and
borrowers, with the usual Bank clause, on the warranties in the policies are being fully
observed and the policies are being retained at the Bank. The insurance Register is to be
satisfactorily maintained and the Bank has a proper system for ensuring renewal of policies on
respective due dates.
xiii. The Market Rate Register is properly maintained and the trend in prices of all commodities
pledged are watched constantly.
xiv. The margin stipulated in the account have been maintained, clean loans/overdraft facilities
have not been allowed to borrowers with a view to enable them to maintain the prescribed
margins, particularly in regard to advances against commodities covered by RBI Credit
Control Directives.
xv. The Bank should ensure to comply with the directives issued by RBI from time to time,
imposing restrictions against certain commodities.
xvi. The possession of pledged stocks has not been parted with by the Bank except against
proportionate repayment, releases under Trust Receipts, if any have been made under
arrangements as approved.
xvii.Deliveries have invariably been effected against delivery orders signed by the competent
authority and duly discharged by the borrowers or their authorised representative and the
Delivery Register is properly maintained.
xviii.The Register of Godown Keys is maintained and proper control is exercised over the custody
and issue of keys. The duplicate keys of the lockers are also held in joint custody.
784 - III
c. Sole Property of the Borrower:
i. The value of goods proposed to be offered as security should have been fully paid for , by the
borrower, to the seller of the goods. The borrower may be asked to state the cheque number by
which payment has been made on the purchase invoice so that the branches can verify the
payment from the ledger. It should be ensured that no “Unpaid Vendor's Lien” exists on the
goods that are offered as security. However, the fact of possession of goods is the vital factor in
determining whether the seller can have any lien on the goods which have not been fully paid
for by the borrower
ii. The seller cannot have any lien on the goods when he has given lawful possession of the goods
to the buyer.
d. Indigenous Goods / Manufactured Goods:
i. When the invoice value of the goods is known, the goods should be valued on the basis of the
invoice value or market value, whichever is less. Where, however, the invoice value is not
ascertainable, the market value of the goods may be taken as the basis for valuation. In such
cases, Bank should ascertain the market rates, at frequent intervals, and maintain a record
thereof. In the case of Manufactured goods the basis of valuation should be either cost price or
market price, whichever is lower and the manufacturer's invoice should be produced for
verification.
7. Sanction and Release:
a. Sanction:
i. Before sanctioning, the applicant's place of business and his residence should be visited and
suitability assessed.
ii. The appropriate application form supported by the required supporting statements, including
financial statements such as balance sheets, profit and loss accounts, annual cash flow
projections, income tax assessment orders, sales tax assessment orders etc., must be obtained
and scrutinized
b. Duration:
i. Advances against “Mercantile Produce” are granted usually for short periods of six months or
less and, at any rate, not exceeding twelve months, so that by lending against them the bank's
funds are not locked up for any considerable time.
ii. Cash Credit Limits are sanctioned for a period of 12 months, unless it is for seasonal purpose.
The limits are to be renewed before the expiry of due date. Renewal also should be done on
reconstitution of the borrower's firm.
c. Rate of Interest:
i. The branch should charge rate of interest applicable, from time to time, as per Bank's Rule.
785 - III
ii. The additional interest /charges should be collected in case of
-Inadequate collateral security
-Non-submission / delayed submission of Stock Statements, statements under MSOD / QIS,
etc.,
d. Margin:
i. Sufficient margin must be retained, which will depend upon the nature of the commodities,
market rate etc. The drawing power in the account should be arrived at only after excluding
margin.
ii. Fluctuations in market rates of commodities should be watched and drawing powers should be
reversed accordingly.
e. Other Conditions:
i. In respect of commodities coming under the Selective Credit Control the Bank should adhere
to the level of credit, the margins and the rates of interest as stipulated by the Directives of RBI
from time to time.
ii. Most State Governments have enacted laws, whereby, traders/ manufacturers are required to
obtain licences to store particular type of goods like chemicals, explosives and other
hazardous goods. Banks shall ensure that such regulations of the local bodies are strictly
complied with, by the borrower before accepting such goods as security. List of items which
require licences can be had from the respective Municipalities / Corporations. Banks should
ensure that the borrowers have obtained licences, wherever necessary, from local bodies
before granting advances against such goods.
f. Release of the Limit:
i. Copy of the licence required, if any, to deal with certain commodities is obtained by the Bank
from the borrower.
ii. All required and additional / collateral securities required, as per the terms of sanction, should
be obtained and proper charges in favour of the Bank should be created by executing
documents.
g. Ledgers and Registers:
i. The following are the ledgers and registers involved in the release of limits:
-Loan Register - Limit /DP register
-Loan account due date register - Market Rates Register
- Stock Register Register of Godown keys
- Delivery order Register
786 - III
h. Loan Register:
i. Full particulars are to be entered in the respective columns. The detailed particulars of
documents obtained, with serial number for each loan, should be entered in the register under
the appropriate column. The entries are to be made by the concerned clerk and checked and
initialled by Officer.
8. Follow-Up and Post-Credit Supervision:
a. Inspection of Stocks:
i. Banks must inspect the stocks charged as security to the Bank, periodically, and as per the
instructions in force. Proper records should be maintained for the inspection of the securities.
There should be an element of surprise and inspection should be carried out at random
intervals, at least, once in a month.
b. Verification of Stocks:
i. The Bank shall cause inspection so as to verify the physical stocks, margin, market value,
insurance, age of goods, movement etc., guidelines issued are adhered with reference to the
following:
-Inclusion in the approved list
-Quality
-Quantity,
-Value, (marginal fluctuations)
-Storage,
-Insurance
-Age of the stocks,
-Durability,
-Marketability, etc.,
c. Adverse Features:
i. If any shortage of stocks / inventory or any adverse feature is observed during the course of the
verification, the verifying officer should give a report to the Bank. Such reports with
appropriate comments of the Branch Manager about the reasons for the irregularities and steps
taken for their rectification should be sent to the Regional Office.
Branches should not submit such inspection reports without suggesting the follow-up actions
needed to rectify the irregularities. Besides, Branches should ensure that the Bank's interest is
not endangered, under any circumstances
d. Godowns not Inspected:
i. Whenever stocks could not be inspected, for any reason, the reasons for the same should be
obtained from the concerned officer and a report should be sent to the respective Regional
Office.
787 - III
e. Godown Structure and Location:
i. Godowns should be strong and safe

ii. Where there is no free access and the front portion is used by someone else other than the
borrower, a letter of free access should be obtained such user.
iii. Godowns should be located in a safe and unobjectionable locality.
iv. In case of godown not belonging to the borrower, he must be a lessee either with a written or
oral lease. The rent receipts are to be produced for verification and a letter from the owner of
the building, waiving his right over the goods in lieu of the rent payable, should be obtained
v. The municipal door number should have been painted, at the entrance of the premises, where
the goods offered as security to the bank are stored.
vi. The name board of the borrowing firm is to be displayed at the entrance of the godown /
premises.
f. Goods Held at Far-Off Places:
i. If the goods are to be held at places quite far away from the lender branch or left in possession
of third parties in remote entries, either for job work or for other purposes, it should not be
accepted and the proposal should be turned down politely expressing the bank's inability to
handle such advances.
g. Goods at Processing Units:
i. If the borrower hands over stocks for processing with various processing units, the names of
such unit, location of such unit., etc., should be obtained from the borrower at the time of
accepting the proposal itself. The Manager should ascertain the possibility of exercising post
credit supervision vis-à-vis the location of goods. All these aspects should be mentioned in the
proposal explicitly and a specific request must be included in the proposal seeking sanction to
take goods stored in various places under hypothecation. If the goods are to be located at
remote distances from the branch, the proposal need not be entertained.
h. Godowns situated outside Municipal / Panchayat Limits:
i. In such cases where goods are stored in godowns situated outside the Municipal / Panchayat
limits, previous permission of H.O. should be obtained. In such cases the Manager should
satisfy himself that the locality of the godown is not prune to the risk of theft, looting etc., and
that not prune to there are good facilities for inspecting the godowns. In case the borrower is
keen to avail the advance, the borrower should accept, the responsibility of maintaining a
watchman, and for the safety of the goods stored therein, in writing.
i. Name Board:
i. The bank's name board depicting the charge over the commodities should be displayed
conspicuously, in the premises where the goods offered as security to the bank are stored.
788 - III
9. Timely Action (in case the financial position of the Borrower deteriorates):
a. When the financial position of the borrower suffers a set back or deteriorates, prompt steps should
be taken to take possession of, the goods hypothecated, as under pledge and if possible with the
written consent of the borrower and arrange for the recovery of the loan amount. Branches should
initiate similar action, if suits are filed by other creditors.
10. Additional particulars for Cash Credit Accounts:
a. This type of advance is normally considered for borrowers who, by reason of daily turnover of their
stock-in trade, are unable to give possession of goods to the bank by way of pledge. They should
always maintain up to date and proper books of accounts with supporting invoices for purchases
and credit or cash memos for sales. As the Bank largely relies on such books of accounts and stock
registers for verification of the correctness of the Stock Statements, the Bank may not entertain
such proposals unless these conditions are fulfilled.
b. Cash Credit is a running account. A limit is fixed for the borrowings taking into account of various
aspects. The drawing power within the fixed limit is determined based on the stock holdings of the
party. The drawings are allowed within the sanctioned limit or within the drawing power,
whichever is less.
c. Nature of Charge over the Primary Security:
i. The nature of charge under Cash Credit is Hypothecation
d. Period:
i. Cash Credit limits are sanctioned for a period of 12 months. The limits are to be renewed
before the due date of the limit or when the circumstances so warrant for early renewal (say
reconstitution, enhancement, etc.)
e. Release of the Limit:
i. Branches should take proper care while releasing and ensure that such release is done only
after commencement of commercial production in case of manufacturing unit.
f. Conduct of Accounts:
i. The following are the registers / statements / documents that should be maintained for Cash
Credit Account.
-Cash Credit Ledger
-Cash Credit Stock Statement Register
-Drawing Power Register
-Drawing Power Information Sheet
789 - III
-Market Rate Register
-Insurance Register
-Total liability Register.
ii. The Banks guidelines are to be observed with reference to the following requirements.-
Specimen Signatures
-Cheque Books Stock, issue, etc.,
-Maintenance of Ledgers and Registers
-Payment of Cheques
-Balancing of Ledgers
-Statement of Accounts
-Folio Charges
-Standing Instructions
-Operations in the Account
iii. A time limit of 15 days may be allowed to the borrowers to remit the interest and other charges
debited to Cash Credit account in cases where such charges cause excess drawal over the limit.
When the outstanding in the account is well within the limit, after debiting of the above
charges, no debit operations beyond the limits should be allowed. In other words, the over
drawings are permitted for the limited purpose of recovering the quarterly interest and not for
allowing routine transactions.
g. Drawings in the Account:
i. Operating the Limit:

-When a Cash Credit limit is sanctioned it does not mean that the borrower can be allowed to
draw upto the limit sanctioned. The borrower is allowed to draw within the drawing power,
calculated on the basis of the Stock Statements after maintaining stipulated margin or within
the sanctioned limit, whichever is less.
-At the time of availing the limit, the borrower has to submit the Stock Statement, which
should be duly verified and checked. Subsequent drawings should be within the drawing
power arrived at, on the basis of subsequent Stock Statements to be submitted at periodical
intervals. The debit balance, at any time, should be within the drawing power arrived at, or the
sanctioned limit, whichever is less.
-Frequent return of cheques issued by the borrower would indicate overtrading or financial
weakness which has to be brought to the notice of the sanctioning authority and proper action
should be initiated.
ii. Allowable Debits in the Account:
-While opening the account itself, the nature of business and commodity dealt with by the
borrower should be understood and ensured that the debit and credit operations are correlated
to the borrower's business transactions. It is also essential to note down the sources from which
the goods / raw materials / services of others are being acquired / availed to ensure that the
790 - III
withdrawals made from Cash Credit / Overdraft accounts are meant for making payment to
such sources. Cash withdrawals may also be permitted only to meet administrative expenses.
-Unless there is sufficient drawing power in the account, the branch should not debit:-
! Instalments of the term loan account and its interest.
! The amount of returned bills
iii. Cash Withdrawals:
-When cash withdrawal is made from such account, the branches must be doubly cautious,
because it is an easy way of diverting the fund for unapproved purposes. So, cash withdrawal
must be avoided, as far as possible, unless the Branch Managers know very well about the
purpose for which the credit has been given, such as payment to agriculturists, cash purchases
from the market, etc.,
iv. Credit Entries:
-All sale proceeds must invariably be routed through the account. The summation of credit
must match with the quantum of sale made by the borrower. If not, it amounts to diversion of
sale proceeds by opening accounts with other bank(s). So, it must be verified, on an on-going
basis, (not at the end of the year or during renewal) and taken up with the borrower, then and
there.
-If the borrower has opened any Current Account with other bank(s), the said bank(s) must be
alerted and requested to take necessary steps to close it. The borrower must be instructed to
route all their sale proceeds through the Cash Credit Account. If there is no response from the
borrower, further withdrawals must be stopped (not the credits) and the matter must be
referred to Regional Office / Credit Department for further course of action.
-If huge amounts are deposited in cash in the account, the source of the same should be
enquired into.
v. Funds Transfer to Associate / Sister Concerns:
-Any withdrawal made for transferring funds to sister / associate concern of the borrower must
be discouraged, unless, it is for advance payment / purchase of goods made from such
concerns. In the latter case, Branch Managers must confirm whether the borrower is a
marketing outlet for the product of the sister / associate concerns. This must be assessed at the
time of appraising the proposal itself and be reported in the recommendations. Other than this,
on rare occasions, fund transfers, just to transfer surplus funds / extra liquidity may be
permitted provided Manager is satisfied with the nature of the excess liquidity available with
the borrower concern, as per the latest balance sheet, and that this transfer will not affect the
required Liquidity and Net Working Capital of the concern. In all other cases, it will amount to
diversion of the funds and the branch should not allow such type of withdrawals. This
condition must be made known to the borrower, explicitly.
vi. Action to be taken:
If any withdrawal is found to be not relating to the business dealings for which the bank has
financed or for meeting their administrative expenses, the officer/s should seek clarifications
from the borrower, immediately on notice. Any withdrawal, meant for the purpose unrelated to
the business of operation for which the facility is granted, must be denied firmly, although it is
791 - III
within the sanctioned limit. The borrower cannot claim withdrawals, as a matter of right, from
the limit sanctioned, irrespective of the purpose.
Before opening a Cash Credit the Branch Managers must create awareness for the officers and
staff members of the concerned section about the nature of business operation of each
borrower, commodity dealt with by them, sources from which the goods are acquired,
expected monthly sales and such other information relevant to the operation of the account.
Such information must be recorded and verified during operations. The borrowers must also
be made aware of these conditions, in writing, while entertaining the proposal itself to avoid
possible future litigation.
vii. Measures to Prevent Diversion of Funds:
Branches should ensure proper end use of the working capital limit and the diversion of funds
should not be allowed under any circumstances, say, for acquiring any fixed asset.
11. Submission of Stock Statements and Fixing Drawing Power:
a. Stock Statements:
i. The borrowers should be instructed to submit statement of stocks in the bank's prescribed
“Stock Statement Form”. The Stock Statement should contain a declaration by the
borrower(s)
-Regarding their clear title to the goods,
-The correctness of the quantity
-Valuation thereof and
-Purchase and sales particulars
ii. The declaration firmly bind the borrowers and form the basis of the hypothecation advance.
The Stock Statements obtained should be signed by the borrower.
b. Periodicity for Submission of Stock Statement:
i. Stock Statements from the borrowers whose limits are upto Rs. 25,000/- may be obtained on
quarterly basis
nd
ii. For the borrowers who are having facilities for above Rs. 25,000/- statements as on 2 and Last
Friday may be obtained.
iii. Where the borrowers are encountering genuine difficulties in submission of the Stock
Statements, the Branch Manager may recommend for obtention of the Stock Statement, at a
longer rest. The Regional Manager could consider the recommendations based upon the
genuineness of the difficulties faced by the borrower.
iv. In as much as the number of items hypothecated by small business units are large and
consequently they find difficulty in compiling Stock Statements, in the form required by the
Bank, the Branch Managers shall recommend to their controlling authorities for obtaining a
Stock Statement showing the selected items, the value of which should be more than 75% of
the total value of the stock. The remaining items which constitutes less that 25% of the value of
792 - III
the total stock shall be clubbed together and shown as a single item provided no single item
which is clubbed under this 25% constitutes more than 5% of the total value of stocks.
v. The fortnightly Stock Statements as on Friday (2nd and Last Fridays) should be submitted to the
branches on or before the following Monday.
vi. In case of the borrowers submitting the Stock Statements on a monthly / quarterly basis, the
statement should be received by the branch within one week from its reporting date.
c. Penalty for Delay / Non-Submission of Stock Statement:
i. If the statements are not submitted by the next Friday following the due date for submission of
Stock Statement, a default interest at 1% p.a., on the balance outstanding as on the reporting
Friday should be charged for the subsequent fortnight and debited to the account. The
instances of default in submission of Stock Statements should be taken note of at the time of
the renewal of the account. The repeated instances of default may force the Bank to cut down
the facility during renewal. However, branches should send a formal notice to the defaulting
borrowers (Registered Letter with Acknowledgement Due) informing the levy of Default
Interest.
ii. In case of continuing non-submission of Stock Statements, the reasons shall be studied.
Branch Managers should meet the borrowers personally and have a discussion to impress
upon them the purpose and the need for which Stock Statements are required by branch.
In cases where the borrowers encounter genuine hardship branches may take up with R.O.
recommending revision of periodicity of statements.
iii. In cases of persistent default (if the Stock Statements are not submitted in time and if the
default is for a period beyond the date of next submission of the statement) the operations in
the account shall be stopped / the limit reduced / account recalled, if necessary to safeguard the
interest of Bank.
d. Scrutiny of Stock Statements:
i. On getting the Stock Statement the required particulars are recorded in the Drawing Power
Register, after verifying the correctness of value, calculations, etc., carefully.
ii. In order to avoid double finance (i.e. inclusion of goods already financed by Trust Receipt/ DA
bills / LC / BG) in the hypothecation account, branches are advised that, before arriving at the
drawing power in the Cash Credit Account, on the basis of the borrower's Stock Statements,
they should verify whether the value of unpaid stocks covered by outstanding DA bills etc., are
segregated and deducted from the total value of stocks shown in the Stock Statement. The
drawing power will be the net value of paid stocks less stipulated margin or the limit,
whichever is less. The unpaid goods such as that procured by the borrower, on credit basis and
against Guarantees / Letters of Credit / Trust Receipts etc., should not be included for
calculating the drawing power and shall be shown, separately, in the Stock Statement.
iii. In case the stocks are located at different places, the Stock Statement shall contain details of
stocks location wise and the insurance shall accordingly be taken location wise for adequate
793 - III
value.
iv. The Stock Statement and the entries in the Drawing Power Register should be verified by an
officer and duly initialled / signed fixed an appropriate columns in token of verification.
v. The Drawing Power of the hypothecated security fixed on the basis of the latest Stock
Statement should be noted in the ledger by keeping a master instruction sheet. One sheet
should be maintained for every borrowal account. The drawing power calculated on the basis
of the Stock Statement submitted by the borrower should be entered by the concerned clerk in
the Drawing Power Register and must be authenticated by an Officer. The concerned clerk in
the Section should always make sure that sufficient Drawing Power is available for passing the
debit by verifying the latest Drawing Power entered in the instruction sheet. The official who is
passing the drawal should check that sufficient Drawing Power is available.
vi. The genuineness of the transaction is verified in case of the goods in transit (inward) a n d i s
included in the Stock Statement. Proper sanction from R.O. should be obtained, to include the
goods in transit, for arriving at the drawing power.
vii. The turnover of stocks calculated from the Stock Statements, shall be cross-checked with the
operations in the account.
12. Inspection of Stocks:
a. Goods Stored at more than one Centre:
i. Where stocks of the borrower are stored at more than one centre arrangements should be made
for simultaneous inspection of stocks, at all centres, on the same day.
b. Goods with Agents / Processors / Etc.:
i. Godown inspection should be carried out, even where goods are held with Approved Clearing
Agents, with the help of the storage receipts made out in the Bank's name, together with an
undertaking that the delivery will be made only to the Bank or the Bank's order. The insurance
cover obtained, for the stocks held with the clearing agents, must be verified, at the time of
stock inspection.
ii. Where advances are made to manufacturing / processing units, arrangements should be made
to inspect the goods as per instructions. No objection / no lien / access letter obtained from the
processors, weavers, artisans, etc., should be verified at that time and it should be ensured that
the bank's name board is prominently exhibited in the premises. While handing over the goods
to the units owned by third parties, for processing purposes, the borrowers must maintain a
clear and detailed record for exchange of goods, in between them and the processing units,
both at their point and with the processing units.
c. Verification of Stocks [Additional Particulars]:

i. The goods must be verified with that of the Stock Statement of a recent date and compared
with that of the stock registers of the customer to confirm correctness of the Stock Statement
given to the bank and to ensure that the value is sufficient to cover the limit. The value of the
794 - III
securities shall be individually assessed and compared with the value given in the Stock
Statement for detecting over valuation, if any.
d. Verification of Books of Accounts of the Borrowers:
i. The borrower's stock register should be examined, at the time of stock inspection, to verify the
stocks under hypothecation to our Bank. In fact, the Stock Statement should agree and be
consistent with the stock registers maintained by the borrower. Officials should not initial or
sign on the borrower's stock book. They should only compare the stock, as given in the Stock
Statements, with the stock register kept by the borrowers
ii. Branches should call for the documentary evidence, which can be in the form of paid invoices /
bills. Such documentary evidence must be scrutinized, thoroughly to ascertain
-the title of the borrower to goods and
-the basis of valuation of goods.
iii. The borrowers should give the cheque numbers by which they have made payments for the
goods on the relative invoices so that the payments can be verified by the branches by referring
to the parties' Current Accounts / Cash Credit Accounts.
iv. Branches must be aware that the turnover in an account must be judged not merely by
reference to the ledger account which reflects financial turnover but also by reference to the
movement of the goods as it is a reliable pointer to the marketability. Non-movement of the
goods in an account may indicate either any or all of the following features about the goods.
-Not in regular demand
-Over valued
-Obsolete or out of fashion
-Substandard
v. Such statements also reflect transaction of the borrowers, in particular, to the sale / purchase of
the goods and its movement. Branches should go through the statements to keep a close watch
on the conduct of the account to pick up any signal thrown out and to arrest the trend of the
account becoming sick, speculative / overtrading and thereby an NPA. Allowing operations in
an account without obtaining Stock Statements is fraught with grave risks. Technically, the
drawing power of any account secured by hypothecation of stock, is to be treated as “NIL” if
statements have not been received by the due dates. Delay in submission of Stock Statements
will also result in classifying the account as irregular.
e. Healthy Operations:
i. To ensure liquidity of these advances, borrowers should ordinarily bring their account to
credit, at least, once in a year. A seasonal cash credit should, invariably, be recovered at the end
of the season and not permitted to continue beyond the end of the season, to the next season.
795 - III
CHAPTER-59
DOCUMENTS TO BE OBTAINED FOR VARIOUS LOANS
1. General:
a. Loans requires different sets of documents. The list of various documents that are required to
be obtained for various kinds of loans are furnished hereunder:
2. Clean Loans:
Code
Sl No. Type of the Borrower Documents to be obtained Remarks
No.
(i) Individual D.P. Note (2)
Letter of guarantee, if any. (33)
Letter of undertaking relating to payment
of advance in stipulated instalments with
acceleration clause (57)
Letter of undertaking containing negative
(37)
lien clause.
(ii) Joint Borrowers Joint and several D.P. Note. (3a)
Letter of undertaking relating to
payment of advance in stipulated
instalments with acceleration clause. (57)
Letter of undertaking containing (37)
negative lien clause.
(iii) Sole Proprietary Joint and several D.P. Note. (3b)(i) Sole Proprietorship
Concern Letter of guarantee, if any letter should be signed
Letter of undertaking relating to (33) by the proprietor in his
payment of advance in stipulated (57) personal capacity only.
instalments with acceleration clause.
Letter of undertaking containing (37)
negative lien clause (38)
Sole Proprietorship letter
(iv) Partnership Firm Joint and several D.P. Note (3c) Letter of Partnership
Letter of guarantee, if any. (33) should be signed by all
Letter of undertaking relating to the partners in their
payment of advance in stipulated personal capacity only.
instalments with acceleration clause. (57)
Letter of undertaking containing
negative lien clause. (37)
Letter of Partnership (39)
Note: for D. P. Note (Code Nos.), please refer to various Annexures under Chapter 61 'General Annxures'.
796 - III
3. Clean Overdrafts:
Code
No.
(i) Individual D.P. Note. (2)
Letter of continuing security (with
negative lien clause). (37)
Letter of recording to adjust the (50)
overdrawings within the stipulated
period (wherever applicable)
(ii) Joint Borrowers Joint and Several D.P. Note. (3a)
Letter of continuing security (with
negative lien clause). (37)
Letter of recording to adjust the
overdrawings within the stipulated (50)
period (wherever applicable)
(iii) Sole Proprietary Joint and several D.P. Note (3b) (i) Sole Proprietorship
Concern Letter of continuing security (with (37) letter should be signed
negative lien clause). (33) by the proprietor in
Letter of guarantee, if any Letter of his personal capacity only.
recording to adjust the (50)
overdrawings within the stipulated
period (wherever applicable). (38)
4. Guarantees:
Code
No.
(i) Individual Stamped Counter- (34)
Indemnity/Guarantee executed by the
borrower
(ii) Joint Borrowers Stamped Counter-Indemnity/ (34)
Guarantee executed by the borrower
(iii) Sole Proprietary Stamped Counter-Indemnity/ (34) Sole Proprietorship
Concern Guarantee executed by the borrower letter should be signed
Sole Proprietorship letter (38) by the proprietor in his
personal capacity only.
Partnership Firm Stamped Counter- Letter of Partnership
Indemnity/Guarantee executed by the (34) should be signed by all
borrower (3) the partners in their
Letter of partnership personal capacity only.
797 - III
5. F.D.R./S.D.R.:
Code
No.
(i) Individual DPN 2
Letter depositing F.D.R./S.D.R.
F.D.R./S.D.R. duly discharged by the (16)
party. --
(ii) Joint Borrowers Joint & several (DPN) (16) Sole Proprietorship
Letter depositing F.D.R./S.D.R. letter should be signed
F.D.R./S.D.R. duly discharged by the -- by the proprietor in his
party. 3(b)(i) personal capacity only.
Joint and several DPN (16)
Letter depositing F.D.R./S.D.R. --
F.D.R./S.D.R. duly discharged (38)
by the party.
(iv) Partnership Firm Joint and several DPN 3(c) Letter of Partnership
Letter depositing F.D.R./S.D.R. (16) should be signed by all
F.D.R./S.D.R. duly discharged by the the partners in their
party. -- personal capacity only.
NOTE :
(i) All the parties to the F.D.R./S.D.R. should discharge the deposit receipt on revenue stamp and the
signatures should be verified by the branch. Lien should be marked on the receipts and in the
ledger/register.
(ii) If the advance is against third party deposit receipts, letter depositing F.D.R./S.D.R. should also be
signed by the third party after duly filling in the relevant clause in the letter depositing F.D.R./S.D.R.
6. Recurring Deposits:
Code
No.
(i) Individual DPN (2)
Unstamped Letter of Appropriation. (48)
Recurring deposit pass-book duly
discharged by the party
(ii) Joint Borrowers Joint and several DPN 3(a)
Unstamped Letter of Appropriation,.
Recurring deposit pass-book duly (48)
discharged by the party
798 - III
(iii) Sole Proprietary Concern Joint and several DPN 3(b)(i) Sole Proprietorship
Unstamped Letter of Appropriation,. letter should be signed
Recurring deposit pass-book duly (48) by the proprietor in his
discharged by the party. -- personal capacity only.
Sole Proprietorship letter (38)
(iv) Partnership Firm Joint and several DPN 3(c) Letter of Partnership
Unstamped Letter of Appropriation. (48) should be signed by all
Recurring deposit pass book duly -- the partners in their
discharged by the party. personal capacity only.
7. Life Insurance Policies:
Code
No.
Letter of pledge of securities with
additional clause. (11)
Take delivery letter. (60)
Form of assignment in Bank's favour. (84)
Copy of notice of assignment
addressed to Life Insurance (85)
Corporation of India signed by the
party
(ii) Joint Borrowers Joint and several D.P. Note (85)

Letter of pledge of securities with (3a)
additional clause.
Take delivery letter. (11)
Form of assignment in Bank's favour (60)
Copy of notice of assignment (84)
addressed to Life Insurance
Corporation of India signed by the (85)
party.
(iii) Sole Proprietary DPN (3)(b)(i) Sole Proprietorship

Concern Letter of pledge of securities with letter should be signed
additional clause. by the
Take delivery letter. (11) proprietor in his personal
Form of assignment in Bank's favour. (60) capacity only
Copy of notice of assignment (84)
addressed to Life Insurance (85)
Corporation of India signed by the
party Sole Proprietorship letter
(38)
799 - III
(iv) Partnership Firm Joint and several D.P. Note (3c) Letter of
Letter of pledge of securities with Partnership
additional clause. should be
Take delivery letter. (11) signed by all
Form of assignment in Bank's favour. (60) the partners in
Copy of notice of assignment (84) their personal
addressed to Life Insurance capacity only.
Corporation of India signed by the (85)
party.
(39)
Letter of Partnership
NOTE : (i) The original notice of assignment should be handed over by the party to the branch and the
same should be forwarded to Life Insurance Corporation of India by the branch.
(ii) Premium receipts should be verified periodically to ensure that life policies are kept alive.
8. Mortgage of Title Deeds to Properties and/or Hypothecation of Machinery etc.:
Code
No.
(i) Individual D.P. Note
Memorandum of deposit of title
deeds.
Instrument of hypothecation of (2)
movable machinery. 90(c)
Original documents of title to the
property (including all prior (33)
documents)
Letter of undertaking relating to re-
--
instalments with "acceleration
clause". (57)
Declaration (Letter of confirmation) (90d)
(ii) Joint Borrowers D.P. Note 3a) In other cases, power

Memorandum of deposit of title 90(c) of Attorney should be
deeds. (19) obtained.
Instrument of hypothecation of (33)
movable machinery. --
Letter of guarantee, if any.
property (including all prior
documents)
Letter authorising one of the joint
borrowers for depositing the title (57)
deeds with an intent to create charge (90d)
thereon.
Letter of undertaking relating to re-
clause".
Declaration (Letter of Confirmation)
800 - III
(iii) Sole Proprietary Joint and several D.P. Note (3b) Sole Proprietorship
Concern Memorandum of deposit of title deeds. 90(c) letter should be signed
Declaration by the Proprietor in
Instrument of hypothecation of (90d) his personal capacity
movable machinery. (19) only.
Original documents of title to the --
property (including all prior
documents)
Sole Proprietorship letter (38)
Letter of undertaking relating to
repayment of advance in stipulated (57)
clause".
Memorandum of deposit of title 90 should be signed by all
deeds. (90E) the partners in their
Declaration personal capacity
Instrument of hypothecation of (19) only.
movable machinery. (33)
Letter of guarantee, if any.
--
property (including all prior documents)
One of the partners letter authorising

to create mortgage on the firm's
property. Letter of undertaking -- In other cases, P/A
relating to should be obtained.
re-payment of advance in stipulated (57)
clause".
NOTE :
(i) Wherever hypothecation of machinery is obtained, the schedule of the machinery clearly
indicating the date of purchase, description of machinery, number of units and value thereof
should be obtained duly signed by the constituent that the machinery belonging to the borrower
has been hypothecated to the Bank as per Agreement which should be the date of execution.
(ii) Wherever additional plant and machinery is acquired, a further list as above, should be obtained
and kept along with the documents.
(iii) Supplements to the memorandum of deposit of title deeds should be recorded wherever
extension of equitable mortgage is stipulated to cover the enhanced limit.
(iv) While obtaining additional D.P. Note for enhanced limit, a reference to the previous D.P. Note
should be made in the fresh D.P. Note in the case of all advances.
(v) Similarly, supplemental agreement to the letter of hypothecation of movable machinery should
be obtained wherever extension of movable machinery has been stipulated to cover the
801 - III
enhancement in the limit.
(vi) The same procedure as stated in (i) and (ii) above should be followed wherever fixed machinery
are mortgaged to our Bank. An additional declaration should also be taken that whatever
machinery mortgaged are fixed machinery and whatever machinery hypothecated are movable
machinery.
(vii) With a view to ascertaining whether the borrower has clear and marketable title, the branch
should obtain a legal opinion regarding borrower's title to the property. The branch should also
obtain valuation report as per administrative instructions or as per stipulation in the sanction.
The mortgaged properties should be revalued at least once in three years if the sanctioned limits
are more than Rs.1 lac by a qualified architect/approved valuer. For limits below Rs.1 lac,
valuation should be made every year by the Branch Manager or the Accountant or one of the
senior officers of the branch.
(viii) The branch should take out insurance policy to cover the full market value of the
property/machinery charged to the Bank. The policy should be taken out in the name of the Bank
A/c. the borrower's name, the policy should be endorsed in Bank's favour. The policy should
cover all the required risks as prescribed by the Bank.
(ix) In case of term loans sanctioned under refinance scheme of SIDBI, refinance agreement &
Hypothecation of movable machinery. (for refinances) LDOC 23 should be obtained.
9. Hypothecation of Vehicles:
Code
No.
Instrument of hypothecation of vehicles. (20)
Letter of guarantee, if any (33)
A note stating that the lien has been
verified from the R.T.O.'s books
prepared by the Officer who has
verified from the same may be kept --
along with the documents. (57)
Letter of instalment to repay the
advance.
(ii) Joint Borrowers Joint and several D.P. Note (3a)

Instrument of hypothecation of vehicles. (20)
Letter of guarantee, if any (33)
A note stating that the lien has been
verified from the R.T.O.'s books --
verified from the same may be kept
along with the documents.
Letter of instalment to repay the
advance. (57)
802 - III
(iii) Sole Proprietary Joint and several D.P. Note (3b) Sole Proprietorship
Concern Instrument of hypothecation of vehicles. (20) letter should be signed
(33) by the proprietor in
Letter of guarantee, if any his personal capacity
A note stating that the lien has been only.
verified from the R.T.O.'s books
along with the documents.
Sole-Proprietorship letter (38)
Instrument of hypothecation of vehicles. should be signed by
Letter of guarantee, if any (20) all the partners in their
A note stating that the lien has been (33) personal capacity
verified from the R.T.O.'s books only.
along with the documents. (39)
Letter of Partnership
(57)
NOTE : (i) The same facility can also be sanctioned by way of term loan under refinance scheme of
SI.D.B.I. in which case D.P. Note should not be obtained, but refinance agreement
should be obtained.
(ii) Power of Attorney in favour of the Bank should be obtained to enable the Bank to get the
vehicle transferred in its name when necessary. This power of Attorney should be got
executed in the presence of a Presidency Magistrate or First Class Magistrate or a
Notary Public.
(iii)
The branch should take out insurance policy to cover the full market value of the
vehicles charged to the Bank. The policy should be taken out in the name of the Bank
A/c. the borrower or if it is taken out in the borrower's name, the policy should be
endorsed in Bank's favour. The policy should cover all the required risks as prescribed
by the Bank.
10. Over Drafts against F.D.R./S.D.R.:
Code
No.
(i) Individual DPN (16)
F.D.R./S.D.R. duly discharged by --
the party.nt to repay the
advance.
(ii) Joint Borrowers Joint & several DPN (16)
F.D.R./S.D.R. duly discharged by --
the party.
803 - III
(iii) Sole Proprietary DPN (16) Sole Proprietorship
Concern Letter depositing F.D.R./S.D.R. letter should be signed
F.D.R./S.D.R. duly discharged by -- by the proprietor in
the party. (38) his personal capacity
Sole-proprietorship letter. & several DPN only.
F.D.R./S.D.R. duly discharged by
the party.
(iv) Partnership Firm Joint and several DPN (16) Letter of Parnership
Letter depositing F.D.R./S.D.R. should be signed by
F.D.R./S.D.R. duly discharged by -- all the partners in their
the party. (39) personal capacity
Letter of Partnership only.
NOTE : (i) All the parties to the F.D.R./S.D.R. should discharge the deposit receipt/s on revenue
stamp/s and the signatures should be verified by the branch. Lien should be marked on
the ledger/register/Computer system
(ii) If the advance is against third party deposit receipts, letter depositing F.D.R./S.D.R.
should also be signed by the third party after duly filling in the relevant clause in the
letter deposing F.D.R./S.D.R.
(iii) Whenever operations in the account are to be restricted to only one or some of the
partners of the borrowing firm, a stamped "Letter of Restrictive Operation" should be
obtained in addition to the above documents.
11. Road Transport Operators
Code
No.
(i) Demand Loan Application Form (1) (2) or
D.P. Note or Refinance Agreement in 3(a), 3(b)
Form. 'A' if I.D.B.I. Refinance is or 3(c) as
obtained the case
may be
(ii) (23)
if, under
SI.D.B.I.
Instrument of hypothecation of
vehicle. Scheme.
Guarantee letter, if any. (20)
General Power of Attorney
(33)
(101)
NOTE : (i) Insurance : Insurance Policy, for the full market value of the vehicle covering
comprehensive risks including third party and other required risks should be obtained.
It should be assigned in Bank's favour and should be kept alive all the time by renewing
it on due dates.
(ii) Documents : A 'note' stating the lien has been verified from the R.T.O.'s Books prepared
by the officer who has verified the same, should be kept along with the documents.
804 - III
12. Personal Loan Scheme:
Code
No.
(i) Demand Loan Application Form (2) or
D.P. Note or Refinance Agreement in 3(a), 3(b)
Form. 'A' if I.D.B.I. Refinance is
obtained or 3(c)
as the
case
may be
Instrument of hypothecation of (17) or
goods/ vehicle. (20) or as
Guarantee letter, if any. the case
may be.
Half-yearly declaration that the goods (33)
are in good working condition and are
in possession of the borrower.
Letter of authority to make payment --
to the dealer directly.
(72)
13. Staff Loans:
(ii) Staff loans to D.P. Note (2)
individuals for
purchase of Cycle, Letter of instalments under personal (115)
Car, Scooter, Motor loan scheme.
Cycle, Refrigerator,
Air-conditioner, etc Instrument of hypothecation of (20)
vehicle (in case of motor cycle,
scooter, car). OR
Instrument of hypothecation of goods
(in case of refrigerator, air cooler etc.) (17-b)
Undertaking to maintain vehicle for
five years.
Copy of R.C. book indicating lien
on/hypothecation of vehicle to the (107)
Bank
(iii) Staff loans to D.P. Note (2)
individuals-
Housing Loan to Letter of authority to deduct
Individuals against instalment from the salary every (109)
Equitable mortgage month.
of land and house
constructed or to be Letter of undertaking to create legal (112)
constructed. mortgage.
Memorandum of deposit of title deeds (90-A)
of land/house.
Legal report Valuation report --
--
Irrevocable Power of Attorney
empowering the Bank to execute in its
favour a legal mortgage of the right, title
and interest in the said Flat / Plot (108)
NOTE : Other undertakings, in addition to above, should be obtained as stipulated in sanction
805 - III
CHAPTER-60
LOANS AND ADVANCES DOs & DON'Ts
1.General:
a. The Volume on 'Loans and Advances' of the 'Operational Manual for Cooperative Banks' has dealt
with various issues concerning the steps that are required to be followed under the loans and
advances portfolio, functions and duties of various sections such as Agricultural Credit Section,
Handloom Finance Section/ Division, Non-Agricultural Credit Section (Jewel loans, PDS,
Working Capital to Coop. Spinning Mill, Sugar Mills, etc. Industrial Finance Section (SRTO, SSI
Units, Industry, Nursing Homes, etc.) Rural Projects Finance sections (Biogas, ISB, etc.),
requirements of documentation under various schemes and programmes, facilities available from
various agencies, loan monitoring etc. in detail. In this regard a list of Dos and Don'ts for each
Section/Department as well as various other issues that are dealt in this Volume is given below for
the purpose of ready reference. Adhering to these 'Dos and Don'ts' would further enhance the
performance of each section/department in the bank.
2. DO's and DONT's
DOs DONTs
A. Agricultural Credit : A. Agricultural Credit :

a. Scrutiny of ST Credit limits application of DCCBs with a. Do not reject the proposal of the DCCBs unless the same
reference to the norms of NABARD, utilization of is done by the competent Authority i.e. CEO (if he is
limits for the past years, and recovery performance of empowered by the board)/ loan committee or the Board.
DCCBs etc. Then take approval of the Board before b. Do not insist on taking kind component as a condition
sending the application to the RO of NABARD. for the drawal of the cash component.
b. After getting the sanction order from NABARD, c. Do not fix scale of finance exceeding 1/3 value of the
convey the same to DCCBs and then allow eligible gross yield per acre or cost of cultivation.
drawals subject to satisfaction of terms and conditions of d. Do not allow an individual to borrow upto the limit
NABARD. unless :
c. Scale of finance consisting of cash and kind component i. he is not a defaulter
approved by the State Level Technical Committee
ii. he holds shares in PACS in the prescribed
(SLTC) for each crop per acre should be used while
proportion
advancing loans to farmers. Wherever the DLTCs have
been empowered or delegated powers by the SLTC, the iii. he has furnished prescribed security to the society
scales recommended by DLTCs have to be adopted. and
d. Prepare a realistic lending programme in respect of each iv. he has executed necessary documents.
member of PACS in triplicate covering the crops to be e. Do not allow PACs to operate on the sanctioned limit
grown and the area proposed under each crop and obtain unless
his signature or thumb impression as evidence of his i. it has repaid the prescribed percentage of demand
consultation. if any.
806 - III
DOs DONTs
e. Fix maximum borrowing power for individuals. ii. it holds shares in DCCBs and
However, keep in mind the high value cash crops or iii. executed necessary documents.
improved practices which the farmer wishes to adopt f. Do not obtain single time pronote for Kharif and Rabi
while fixing the Maximum Borrowing Power. crops as the due dates of loans will be different i.e. obtain
f. After disbursement of cash components to societies, separate time pronotes for Kharif and Rabi crops.
obtain a statement of disbursement with the signature of g. Do not allow cash component for Kharif and Rabi in one
recipients of loans within fortnight from the societies. instalment. However, kind component may be allowed
g. Crop Loan recovery to be done keeping in mind the if farmer wants to stock fertiliser in advance.
harvesting season and reasonable period for disposal of h. Do not forward the credit limit application for sanction
crops. to RO of NABARD in respect of non-compliant banks
h. Work out the credit requirements of Special Food grain (Sec. 11 (1) of B.R. Act, 1949 (AACS) not applied for
Production Programme (SFPP), on a realistic basis exemption from the provision, audit report of preceding
which have to be mentioned separately in ST credit limit year not received, compliance report on statutory
application for financing SAO. inspection reports not submitted.
i. Obtain following certificate at the time of drawal i. Do not refuse sanction of limit to DCCBs for financing
i. Certificate of NODC. National Oilseeds Development Programme (NODP)
ii. Certificate of Borrowing Power. when overdue of the banks is high and Govt. Guarantee
iii. Certificate of cover for OPP borrowings. is available.
iv. Monthly NODC statement.
v. Certificate of safe custody and intrinsic value of
pronotes duly executed by DCCBs.
vi. Progress in financing new and non-defaulting
members and small defaulters by ineligible CCBs
(Half yearly)
vii. Certificate to the effect that the prescribed
minimum percentage of the ST agricultural
advances are made to small/ marginal/ economical
weak farmers as per NABARD norms.
viii. Compliance with Sec. 18 and 24 of the B.R. Act,
1949 (i.e. maintained)
B. Kisan credit card scheme (KCC) B. Kisan credit card scheme (KCC)
a. In case natural calamities affecting the farmers, the bank
has granted extension and/ or reschedulement of the a. Do not allow any drawal in respect of KCCs remaining
period of repayment, in such cases transfer the outstanding for more than 12 months.
aggregate of debits for which extension is granted to a
separate term loan account with stipulation for
repayment in installments.
b. Maintain separate account for SAO under KCC scheme.
For SCB purposes, maximum outstanding reached
during the year (April March) should be treated as
Demand and outstanding in the unrenewed KCC
account may be reckoned as overdues.
c. Cooperative Banks may pay interest on the credit
balance at the rate based on their perception and other
related factors on minimum credit balances in the cash
807 - III
DOs DONTs
credit accounts under the KCC of farmers during the
period from 10th to the last day of each calendar month.
C. National Agricultural Insurance Scheme (NAIS)

Rashtriya Krishi Bima Yojana (RKBY)
Do not delay submission of declaration of the loanee /
non-loanee farmers to insurance agency beyond the cut
off dates prescribed by the Agricultural Insurance
Corporation of Indiain respect of Kharif and Rabi crops.
D. Comprehensive Crop Insurance Scheme (CCIS)

a. Cover all farmers availing crop loan for growing paddy,
wheat, millets, oilseeds and pulses and commercial
crops viz., cotton, sugarcanes, chillies and potato, and
other notified crops under CCIS.
E. Medium Term Conversion (Agricultural) loans E. Medium Term Conversion (Agricultural) loans
a. SCB's assistance to DCCBs in respect of conversion a. Do not give conversion in respect of interest due.
should be to the extent of 85% of amount of conversions,
difference between eligible conversion amount and the
balance to the credit of ACS fund with DCCB or ST
(SAO) loan outstanding due to SCB as on date of
application, whichever is less.
b. In case of crops covered by Crop Insurance Scheme, the
eligibility should be reduced by the amount of insurance
claims received from GIC before effecting conversion.
c. Extend due date by 3 months, if the formalities cannot be
completed before the due date.
d. In case of two or more successive failure of crops, the
aggregate burden of ST loan and MT(C) loans could be
rescheduled into MT conversion rephasement loans
repayable in a period not exceeding 7 years.
F. MT credit limit for conversion of ST loans into MT F. MT credit limit for conversion of ST loans into MT
loans and rephasement/ reshedulement of MT loans and rephasement/ reshedulement of MT
conversion loans conversion loans
a. In case of re-occurrence of natural calamity and crops a. Do not grant conversion facility unless the Annewari is
are affected during the pendancy of the MT loan, the declared Govt. give notification in the Gazette and
instalments falling due in that year and the outstanding remit/ suspend collection of land revenue and other
amount of first conversion loan should be rephased to a Govt. dues.
period of 5 years. In the event of two or more successive b. Do not provide MT conversion facility for overdue S.T
natural calamities, aggregate burden is rescheduled upto crop loans.
a period of 7 years. c. Do not provide any conversion facility to any farmer if
the actual yield is more than threshold yield or the
indemnity payable (under Insurance Scheme) is more
than crop loan or the crop yield is estimated at less than
normal yield but more than 50% of the normal yield.
808 - III
DOs DONTs
G. Handloom Finance G. Handloom Finance
a. Weavers Coop. Societies, having 100 active looms and a a. Do not consider any Weavers' Coop. Society (WCS) for
minimum prescribed sales turnover, if any, should only refinance if the audit is in arrears for more than 3 years
be considered for finance. Besides this, such societies and have been placed in 'D' class.
should work as Production-cum-Sale units and not as b. Do not allow drawal on the limit unless there is a
marketing society alone. certificate to the effect that the drawal applied is within
b. Allow drawals to the PWCS on cash credit limit only to the Reserve Borrowing Power of DCCB and the same is
the extent of difference between i.Total limit and only in respect of eligible WCS as per NABARD norms.
outstanding in the limit or ii.Drawing Power and
outstanding in the limit or
iii. Drawing power on production basis plus achievement
under special programmes and outstanding in the limit/
whichever is lower.
H. Non-agricultural Credit H. Non-agricultural Credit

a. Maintain total liability Register to have the total a. Do not sanction total credit limit for non-agricultural
outstanding balance of all CC limits sanctioned to purposes exceeding net ILR of DCCB.
DCCBs for various purposes and to tally the same with b. Do not sanction credit limit if the total borrowings
G.L. Head of Account - “Non Agricultural Cash Credit cannot be met out of the realizable value of assets. The
Advances”. realizable value of asset should be equal to at least
b. Maintain Drawing Power Register (for assessing external liabilities, i.e., deposits and borrowings.
drawing power from the stock statement) with columns
viz., aggregate value of eligible securities/ stock, rate of
margin, amount of margin, validity period, drawing
power, highest debit balance during the validity period,
etc. On top of the register, mention details of sanction,
Govt. Guarantee, if any, Insurance cover, etc.
I. Credit Monitoring Arrangement (CMAs)

a. Do not sanction any loan for activities in the real estate
or infrastructural activities where budgetary support
from the Central/ State Govt. is available.
b. Do not finance any unit which have negative networth.
c. Do not sanction new Coop. Sugar Mill having project
cost more than the cost approved by Ministry of
Commerce, GOI and not having Debt Equity Ratio of
60:40. The debt portion sharing by Coop. Bank should
not be more than 60% and remaining by Commercial
Bank or Term Lending Institutions.
d. Do not sanction Block Capital to new sugar factory
unless it is ensured that capacity of the unit is not below
2500 ton crushing per day and there is sufficient
sugarcane available in the command area.
e. Do not sanction any loan/ limits beyond the prescribed
norm. In case of financing beyond prescribed norms is
necessary, enter into consortium arrangement. Normally
no relaxation in exposure norms will normally be
entertained by NABARD.
809 - III
DOs DONTs
J. Consortium Advances J. Consortium Advances
a. Hold quarterly and Annual Meeting of consortium a. Do not extend any additional banking facilities to the
members and discuss the performance of the projects, Mills outside consortium without the concurrence of the
problems, etc. existing consortium members,
b. Permit the member to leave the consortium by selling its b. Do not permit any member to leave a consortium before
debits at a discount and furnishing an unconditional expiry of at least two years from the date of joining the
undertaking from the member leaving the consortium consortium.
that the repayment of its dues would be deferred till the
dues of other members are repaid in full.
K. Financing other Apex Coop. Institutions

j. Sanction hypothecation loan to the Apex Level
Federation under Central Govt. Guarantee Scheme with
10% margin. In case Govt. Guarantee is not received, the
bank may be allowed to draw before the receipt of
guarantee with 40% margin.
L. Appraisal of Term Loan L. Appraisal of Term Loan

a. Sanction Term Loan only if the project is (i) Technically a. Do not finance any industry which is classified in
feasible (ii) Financial viable (iii) Economically viable Negative List.
and (iv) Managerial competence is there. b. Do not sanction any term loan for acquiring fixed assets
b. Recover the amount of term loan and interest thereon out normally with repayment period beyond 10 years or as
of profit and working capital finance out of the sale may be fixed / regulated by the Bank's Management
proceeds of current assets. policy.
M. Rural Projects Finance M. Rural Projects Finance

a. Apportion the allocation made by NABARD/ SCB for a. Do not allow any drawal for availing refinance from
refinance for various activities depending upon the NABARD unless the norms and guidelines of
recovery as well as feasibility and scope for further NABARD are followed and such drawal is within the
lending etc. in the district. original allocation.
N. Swarna Jayanti Gram Swarozgar Yojana (SGSY) N. Swarna Jayanti Gram Swarozgar Yojana (SGSY)
Scheme Scheme
a. Sanction entire cost of the scheme including subsidy as a. Do not sanction any loan to any beneficiary under SGSY
the subsidy is back ended. unless he has undergone training for the activity.
b. Keep the subsidy in Reserve Fund Account and amount b. Do not sanction loan for activity for which there is no
should not form part of Demand and Time Liabilities project report prepared by the District Level Committee.
(DTL) for the purpose of SLR/ CRR c. Do not fix repayment period less than five years.
c. Adjust subsidy lying in Reserve Fund towards last few d. Do not give loan to any person from a village where
instalments of repayment of loan under SGSY. recovery under the scheme was less than 80%.
O. Refinance for Farm Mechanisation from NABARD O. Refinance for Farm Mechanisation from NABARD
a. Ensure availability of subsidy under Govt. of India a. Do not finance tractors exceeding 50 HP more than 5%
Scheme before sanctioning any loan. of the allocation made under Farm Mechanisation
b. Ensure that the tractors are insured and the relative b. Do not collect down payment for financing new tractor
policy is got assigned in favour of the bank and the same and old tractor more than 15% and 30% of the cost of
is registered with the Insurance Company. tractor respectively.
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c. Down payment for power tiller should be 5%, 10% and c. Do not fix repayment period more than 5 years
15% of the cost for SF, MF and other Farmers. (including grace period) for financing Power Tiller/
Thresher and Power Sprayers.
d. Do not advance loan for renovation/ repairs to tractors
unless it is more than 5 old and but not be older than 12
Years.
P. Rural Housing Scheme P. Rural Housing Scheme

a. Sanction loans for construction of new as well as for a. Do not sanction loan for construction of new house or
repairs/ renovation of the existing houses in rural areas repair/ renovation of old house more than Rs. 5 lakh and
with population less than 50000. Rs. 50000/- respectively.
b. While considering the proposal for construction of the b. Do not give Moratorium for more than 18 months from
house, land cost may be considered as down payment the date of disbursement of first instalment.
(margin money). However, total cost of dwelling house
should not be more than Rs. 7.5 lakh.
c. Repayment of loan for new house and repairs /
renovation of old houses should not be more than 15
years and 5 years respectively.
Q. Self - Help Groups (SHGs). Ensure before financing Q. Self - Help Groups (SHGs)
SHGs that they have been graded and scored more than a. Do not insist on collateral for purpose of loan to SHG.
80% marks i.e. grading mostly cover that SHGs have
membership between 10 and 20; is more than 6 months
old; regularly conducting meetings, regularly collecting
their savings; issuing loans; repayments of loan is
regular; their decisions for lending and other issues are
collective decisions and maintaining proper records
about meeting and monetary transactions.
b. While sanctioning loan to SHGs for the first time, it
should be in the ratio of own fund to loan 1:1, For second
time, the ratio should be 1:2 and for third time the ratio
should be 1:4.
R. Calculation of Working Capital/ Term Loan

requirement under Non-Farm Sector
a. Do not dilute in margin requirement stipulation except
under special circumstances where it is permitted i.e.
Entrepreneur scheme, rehabilitation of sick units.
b. Do not have collateral security at bank's cost but at
borrower's cost.
c. Do not accept guarantee from a person closely related to
the borrower.
d. Do not take guarantee from a guarantor who has given
guarantee to other person or has taken loan from the
bank.
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S. Analysis and Interpretation of financial statements S. Analysis and Interpretation of financial statements
a. Prefer an institution with high quick ratio concern as it a. Do not include in current assets shares and advances to
would not default in a crisis situation. other firm/ companies not connected with the business
b. A Debt Service Coverage Ratio (DSCR) from 1.5 to 2 of the borrowing firm.
should be preferred. Higher ratio indicates ability to b. Do not include in current assets the dead inventory i.e.
repay earlier than the scheduled time. slow moving or obsolete items.
c. Do not consider any amount as current assets if the same
is paid as an advance for supplies for a period for more
than the normal trade practice in spite of any other
consideration such as regular and assured supply.
d. Do not finance a unit which has current ratio less than 1
as it indicate cash flow problem during the year.
T. Appraisal of Loan Proposals of Small and Micro

Units
a. Loan proposal appraisal should include credit risk
appraisal, the borrower appraisal, financial viability and
Technical feasibility appraisal, viability analysis and
cash accruals and repayment of debt assessment.
b. Always compute the Break-even point (BEP) and the
same can be calculated as under :
BEP = Fixed Cost X 100
Value of Sales - Variable cost
BEP Sales = Sales X BEP (%) = %
BEP units production = Units produced X
BEP (%)
Higher the production level required to meet the
expenses of the unit means unit is vulnerable. Similarly,
even a small fall in production level will affect the
viability and profitability.
c. Debt Service Coverage Ratio (DSCR) can be computed
as under :
DSCR = Net profit after tax + term loan interest
Term loan instalment (Principal + Interest)
The desired ratio should be 2:1. In other words the
instalment of Term loan should not exceed 50% of the
cash accrual/ surplus. However, on this basis the bank
should fix the amount to Term loan installment and
period of repayment.
U. Prudential Norms on Income Recognition, Asset U. Prudential Norms on Income Recognition, Asset
classification and Provisioning - Pertaining to classification and Provisioning - Pertaining to
Advances portfolio Advances portfolio
a. Take into income account, the interest on advance a. Do not recognise income on accrual basis but on the
against term deposits, NSC, IVPs, KVPs and Life basis of receipt.
policies only on due date provided adequate margin is
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available in the account. b. Do not charge and take into income account interest on
b. Recognise fees and commission earned by the banks as a any NPA.
result of renegotiations or rescheduling of outstanding c. Do not take to income account interest on advances
debts on an accrual basis over the period of time covered guaranteed by the Govt. unless the same is realised.
by the renegotiated or rescheduled extension of credit. d. Do not classify an advance account as NPA merely due
c. Treat the account as NPA if remittance by the borrower to the existence.
under consortium lending arrangements are pooled with e. Do not classify all credit facilities granted to a PACS/
one bank and/ or where the bank receiving the FSS ceded to the bank are the agricultural advances as
remittances is not parting with the share of other well as advances for other purposes granted to PACS/
member banks as the account deemed to have not been FSS under the on lending system. (and only that
serviced. particular credit facility) which is in default for a period
d. Classify the account under Doubtful category if the of two harvest seasons/ 180 days, should be classified as
erosion in value of security is such the realisable value is NPA.
less than 50% of the value assessed by the bank or f. Do not treat any advances against Term Deposits, NSCs,
accepted by RBI/ NABARD at the time of last IVPs, KVPs and life policies as NPAs.
inspection. Similarly, if realisable value as assessed by g. Do not treat an Asset whose terms of loans agreement
the bank/ approved valuer/ RBI is less than 10% of the have been renegotiated or rescheduled after
outstanding in the borrowal accounts, ignore this value commencement of production, as Standard Assets
and classify the same as Loss asset. unless the same remains in Sub-Standard Category for at
e. Treat all other credit facilities granted directly to a least one year and have satisfactory performance under
member borrower of a PACs/ FSS outside the on- the renegotiated or rescheduled terms.
lending arrangement, as NPA if one of the credit h. Do not reckon the amount held in 'Interest Suspense
facilities granted to him become NPA. Account' as part of provisions.
f. Treat advances against gold ornaments, govt. securities
and all other securities as NPA if they remained overdues
for a period of two harvest seasons in case of agricultural
advances / 90 days in the case of non agricultural
advances..
g. Treat the credit facilities backed by guarantee of
Government as NPA only when the Govt. repudiates its
guarantee when invoked and remain in default for more
than 90 days.
h. After classification of assets into sub-standard, loss
assets and doubtful assets, make provisions to the extent
of 10%, 100% and 20% - 100% (depending upon period)
respectively for secured category and 100% for
unsecured category ,in case of loans and advances
falling under doubtful category.
i. Deduct the amount lying in the 'Interest Suspense A/c'
from the relative advances and make provisions as per
norms thereafter.
j. Make provisions for advances only for the balance in
excess of the amount guaranteed by ECGC/ DICGC.
k. In respect of loans guaranteed by ECGC/ DICGC, make
provisions for doubtful assets after deducting realisable
value of the securities eg :
l. Outstanding balance - Rs. 4.00 lakhs
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m. DICGC cover - 50%
n. Period for which the advance has remained doubtful -
above 3 years
o. Value of security held - Rs. 1.50 lakhs
-Provisions to be made
p. Outstanding - Rs. 4.00 lakhs
q. Less : Value of security held - Rs. 1.50 lakh
r. Unsecured balance - Rs. 2.50 lakhs
s. Less : DICGC cover (50%) - Rs. 1.25 lakh
t. Net unsecured balance - Rs. 1.25 lakh
u. Provisions for unsecured portion of advance (100%) -
Rs. 1.25 lakh
v. Provisions for secured portion of advance Rs .1.50 lakh
(50% as more than 3 years old) - - Rs. 0.75 lakh
w. Total provisions required to be made - Rs. 2.00 lakhs
V. Direct lending (advances/ overdraft against term V. Direct lending (advances/ overdraft against term
deposit) deposit)
a. Treat the accrued interest on the Cash Certificate as a. Do not give loan against FD more than 85% of the FD
margin. Maximum loan on such certificate should be amount.
upto the face value (invested amount) of the cash b .Do not give loan against RD more than the balance
certificate. available after deducting the prescribed (15%) margin.
b. Loan against RD should be given only after 6 monthly c. Do not give loans against FD/ RD for a period more than
instalments have been remitted. 3 years from the date of DPN or the due date of the
c. Charge interest 2% or the rate prescribed by the Bank deposit, whichever is earlier.
above the rate applicable to the Deposit which is offered d. Do not allow the advance to continue after the date of
as security for availing loan. maturity. Credit the maturity amount to loan/ OD
d. Collect interest 2% or as prescribed by the Board above account.
the interest actually allowed on the foreclosed deposit e. Do not give additional loan against FD/ CC/ RD under
when the depositor borrower wants to fore close the pledge unless existing loan is closed and new loan is
Term Deposit lodged as security for the loan availed. issued for the aggregate amount.
e. Collect FD Receipt duly discharged by the depositor f. Do not give loan against deposit to the nominee/ legal
against which loan is availed. For RD, collect RD Book heirs of the deceased depositor.
duly signed by him on the revenue stamp on the last page Do not give any advance against the deposit receipts
of the RD Pass Book. issued by other banks
f. Collect DPN for loan amount duly signed by him over
revenue stamp and a consent letter from the borrower
authorising the bank to adjust the proceed of the Term
Deposit to the loan amount on the due date in case the
loan dues not cleared before that date.
g. Extract, on quarterly basis, a Trail Balance of all
outstanding Depositors Loan Account and tally with
GL.
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W. Consumer Loan W. Consumer Loan
a. Sanction loan to employees in Govt. and private sectors a. Do not give loan for purchase of second hand goods.
and professionals with stable income. b. Do not give loan more than the maximum amount
b. Admit the applicant as well as the guarantor as an prescribed under the scheme subject to the percentage of
Associate Member. margin money and number of times of the monthly gross
c. Margin Money prescribed shall be remitted by the salary of the applicant.
borrower before the cheque is issued as per the invoice.
d. Attach the consumer article, purchased out of the bank
or salary through arbitration proceeding in case of
default in repayment of loan dues.
e. Ask the applicant and the guarantor to open SB account,
if not there. Also ask the applicant to deposit his salary
cheque in this account every month so as to adjust
monthly instalment due under his consumer loan.
f. The monthly carry home pay of the applicant after
deduction of instalment should not be below 25% or as
may be fixed by the bank.
g. Period of loan should not exceed 36 months. However,
Bank Management may fix suitable repayment period if
loan amount is high.
h. Ensure that the borrower insure all articles purchased
with bank loan against theft, fire, accident, etc.
X. Salary Loans X. Salary Loans

a. Before sanctioning loan and permitting drawal, obtain a. Do not give loan against salary to a person who is not
NOC from the Employee Coop. Credit Society of the permanent employee.
institution in which he is employed, an undertaking from b. Do not give loan against salary to a person who has
the employee in writing to the effect that till the entire already borrowed from other bank/ Coop bank, for the
dues under the loan is cleared he will not borrow from same purpose and whose carry home salary is less than
any other financial institution against his salary and also 25% of the gross salary after deducting the proposed
an undertaking in writing from his/ her employer to the loan instalment amount.
effect that upon sanctioning this loan, the monthly
instalment of this loan will be recovered from his salary
and remitted to the bank.
b. For sanctioning loan, obtain two guarantors who are co-
employees with equal or more monthly salary.
c. Admit the borrower and the guarantor as Associate
member and the loan may be given for a period within
24/ 36/ 48/ 60 months as per bank's rules and also the
size of the loan.
d. On non-receipt of monthly instalment before 10th of the
month, charge 3% as penal interest in addition to interest
applicable on the loan.
Y. Advances against Mortgages Y. Advances against Mortgages

a. Obtain from an Engineer or an Architect approved by the a. Do not accept mortgage from a person other than the
bank, valuation of proposed land and building before owner.
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sanctioning loan. b. Do not accept mortgage property as security which is not
b. Obtain margin (down payment) for loan to acquire land/ specified and identified and having undivided share.
building and also take as collateral land/ building c. Do not accept second charge on the property unless HO
financed. permits.
c. While accepting mortgage of security from the third
party, take signature of the third party as a co-obligant or
as a guarantor (personal) guarantee.
d. In case of leasehold interest in the property the same
may be accepted as mortgage only after approval of
Head Office.
e. Before sanctioning loan, ensure that the property offered
as security are not affected by any land Reforms Law,
Urban Land (Ceiling and Regulation) Act, 1976.
f. Before sanctioning loan, obtain income tax and wealth
tax clearance certificate, probated will or letter of
administration in case of legatee; change registered with
the Registrar of companies in case of property belonging
to a company; Bye-Laws of the Society in case property
belonging to the society; power of attorney if the title
deeds executed by the agents; legal opinion from Bank's
Approved Legal Advisor (ALA); and Search Report
from the record of the Registrar's office.
g. Proceed against the borrower and Guarantor personally
within 3 years (limitation period) from the date of
amount is due or execution of DPN.
h. Ensure enforcement of payment against loan secured by
mortgage (both Registered and Equitable) within a
period of 12 years (Article 62 of the Limitation Act
1963).
i. Release payment for construction of buildings or
industrial sheds on certification by an approved
engineer about the stage of construction and cost of
construction upto the date of certification.
j. Make sure that building under construction is insured.
k. Collect at least 1/2% or 1% of the loan amount as
processing fee and legal fee as fixed by the bank.
Z. Advances on hypothecation of motor vehicle. Z. Advances on hypothecation of motor vehicle.

a. Sanction loan for purchase of vehicle for a period upto a. Do not fix margin money less than 25% (in case of new
the economic life of the vehicle or borrower's capacity to vehicle) and 50% (in case of old vehicle)
repay whichever is earlier. However repayment b. Do not make any advance against vehicles more than 3
schedule should be so fixed that 45% of the loan amount years old and without valuation report submitted by an
is repaid in the first phase, 30% in second phase and 25% approved Automobile Engineer.
remaining in the third phase.
b. Get the charge registered on the Registration Certificate,
at the RTO office, display Bank's hypothecation plate on
the vehicle and get the vehicle insured.
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AA. Pensioner's Loan AA. Pensioner's Loan
a. Sanction loan only by way of Demand loan to the a. Do not sanction loan to a pensioner above 70 years of
eligible pensioner to the extent of 5 months pension age.
amount or maximum loan amount prescribed under the b. Do not insist on any collateral security but must retain
Pension Loan Scheme or Rs. 50000- whichever is less. pension pass book till loan is cleared.
b. Admit the borrower and one of the legal heirs of the
borrower as nominal/ Associate member.
c. Period of repayment of such loan should be 24 months
and penal clause with interest 3% over and above should
be imposed in case of default.
BB. Jewel Loan BB. Jewel Loan

a. Sanction loan against gold jewellery only to the owners a. Do not give loan against gold jewellery more than 75%
whose bonafides and reliability have already been of the market value.
established to the satisfaction of the bank. b. Do not open all notices/ covers returned undelivered to
b. Get valuation of the gold jewellery done by an approved the bank.
valuer/ appraiser. c. Do not allow the minimum bid amount less than 80% of
c. Avoid Jewellery with precious/ semi-precious/ imitation the current market rate in the auction.
stones.
d. Keep the pledged jewellery in separate iron safe kept
inside the strong room under double lock system.
e. In case of overdue loan, issue demand notice. If no
response, second notice after 3 weeks from the date of
first notice. Again if no response, issue third notice by
registered post after 15 days from the date of issue of
second notice informing the borrower that in case of
non-receipt of dues to the bank on or before that date the
bank will arrange for sale of pledged jewels through
public auction.
f. Refer to HO all such overdue jewel loans so as to enable
HO to arrange auction sale of gold ornaments. Once HO
communicates its decisions/ agreement to arrange for
sale of jewels through public auction, in such situation
Branch Manager should send a fresh Registered Notice
with Acknowledgement due calling upon the borrower
to close the loan account and take delivery of his jewels
under pledge to bank within 15 days from the date of
letter failing which jewels under pledge will be sold by
public auction to recover the loan dues and in case of sale
proceeds less cost of auction fall short of the total
amount due the bank shall proceed against him for
recovery of the balance amount due.
g. Inform the Commissioner/ Collector, Central Excise at
least 10 days prior to conduct of auction sale, the
proposal sale giving details of jewels, weight and the
name of the borrower to whom jewels belong.
h. Auction sale shall be conducted by an approved
auctioneer of the Central Excise Department and that
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also in the presence of 2 directors nominated by the bank
or 2 respectable witnesses. Record of auction duly
authenticated by these witnesses should be kept by the
branch.
CC. Advance against LIC Policies CC. Advance against LIC Policies
a. Get the policy assigned in favour of the bank and also a. Do not normally accept 'Whole Life Policies” as
registered with LIC before granting any advance. security.
b. The policy must be in force and latest premium receipts b. Do not grant any advance against an insurance policy of
should be obtained. a married man to which policy the provisions of Sec. 6 of
c. Advance loan against LIC policy not exceeding 85% (to Married Women's Property Act 1874 are applicable.
90% as per bank rules) of the surrender value or the c. Do not grant advance against a policy assigned to a
monetary ceiling as may be fixed by the bank. minor.
d. If the loan against LIC becomes overdue and remains so d. Do not re-assign the policy in favour of third parties
despite repeated reminders, a final demand notice even if the borrower desires the bank to do so and issue a
demanding the payment of entire dues together with letter authority.
interest due there on should be sent by Registered Post
with A/D, intimating the date by which bank's due
should be settled (normally 30 days' time is given). In
the same notice, the bank should also mention that, the
bank will surrender the policy without further intimation
to the borrower.
e. After lapse of the stipulated period, the letter addressed
to the LIC should contain, inter alia, a certificate to the
effect that the policy is being surrendered after due
notice to the policy holder.
DD. Advances against NSC and Kissan Vikas Patras DD. Advances against NSC and Kissan Vikas Patras
a. Obtain an authorisation letter from the borrower as per a. Do not accept NSC in the name of the minor as security.
specimen supplied by the Post Office without date,
addressed to the concerned Post Office for effecting
transfer of the certificate in favour of the bank and retain
with the NSC. In case of NSCs in joint names such letter
of authority should be taken from all parties.
b. Maintain minimum margin of 25% on the issue price/
face value of the NSC. However, margin may be
changed depending upon the Maturity period and
Maturity value.
EE. Cash Credit Limit to traders EE. Cash Credit Limit to traders
a. Extend this facility only to wholesale/ retailers traders a. Do not take margin less than 40%.
who are a sole proprietor/ partnership firm having a b. Do not allow at any point of time outstanding in CC
certificate of registration under the State Sales Tax Act account exceed the Drawing Power.
and having trading or business activity approved under
the State's General Sales Tax Act.
b. Valuation of stock should be the cost price or market
value whichever is less.
c. Obtain collateral security in the form of urban
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immovable property at least equal to the cash credit limit
sanctioned besides hypothecation of stock (If the loan
policy of the Bank insists on collateral)
d. Sanction limit not exceeding 20% of the average
turnover of stocks during the previous two sales tax
assessment years. However, in case of high turnover
commodities like petroleum products/ cigarettes, etc.
limit will be assessed at lesser rate of turnover figures.
e. Have minimum and maximum cash credit limit for any
single individual trader and it is desirable to have
maximum limit as Rs. 10.00 lakhs. The limit may be
fixed at a lower or higher level as per individual banks
credit policy and board approval.
f. Obtain stock statement from the borrower every month
by 10th of the succeeding month.
FF. Temporary Overdrafts FF. Temporary Overdrafts
a. Allow TOD facility only to well-known individuals who a. Do not extend TOD facility to staff members of the bank
are trustworthy and credit worthy constituents of the b. Do not allow outstanding under TOD to exceed the TOD
bank. limit.
b. Extent TOD facility as per Bank Managements decision
which is normally for a period between 3 - 6 months and
maximum amount as fixed by the Bank.
c. Renew the TOD after the entire outstanding amount
with interest is repaid within the stipulated period and
after a lapse of atleast 10/15 days from the date of
repayment of dues.
GG. Local Cheques, Demand Drafts and Outstation GG. Local Cheques, Demand Drafts and Outstation
Cheques - Purchase, instant credit Cheques - Purchase, instant credit
a. Extend this facility to all current account holders and in a. Do not extend the facility against Cheques crossed “Not
select cases of S.B. Account holders who are Negotiable”, or not drawn in favour of the constituent.
maintaining good operative account with good standing
and should be able to make good the amount of short
notice.
HH. Bank Guarantees on behalf of constituents HH. Bank Guarantees on behalf of Constituents
a. Bank guarantee normally should have period less than a. Do not issue guarantee favouring financial institutions,
10 years. other banks/ or other lending institutions, chit fund for
b. Limit your commitment by way of unsecured guarantee due payment, Non-Banking institution in floating prize
in such a manner that 20% of the bank's outstanding chit schemes and NSE in lieu of security deposit.
unsecured guarantee plus the total of its outstanding b. Do not take margin less than 50% for issuing guarantee
unsecured advances are not exceeding 10% of total for release of confiscated goods.
outstanding advances.
c. Stipulate margin varying between 5% to 10% or even
full margin wherever necessary. Refund the margin after
cancellation of the Guarantee.
d. Send Guaranteed Bonds directly to the beneficiary.
E . Renew the guarantee or extending the period of
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guarantee must be done only after obtaining sanction/
approval of RO.
f. Send a letter to the beneficiary by a Registered post A/D
on expiry of the Bank Guarantee to return the original
Guarantee Bond within 30 days of the date of letter;
Reverse the entries after receiving back guarantee bond.
II. Inland Letter of Credit II. Inland Letter of Credit

a. Recover LC commission in advance. a. Do not make payment by cash to the beneficiary if he is
b. Accept margin, as prescribed by the management, by not customer of negotiating branch but by a Pay order
way of term deposits of the bank standing in the name of crossed “Account Payee”.
the party, properly discharged in favour of the bank b. Do not accept the documents with discrepancies in terms
together with appropriate lien letter. and conditions of LCs issued.
c. Besides other documents obtain stamped agreement
form for the total ILC limit only once. However
'Application Form' should be obtained as and when
requested for issue of ILC by the party and making a
reference regarding execution of stamped agreement.
d. Keep the document in respect of ILC viz., stamped
Agreement Form. Application for issue of ILC copy of
the ILC issued, acknowledgement of the ILC received
from the negotiating branch/ bank etc. in double lock.
e. Present to the drawee Bills under ILCs on the day it is
received and call upon him to pay within 24 hours of
presentation, if it is demand bill.
f. Irrespective of the payment by the drawee within 24
hours, reimburse the negotiating branch/ bank in terms
of its obligations under ILCs.
g. Obtain indemnity bond before issuing duplicate ILCs.
h. Amend LC into irrevocable LC only if amendments are
acceptable to the beneficiary.
JJ. Advance against Goods

a. Obtain and scrutinize the supporting statements to the
application form including financial statement such as
balance sheet, profits and loss accounts annual cash flow
projects , income tax assessment orders, sales tax
assessment orders, etc.
b. Sanction CC limit for a period of 12 months unless it is
for seasonal purpose and in case of 'Mercantile Produce'
CC limit should be usually for six month or less.
c. Take sufficient margin keeping in mind the fluctuations
in the market rates of commodities.
d. In case of commodities under the Selective Credit
Control Directives of RBI, branches must adhere to the
level of credit, the margins and the rate of interest
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DOs DONTs
prescribed by RBI form time to time.
e. In case of traders/ manufacturers require licence to store
particular items like chemicals, explosives and other
hazardous goods under state Govt. laws, the branches
must ensure compliance before sanction of limit.
f. Insure goods at all times for all types of risks, viz., fire,
burglary, earthquake/ flood/ cyclone, strike and riot,
risks against self-combustion, etc. Insurance cover
should be for the full value of the goods lying in the
godown.
g. Verify the stock on periodical basis and it should be in
relation to physical stock, margin, market value,
insurance, age of good, movement etc. In case of
adverse features observed during the course of the
verification, advise RO about the reasons for
irregularities and steps taken for their rectifications.
h. Display conspicuously the bank's name board depicting
the charge over the commodities in the premises where
goods are stored as security.
i. Obtain stock statement on quarterly basis if limit is upto
Rs. 25000/- and on fortnightly basis (2nd and last
Friday) if limit is above Rs. 25000/-.
KK. Credit Documentation KK. Credit Documentation

a. Ensure that all documents are executed by the borrower a. Do not accept the documents executed outside Jammu &
in the presence of the Branch Manager/ an officer of the Kashmir and brought into that State.
bank and the Branch Manager/ the officer should initial
or sign to authenticate the genuineness of the signature
or the thumb impression of the executants.
b. Obtain a letter as per LDOC duly signed by a person
conversant with English language as well as the
language of the executant and also known to the bank, if
the executant is illiterate or knowing the language in
which the document is written/ printed and the same is
explained and understood by the executant.
c. Ensure that documents are completed in all respect and
executant should also sign all pages of the documents
d. Besides this, it should state the place and date of
execution.
e. All documents should be stamped as per the State Act
where the branch granting the advance is functioning.
f.If the stamp duty in any state is higher than the
prevailing in the state, wherein the advance has been
granted, the stamps of the former state should also be
affixed i.e. stamp to be fixed should be the difference
between the rate of stamp duty prevailing in the two
states.
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g. Use Revenue stamp for paying stamp duty in respect of
the demand promissory note and special adhesive.
h. In case of Partnership firm documents should be signed
by all the partners.
i. In case of a registered company or a Club/ Association/
Trust, obtain resolution passed by the Company/ Club/
Association/ Trust, Article of Association/ Bye-laws etc
of these institutions empowering a person to sign
documents of their behalf.
LL. Law of Limitation

a. Ensure that the suit is filed within the limitation period
as failure to do so would bar the remedy of filing a suit.
However, it would not take away the right to recover the
debt by exercising the right of lien, set off or selling the
goods pledged to the bank.
b. Have thorough knowledge about the period of limitation
provided under the Limitation Act, 1963 for different
types of suits, appeals and applications.
MM. Stamping of Documents.

Ensure that all documents that require stamping are
stamped in accordance with the requirements of the
Central / State Act on stamping.
822 - III
CHAPTER-61
GENERAL ANNEXURES
1. General:
a. Various formats of 'Loan Documents' (LDOC) and other formats etc. which have cross reference more than
once in a Chapter and/or in more than one Chapter are separately listed as 'General Annexures' in this
Chapter. Further, these formats are largely drawn from the practices and procedures adopted at the level of
'Tamil Nadu State Apex Cooperative Bank'. The banks may make suitable amendments to the same while
adapting.
b. The list of various LDOCs/Formats are as follows:
Annexure No. LDOC No. Type of Loan Document / Format

1. 1. Attestation Memo
2. 2. D.P. Note (for Individuals)
3. 3 (a) D.P. Note (for Joint Borrowers)
4. 3b (i) D.P. Note (for Sole Proprietorship Firm)
5. 3b (ii) D.P. Note (When Limited Company is the Sole Proprietor of the Firm)
6. 3 (c) D.P. Note (For Partnership Firm)
7. 3c (i) D.P. Note (When Limited Company is one of the Partners of the Partnership
Firm)
8. 8 Application for Irrevocable Documentary Credit
9. 11 Letter of Pledge for Govt. Securities Shares, Documents of Title of Goods
etc. other than Securities of Immovable Property
10. 16 Letter Depositing Fixed/Short Deposit Receipt/s/Cum Undertaking
11. 17(B) Composite Hypothecation Agreement
12. 19 Hypothecation of Movable Machinery
13. 20 Instrument of Hypothecation of Vehicle
14. 23 Refinance Agreement “A”
15. 33 General Form of Guarantee
16. 34 Counter Indemnity for Guarantee
17. 37 Letter of Undertaking with Negative Lien Clause
18. 38 Letter of Sole Proprietorship
19. 39 Letter of Partnership
20. 39(A) Letter of Authority (in Partnership Accounts)
21. 40 Letter of Request (Where H.U.F. is a Partner in Partnership Firm)
22. 48 Letter of Appropriation Recurring Deposits
23. 50 Letter of Recording for temporary overdraft.
24. 53 Letter of Attestation
25. 57 Letter of Instalment with Acceleration Clause
823 - III
26. 60 Take Delivery Letter
27. 63 Letter of Cost (For Title Opinion)
28. 64 An Undertaking not to Withdraw Deposits by the Partners/Directors till the
Advance is Liquidated
29. 72 Letter of Authority to make Payment Directly to the Dealers (Personal Loan
Scheme)
30. 81 Draft Resolution Required to be Passed by a Society/Club etc. (When it
Obtains an Advance from the Bank by way of a Loan, Cash Credit or an
Overdraft/Other Credit Facilities)
31. 84 Specimen of Assignment of Life Insurance Policy
32. 85 Notice of Assignment to Life Insurance Corporation of India
33. 90 Form of Memorandum of Deposit of Title Deeds to be Recorded in Respect
of Advance Secured by Equitable Mortgage of Immovable Property
34. 90(A) Memorandum of Entry (in case of Mortgage of Individual's Property)
35. 90 (C) In the Matter of Mortgage by Deposit of Title Deeds in respect of
Individual's immovable Property
36. 90(D) Letter of Confirmation of Equitable Mortgage in respect of Personal
Property
37. 90(E) I n t h e m a t t e r o f M o r t g a g e b y D e p o s i t o f Ti t l e D e e d s
in respect of Immovables and Hypothecation of Movable (in case of
Partnership Firm/Company) (Declaration)
38. 90(F) Memorandum of Entry Where Company's Property is Equitably Mortgaged
39. 90(G) Supplemental Memorandum of Entry (Company's Property)
40. 90(H) Confirmation of Creation of Equitable Mortgage Relating to Company's
Property (in Consortium Accounts)
41. 90(J) Confirmation of Extension of Mortgage by Joint Owners - all individuals.
42. 90(K) Confirmation of Extension of Mortgage by Company
43. 90(L) Second Extension of Mortgage by Deposit of Title Deeds
44. 90(P) Letter of Confirmation of Mortgage Creation/ Extension
45. 92 Letter of Authority for Creation of Equitable Mortgage/Extension of
Mortgage
46. 96 Power of Attorney for Converting Equitable Mortgage into a Legal
Mortgage
47. 101 Irrevocable Power Attorney
48. 104 Letter of Instalments Against Provident Fund
49. 105 Letter Addressed to the Trustees of Provident Fund
50. 106 Letter of Authority cum Intent to Guarantee Another Staff Members Loan
(If Stipulated) Address to Trustees of P.F.
51. 107 Undertaking to Maintain Vehicle for Five Years
52. 108 Irrevocable Power of Attorney Empowering the Bank to Execute in its
Favour a Legal Mortgage of the Right, Title and Interest in the Flat/Plot
53. 109 Letter of Authority to Deduct Instalment from the Salary Every Month
824 - III
54. 112 Undertaking to Create a Legal Mortgage in Bank's Favour (Where Society is
Formed)
55. 115 Undertaking to Repay Loans in Stipulated Instalments (Under Personal
Loans Scheme)
56. 136 General Undertaking
57. CCB Ledger Sheet Project Finance Advances/Borrowings
58. Total Liability Register
59. Repayment Schedule
60. Cash Credit Accounts Drawal Scrutiny Sheet TNSCB for CO-OPTEX
61. Drawal Application Scrutiny Sheet ST-SAO (Normal)/Oil Seeds TNSCB
Model
62. Drawal Application Scrutiny Sheet- S.T. Weavers
825 - III
LDOC 1
ATTESTATION MEMO
------ SC BANK
________________________ Branch
Name ____________________________________________________
Overdraft / Loan / C.C. against ________________________ Limit Rs. _________
Signature Verified _________ Documents

Specimen Signature Filed signed in
Documents obtained as per presence of __________
Sanction. Examined by an
Officer other than the officer in whose
Presence docs are executed
(With Name/Design.) Date:
Sr. Mgr./Mgr. Chief/Sr. Br./Branch Manager/Mgr.

NOTE: All the columns should be filled in, in all respects. Branch Head should sign this memo after scrutinizing
all the documents.
ATESTATION MEMO
SC BANK-------Branch
Due Date of Account noted in diary _______ Checked _____________

Due Date of Interest noted in diary _______ Checked _____________
Due Date of Insc. Pol. Noted in diary _______ Checked _____________
Due Date of Insc. Prem. Noted in diary _______ Checked _____________
Due Date of Insc. Govt. & Mun. Dues noted in diary _________ Checked _________
Noted in Ledger/computer system “ “ ______________ Checked ________
Noted in Security Register “ “ “ ______________ Checked _______
I hereby declare that the signature/s/ left/right hand thumb impression of ____________
Placed on the above said documents dated ____ is/ are that / those of ____ and is/are placed in my presence in witness
whereof I subscribed my name. The contents of the aforesaid documents are translated / explained to the said
executants, who admit/s the same.
“The contents of documents are translated in vernacular and explained to the party/ies who admit/s the same”. “The
contents of attached document/s have been explained / interpreted to the executant in the vernacular language,
namely, and he/she appears to have understood the same”.
________ 20… Sr. Mgr./ Manager Chief / Sr. Br. / Br. Manager NOTE: All the columns should be filled in, in all
respects. Branch Head should sign this memo after scrutinizing all the documents.
826 - III
LDOC 2
D.P. NOTE (FOR INDIVIDUALS)
Date:______________
Place: ____________
Rs. ______________
On Demand, I, _____________S/o…………………residing at……………………………………….. promise to

pay -SC BANK or order at their office in ____________ the sum of Rupees ____________for value received with
interest thereon at the rate of ___________ % over Base rate of the Bank with minimum ________ % p.a. with
monthly / Quarterly / half-yearly / yearly rests.
Signature without revenue stamp Signature over Revenue Stamp of appropriate
value.
N.B.: * Strike off whatever is in-applicable
LDOC 3(a)
D.P. NOTE (FOR JOINT BORROWERS)
Date:______________
Place: ____________
Rs. ______________
On Demand We , ( 1 ) … … … … … … … … … S / o … … … … … … … … … … , ( 2 ) … … … … … …
S/o……………………………. Jointly and severally promise to pay _..........SC BANK or order at their office in
_____________________ the sum of Rupees ____________ for value received, with interest thereon at the rate of
__________ % over Base rate of the Bank with minimum _____ % p.a. with monthly / Quarterly / half yearly / yearly
rests.
Signatures without revenue stamp Signature over Revenue Stamp of appropriate
value
N.B.: * strike off whatever is in-applicable.
827 - III
LDOC 3b(i)
D.P. NOTE (FOR SOLE PROPRIETORSHIP FIRM)
Date:______________
Place: ____________
Rs. ______________
On Demand We, __________promise to pay ___________ SC BANK or order at their office in _______________
the sum of Rupees ____________for value received, with interest thereon at the rate of __________ % over Base rate
of the Bank with minimum ____________ % p.a. with monthly / Quarterly / half yearly / yearly rests.*
value
LDOC 3b(ii)
D.P. NOTE
(WHEN LIMITED COMPANY IS THE SOLE PROPRIETOR OF THE FIRM)
Date:______________
Place: ____________
Rs. ______________
On Demand We, ______________jointly and severally promise to pay ___________ SC BANK or order at their
office in the sum of Rupees _______ for value received, with interest thereon at the rate of __________ % over Base
rate of the Bank with minimum ____________ % p.a. with monthly / Quarterly / half yearly / yearly rests.*
value
828 - III
LDOC 3(c)
D.P. NOTE (FOR PARTNERSHIP FIRM)
Date:______________
Place: ____________
Rs. ______________
On Demand We,_____________ jointly and severally promise to pay ___________ SC BANK or order at their
office in __________ the sum of Rupees ________for value received, with interest thereon at the rate of __________
% over Base rate of the Bank with minimum ____________ % p.a. with monthly / Quarterly / half yearly / yearly
rests.*
value
LDOC 3c(i)
D.P. NOTE
(WHEN LIMITED COMPANY IS ONE OF THE PARTNERS OF THE PARTNERSHIP FIRM)
Date:______________
Place: ____________
Rs. ______________
On Demand We, ____________ jointly and severally promise to pay ___________ SC BANK or order at their office
in______________ the sum of Rupees _________for value received, with interest thereon at the rate of __________
% over Base rate of the Bank with minimum ____________ % p.a. with monthly / Quarterly / half yearly / yearly
rests.*
value
829 - III
LDOC 8
APPLICATION FOR IRREVOCABLE DOCUMENTARY CREDIT
………. SC Bank…… Branch
Dear Sirs,
Advising Bank Credit No. _______________ in confirmation of our

brief cable / telex /e mail /swift of date
Beneficiary's Credit No. _______________ in confirmation of our

Name & Address brief cable / telex /e mail /swift of date
Applicant We hereby issue our irrevocable letter of credit in your
favour available up to the aggregate sum not exceeding
as above by negotiation of your sight / presentation of
___ days usance draft to be drawn on us a/c. applicant
named above and bearing the clause drawn under - SC
Bank ______ branch credit no.
Covering full _____________ invoice value of shipments / dispatches purporting to be ____________from ___ to
____________ FOB / C & F. CIF ____ Partial shipment permitted / not permitted, transshipment permitted / not
permitted. Drafts are to be accompanied by the following documents in English, in duplicate, unless otherwise
specified.
(1) Signed Commercial Invoices, in triplicate, quoting Import License No. ______ / import not included in the
negative list of export import policy of 1992-1997) and certified that the goods are as per order / indent no.
_________________.
*I/We further place on record the fact that there is no mortgage or lien of any kind whatsoever created on my/our
properties and that I/We undertake not to create any mortgage or lien of whatsoever kind or nature over the same nor
to sell or alienate any of my/our immovable properties or assets of a capital nature until all the debts due by me/us to
_________ SC BANK are fully paid. I / We know that it is on the faith of the representations and undertakings
contained in this paragraph that the Bank has agreed to open the said account.
The said account will be operated by ______________________ and the indebtedness Caused by such drawings
from time to time will be binding on me/us jointly or severally.
Yours faithfully,
(APPLICANT)
*NOTE:- if advance is secured, please delete this.
830 - III
LDOC 11
LETTER OF PLEDGE
(FOR GOVERNMENT SECURITIES, SHARES, DOCUMENTS OF TITLE TO GOODS ETC., OTHER THAN
SECURITIES OF IMMOVABLE PROPERTY)
Stamp as on
agreement
--- SC Bank………..branch
GENTLEMEN, Date ---
I/We the undersigned hereby agree that all securities issued by Government and Local Authorities, debentures and
shares of Corporation and Companies, all goods, documents of title to goods, and Securities of every description,
motor lorry receipts endorsed in favour of the Bank or made out in the name of the Bank, other than securities for
immovable property (which goods, documents and securities are hereinafter referred to as “the said securities”)
including the property, money and advantage comprised in, cover or represented by and derivable under or by virtue of
such documents and securities which I/We may from time to time deposit with --- SC Bank (hereinafter called “the
Bank”) by way of security for the loan/advance/facility up to a limit of Rs. _________ with interest, additional
interest, penal interest as may be stipulated by the Bank from time to time shall be deemed to have been deposited with
and shall be held by the Bank upon subject to the terms & conditions hereinafter mentioned, that is to say.
1. The said security shall be security to the payment to the bank by me/us on demand of
(a) All moneys which now are or which at any time or times hereafter may become due and owing from me/us to
the Bank whether alone or in partnership with any person, firm or company by way of overdraft in Current
Account or by way of loan or by way of Cash Credit with the Bank or otherwise howsoever (including
money owing upon any cheques, promissory notes or bills of exchange, drawn, accepted or endorsed by
me/us or which shall have been paid for my/our credit either solely or jointly with another or others).
(b) Interest on the moneys aforesaid from the respective date on which the same shall have been advanced to
me/us at the rate of ____% over Base rate of the Bank with a minimum of ____ % per annum plus interest tax
with monthly / quarterly / halfyearly/ annual rests or at such rate or rates as the Bank may specify to me/us in
writing in accordance with the Bank's Base rate and my/our credit rating with the Bank from time to time”.
(c) Commission and other customary charges.
(d) All expenses which may be incurred by the Bank in selling or attempting to sell the said securities or any of
them or in realizing the said securities or any of them.
(e) All costs, charges and expenses including legal charges as between attorney and client, which the Bank may
be put to in connection with the premises or the exercise or enforcement of any right or powers hereby
conferred.
2. In consideration for the said advances I/We jointly & severally hereby promise to pay to the Bank at
_____________ on demand made by the Bank or the Manager or any other Officer thereof the said several items
specified in paragraphs (a) to (e) of the last preceding clause.
3. (a) I/We hereby agree at all times while any money hereby secured remains owing and payable to deposit and
keep deposited with the Bank goods, documents of title to goods and securities approved by the Bank of
such value that the agreed margin shall be maintained for the benefit of the Bank. The agreed margin shall be
at the rate of margin which the Bank may from time to time in its absolute discretion fix (whether generally
with regard to all its customers or some of them or specially for the purpose of these presents) with regard to
831 - III
the nature of goods, documents of the title goods and the goods therein comprised and securities so
deposited. The value of the goods, documents of title to goods and the goods therein comprised, and
securities shall for the purpose of these presents be the market value thereof or the normal value thereof
whichever be less. The decision of the local Manager or other Officer of the Bank as to what is the normal
value of any goods shall be conclusive. Should the Bank through its Manager or other Officer so require
such margin shall be maintained by me/us either by an immediate delivery of further security to be approved
by the Bank or by an immediate cash payment. The terms and conditions contained in these presents shall
apply to all goods, documents and securities so deposited from time to time. If I/We fail to maintain such
margin within 48 hours after receiving notice from the Bank requiring me/us so to do, the Bank shall be
entitled. (but not obliged) without prejudice to its other rights, and without any further authority from me/us
to sell such part of the securities that in its hands as it may consider necessary so as to put the account in order
by providing the required margin and to continue the said account. The provision of clause 4 and the other
clauses hereof shall apply to such sale.
(b) I/We hereby also agree that at all times while any money hereby secured remains owing and payable the
Bank shall be entitled to have all the shares of Corporation and Companies stock of every description
pledged with the Bank transferred to the Bank's name without giving any intimation to me/us and that the
Bank shall have in respect of such shares and stock exclusive voting rights exercisable by the Bank in any
manner whatsoever and that we shall henceforward not exercise any voting rights or issue any proxies in
respect of such shares / stock until any money hereby secured remains owing and payable to the bank.
4. I / We hereby agree that the Bank shall be entitled if default shall have been made by me / us in the repayment of
moneys due by me / us for 48 hours after demanding payment at any time or times thereafter and without further
intimation to me / us to sell the said securities in such manner as the Bank may think fit and that such 48hours
notice shall be reasonable notice of such intended sale. For the purpose aforesaid or to effect any sale of the said
securities the Bank may stamp, complete and register any transfer or other documents and pending any such sale,
the Bank may collect, receive any recover any dividend, interest and money relating to the said securities or any
of them and give receipts therefor.
5. The Bank shall at any sale of the said securities have power to buy in or rescind any contract of sale and resell
without being accountable for any loss or diminution in the price thereof or being answerable for and
deterioration of the said goods or for any depreciation in the value of the said securities.
6. I / We hereby agree to execute from time to time on demand made by the Bank or the Manager or any other officer
thereof and make over to the Bank all such further or other documents and do all such acts as may be required by
the Bank to vest the full legal title to the said securities or any part thereof in the Bank and to render the same
readily saleable or transferable by the Bank at any time.
7. The bank shall not be liable to me / us for any involuntary losses which may occur during its custody of the said
securities by reason of the sale of the said securities or any of them nor for any deterioration of the goods or for
any depreciation in the value of the said securities.
8. The bank shall apply the net proceeds of sale of the said securities in satisfaction so far as the same shall extend to
all moneys owed by me / us in my / our said account under the several items specified in paragraphs (a) to (e) of
clause 1 hereof. It shall be lawful for the Bank to retain and apply the surplus, in any of the sales proceeds. After
payment in full of the said moneys together with any other money or moneys belonging to me / us for the time
being in the hands of Bank in whatever account as far as the same shall extend in or towards payment of any and
all other moneys with interest thereon which shall be or may become due from me/ us or any one more of us
whether solely or jointly with any other person or persons, films or company to the Bank including obligation
current though not then due or payable or other demands legal or equitable whether I / we or any one or more of us
or such person or persons or any of them shall become or be adjudicated bankrupt or insolvent or be in liquidation.
832 - III
If the net sale proceeds or such sale be insufficient to cover the said moneys. I / We shall be liable forthwith on
demand to pay and make good such deficiency to the Bank.
9. All accounts of sale rendered to me / us by the Bank shall be conclusive evidence both in and out of court of all
matters therein stated.
10. I / we hereby also agree that notwithstanding anything herein-before contained, the Bank shall not be bound to
allow or continue my / our overdraft in Current Account, loan or Cash Credit to any extent or for any time further
than the Bank shall in its absolute discretion see fit to do.
11. I / We hereby also agree that if at the time when the said account current, loan or Cash Credit shall be closed, if a
balance shall be owing from me / us to the Bank, I / We will so long as such balance or any part thereof shall
remain owing, pay interest thereon to the Bank at the rate aforesaid with rests as aforesaid from the time when
such balance shall be ascertained.
12. The security shall operate as continuing security for all money owing by me / us and my / our indebtedness and
liabilities [whether absolute or contingent] to the Bank as aforesaid notwithstanding the existence of a credit
balance in the said account or any other account at any time or any payment or fluctuation of account and shall
remain in force until terminated by the Bank on notice in writing by the Bank to me / us.
13. The above terms and conditions shall apply and shall be deemed to have applied to securities which may from
time hereafter be deposited by me / us with the bank as securities for any moneys due by me / us to the Bank on
any account whatsoever.
14. I / we, hereby declare that the said securities are and shall always be my / our absolute properly and at my / our
sole disposal and free from any encumbrance whatsoever and I / We hereby undertake not to deposit with the
bank any securities, which shall not be my / our absolute properly and at my / our sole disposal and free from all
encumbrances and that it shall be taken as term between me / us and the Bank that all securities deposited by me /
us with the Bank as securities are my / our absolute property and at my / our sole disposal and free from
encumbrances.
15. The Bank will be discharged and protected from any claim if it delivers the said securities to or in accordance with
the instructions given by me / any one of us. But this provision shall nor restrict or prejudice the Bank's right to
sell the securities without my / our consent.
16. I / We hereby undertake to hold you harmless and indemnified in respect of any defect in any securities which I /
We deliver to you or request you to take delivery of from any other source on my / our account whether with or
without blank transfers or in respect of any delay in causing the same securities to be transferred to my / our or
yours name/s.
x __________________________________
x __________________________________
Note: Clause to be added to letter of pledge when advance is made against the security of Life insurance Policies under
the borrower's signature as under:-
“It is hereby agreed that in the event of my / our failing to repay the advance when recalled at any time as required,
Bank can proceed on the basis of the assignment in its favour to surrender the policy and to obtain the proceeds from
the insurer or have the policy paid at its desertion and obtain payment on maturity. I / We hereby undertake to keep the
policy alive during the currency of the advance by paying the premia as and when they fall due, failing which the Bank
may at its discretion recall the advance or continue to keep the policy alive by paying their premia to the debit of any of
my accounts with the Bank or by paying the premia direct from its own funds, in which latter case any such premia
paid by the Bank could be offset from the proceeds of the policy remaining when received by the Bank after adjusting
the advance made by the Bank:.
833 - III
LDOC 16
LETTER DEPOSITING FIXED / SHORT DEPOSIT RECEIPT (S)/ CUM-UNDERTAKING
The Branch Manager, SC Bank
Stamp as on
agreement
Date: ________________
PART 'A'
LETTER OF DEPOSIT
(a) In case of depositor borrower, i.e. for advance against One's Own Deposit/s (including joint Accounts):
I / We hereby apply for the facility of loan / overdraft limit of Rs.______ with you against the security of my /
our own deposit/s with you at the interest rate of _______% p.a + taxes if any (as application from time to
time) *with monthly / quarterly / half yearly / yearly rests*
(b) For Advances Up to Rs.2.00 Lacs against Third Party Deposit/s.
I / We hereby apply for the facility of loan / over draft limit of Rs.________ with you against the security of
deposits of Mr./Mrs./ Merssrs._______ with you at the interest rate of _________% p.a. + taxes if any (as
applicable from time to time with monthly / quarterly / half yearly / yearly rests.)
(c) For advances of Over Rs.2.00 lacs against Third Party Deposit/s.
I / We hereby apply for the facility of loan / over draft / other facility limit of Rs._____ with you against the
security of deposit/s of Mr. Mrs. Merssrs._______ with you at the interest rate of 3.5% over the deposit rate
payable on the concerned time deposit (which is _______% p.a. for the present) subject, however, to the
minimum of the Bank's Base rate (Which is at present _______% p.a. and the same is subject to change
without notice from time to time) plus interest tax (as applicable from time to time with monthly / quarterly /
half yearly / yearly rests. As security for the fluctuating balance from time to time of the said loan / overdraft
or other facility which you may grant to me / us, I am depositing Mr. /Mrs./ Merssrs. ___________ is /are
depositing with you herewith the fixed / short deposit receipt/s No./s __________DT ___ standing in the
name/s of myself/overselves/ Mr./Mrs./,Merssrs. ____________ for Rs.____________ & _____________
__________due from the bank so that you may hold / continue to hold the said Fixed / Short Deposit
Receipts as security for the dues to you from time to time.
I am aware that such renewal of deposit/s and continuance of advance shall be purely / entirely at the bank's
discretion and it shall not be obligatory for the bank to do so under any circumstances. If the loan / overdraft /
834 - III
other facility together with interest / penal interest / additional interest including tax on such interest (as
applicable) and banking charges, payable by me / us is not paid when called upon to do so, or in any case
before the due date/s of the said Fixed / Short Deposit/s, the aggregate amount due thereon to me / us / Mr.
/Mrs./ Merssrs. _____________ (depositor/s) may be credited to loan / over draft / other account and the
balance if any may be paid to me / us /Mr./Mrs./Merssrs _________ (depositor/s) if the bank recalls the loan
/ overdraft / other facility granted to Mr./Mrs./Merssrs. _________ (borrower), the bank shall in that event
be entitled to adjust the said loan / over draft / other account and liquidate the same in full by pre payment
foreclosure of the said deposit/s and in that case the bank may allow such rate of interest as may be
permissible from time to time as per the rules of the Bank in case of pre-payment / foreclosure. If the said
fixed / short deposit/s is/ are renewed by me/us/Mr./Mrs./ Merssrs. __________(depositor/s) for a further
period/s, then until the said loan / overdraft/other facility, together with interest (including penal interest
additional interest and tax thereon) and banking charges, is paid in full, the renewed fixed / short deposit
receipt/s shall be duly discharged by me / us / Mr. Mrs. Merssrs.________ (Depositors) and deposited with
you so that you may hold the same and the amount/s due there under as security as aforesaid until the loan /
over draft / other facility, together with interest (as defined above) and banking charges, is paid by me / us
(borrower) in full.
PART B
UNDERTAKING
Now in consideration of the bank, at our request, granting/ continuing to grant and having continued the
abovementioned facility I / we _______ (name of the borrower) agree, confirm and undertake:
(d) Where the Deposit(s) is/are collateral / par security:
That all the monies advanced or to be advanced by the bank under the facility mentioned here in above shall
be utilised exclusively for the purpose set-forth in my/our proposal / application and for no other purpose,
and if the said loan / advanced is utilised or attempted to be utilised for any other purpose or if the bank
apprehends or has reason to believe that the said loan / advance is being utilised for any other purpose, the
bank shall have the right to forthwith recall the entire or any part of the loan / advance without assigning any
reason therefor.
(e) In case of All Advances:
That notwithstanding anything to the contrary contained in any of the documents / agreements executed/ to
be executed by me / us as also in the letters of sanction by the bank, the bank shall be entitled to change the
contractual rate of interest prescribed by the Reserve bank of India / the Bank (SC Bank) or any other
eventuality such as reintroduction of interest Tax, etc. from time to time and the same shall be binding on me
/ us as if such change/s was/ were already incorporated in the documents executed by me/us.
(f) Where the deposit(s) is are collateral / part security:
That in the event of any irregularity, the bank at its discretion, shall be entitled to charge on the entire
outstanding or any portion thereof interest at such enhanced rate/s as it may fix during the continuance of
835 - III
such irregularity. I/we understand that it is on the faith of the aforesaid representations and express
undertakings that the bank has consented to entertain my / our proposal / application for the said facility.
Yours faithfully,
(NAME/S OF THE BORROWER/S)
PART C
DEPOSITOR'S/S'REQUEST FOR ADVANCE TO OTHER/S (i.e. NON-DEPOSITOR/S) And I / we me /

us / Mr. / Mrs. / Merssrs.________ (Depositors) hereby request the bank to grant the above facility to me / us /
Mr. Mrs. Merssrs__________ (Borrower/s) and agree that the said fixed / short deposit/s Nos. ________dt
_______ for Rs.____& ___ issued by SC Bank to me / us and all renewal/s thereof and the amount/s due
there under shall be held by the bank as security for the loan / overdraft / other facility, together with interest
and banking charges as aforesaid.
SIGNATURE/S & NAME/S OF THE DEPOSITORS
N.B: Please delete the inapplicable paras / clauses / words
836 - III
LDOC 17(B)
COMPOSITE HYPOTHECATION AGREEMENT
AN AGREEMENT made at ____________ on this_______________ day of ____________ Between

________________________________________ (hereinafter called “The Borrower”) of the ONE PART and …. SC
bank having its Head office at ………….………………………………. one of its branches at
______________________________________________________ (hereinafter called “The Bank” ) of the
SECOND PART.
WHERAS the Bank has at the request of the Borrower agreed to grant and / or continue to grant banking facilities or
accommodation to the Borrower by way of_____________________________ facilities (hereafter collectively
referred to as “banking facilities” with an aggregate maximum limit of Rs. ______
(Rupees______________________________________) and the repayment of all monies including principal sums,
interest, interest tax, additional interest, further interest, penal interest, commission, costs, charges and expenses etc.,
payable under or in the respect of such facilities have been secured /agreed to be secured by various agreements and
documents executed by the Borrower from time to time in favour of the Bank AND WHEREAS one of the conditions
stipulated by the Bank is that the repayment of all monies under the banking facilities or accommodation or accounts
shall inter alia be secured by the Borrower by way of hypothecation of all the Borrower's Raw Materials, Stocks-in-
process, Finished Goods and all the Book-Debts, Movable Plant and Machinery/Vehicles/Crafts,. Consumable Stores
and Spares, both present and future and on the terms and conditions set out in the Bank's sanction advice to the
company dated________ and/or monies payable and due to Bank in each of the accounts of the Borrower with the
Bank. (as set out in the First Schedule hereunder Written)
NOW THIS AGREEMENT WITNESSETH AND IT IS HEREBY AGREED AND DECLARED AS FOLLOWS:
1. Subject to the terms and conditions contained in these presents the Bank has granted or agreed to its discretion to
grant or continue to grant to the Borrower at __________ or at any of its branches in India banking facilities or
accommodation to the Borrower as mentioned in the sanction advice set out in First Schedule hereto and / or
outstanding and due to the Bank in each of the accounts of the Borrower upto an aggregate maximum limit of
Rs.___________ (Rupees____________)
2. The Borrower hereby agrees and undertakes that the amount/amounts advanced or to be advanced by the Bank
will not be used for any purpose other than for which it has been sanctioned/advanced. It is distinctly understood
by the Borrower that the Borrower is hereby expressly prohibited from using the amount advanced and / or to be
advanced of any part there of for any purpose other than for which it has been advanced/ sanctioned and that if the
Bank apprehends or has any reasons to believe, the Bank's decision in this regard being final, that the Borrower
has violated or is violating or is likely to violate this condition it shall be lawful for the Bank and the Bank shall
have a right to recall the entire balance due under all, any and / or each of the facilities or accommodations then
outstanding or any part there of forthwith notwithstanding anything to the contrary contained herein or in any
other document or letter of sanction or terms and conditions and without prejudice to any of the rights of the Bank
hereunder or under any law, rule or regulations to initiate appropriate Civil and / or criminal action/s against the
Borrower. The Borrower further agrees that on such demand, the Borrower shall forthwith pay the amount/s due
together with interest, interest tax, further interest, additional interest, penal interest, commission fees, cost,
charges and expenses incurred or to be incurred by the Bank till date of payment. The Bank shall have an absolute
837 - III
discretion to determine what amount/s within the aforesaid limit it will advance and/or allow to be outstanding
from time to time in the respective separate account opened/ to be opened by it and the Bank shall be at liberty to
refuse to allow further drawings or advances or to make available any facility at any time without previous notice
to the Borrower and without assigning any reasons therefore.
3. The Bank may at the request of the Borrower vary or diversify the facilities allowed by it to the Borrower but so,
however, that the overall limit of the principle amount at any time outstanding shall not exceed the aggregate
maximum limit secured hereunder and this will not in any way affect or prejudice the security by way of
hypothecation created by this deed. The facilities and their limits so varied/ diversified from time to time during
the tenure of this security shall be deemed to be the facilities / limits secured under these presents.
4.1. Subject to clause 4.4 below, the Borrower shall pay interest/ commission to the Bank in respect of the said
banking facilities from time to time on the outstanding in their respective banking facility accounts at the
respective rate/s as contained in the sanction advices forming part of First Schedule hereunder written
PROVIDED HOWEVER the bank shall at any time or from time to time be entitled to change or vary the rate of
interest/ commission in respect of any one or every facility or accommodation. Notice of variation of rate of
interest from time to time as per the directions of the Reserve Bank of India / or as per Base rate fixed by the Bank
or the Head Office of the Bank is waived. Such variation in the rate notified in the notice board in the Bank
premises shall be sufficient notice to us and I/We agree to pay interest at the rate notified in the notice board from
time to time until all dues are cleared in full. Provided further that the interest/ commission payable by the
Borrower shall be subject to the change in Prime Lending Rate of the Bank from time to time as determined and /
or interest /commission that may be levied /prescribed revised rate/s of interest/commission were already
mentioned in the said Schedule and agreed to be paid by the Borrower and hereby secured. The Bank shall be
entitled to demand payment of interest for the time being due or other amounts payable by the Borrower under
these presents without at the same time demanding payment of the balance due to the Bank exclusive of such
interest or other amounts.\
4.2 Interest payable at the rate/s aforesaid shall be calculated on the daily balance in the Cash Credit and other
banking facility/account(s) and charged accordingly in the said account(s) on the last working day of each month
or quarter or half-year as the bank may decide.
4.3 Without prejudice to the generality of the foregoing the bank shall also be entitled to charges at its own discretion
and the borrower shall be liable to pay and hereby agrees to pay additional/enhanced rate of interest on the said
banking facility account(s) either on the entire outstanding or a portion thereof as the Bank may fix for any
irregularity, non-compliance, of/by the Borrower or any breach of the terms and conditions hereof or of those set
out under sanction advice and for such period as such irregularity or breach continues or for such time as the Bank
may deem it necessary, regard being had to the nature of the irregularity or breach, Provided that the charging and
payment of such additional interest/enhanced rate of interest shall be without prejudice to the other rights or
remedies of the Bank either hereunder or under any law, rules or regulations to proceed with or exercised by the
Bank for such irregularity or breach against the Borrower and or the security hereby created, and it is hereby
agreed by the Borrower that the provision herein contained for payment of higher rate of interest shall not entitle
or be deemed or construed to authorize the Borrower to delay or postpone payment of the monies hereunder or
any part thereof and/or interest on their respective due dates.
4.4 In the event of the Borrower not paying any amount due to account of interest, fees, costs, charges and expenses
payable from time to time under these presents the bank shall be at its discretion entitled to debit or charge such
interest amount(s) to any of the banking facility account(s) namely the Overdraft Account, Cash Credit Account,
838 - III
Current Account or any other account of the Borrower. Any amount(s) so debited to the overdraft account, Cash
Credit Account, Current Account or any other account of the Borrower with the Bank shall form part of the
account(s) to which such amount(s) is/are debited and shall carry interest at the rate or rates in force at the
relevant time applicable to the accounts(s) to which the amount(s) is/are so debited.
4.5 The Borrower agrees to pay and shall pay to the bank commission, fees on the bills of exchange accepted /agreed
to be accepted / discounted within the specified limits and the guarantees issued /agreed to be issued and
deposit/keep deposited with the bank margin money at such rate or rates as the Bank may specify from time to
time by notice in writing to the Borrower and the rate/s so specified shall be deemed to be the rate/s expressly
agreed to by the Borrower and as if mentioned in these presents and the security hereby created shall be deemed
to be securities created for securing such bills of exchange from time to time within the specified limit as
mentioned in the sanction advice.
5. The Borrower shall on demand pay at ____________ to the Bank, all monies including principle sums, interest,
interest tax, additional interest, further interest, penal interest, commitment charges, commission, fees costs,
charges, expenses and other monies whatsoever due, owing or payable by the Borrower in respect of or in any
wise concerning or relating to the banking facility/facilities granted/agreed to be granted/ continued by the Bank
to the Borrower as aforesaid including those incurred by the Bank for the preservation, protection, defence and
perfection of the security hereby created or for attempted or actual realisation or enforcement thereof with
interest as provided under these presents, all of which monies including principal sums, interest, interest tax,
additional interest, further interest, penal interest, commitment charges, commission, costs, charges, expenses
and the monies whatsoever at any time and from time to time due to the Bank, whether debited to the account(s)
or not, are hereinafter collectively referred to as “ the balance due to the Bank” which expression shall, wherever
the context so admits include any of them or any part thereof.
6. In consideration of the Bank having granted/agreed to grant/continue to grant banking facilities or

accommodation to the Borrower upto an aggregate maximum limit of Rs._______________) as aforesaid, the
Borrower hereby hypothecates to and charges in favour of the Bank.
a) All its stocks of raw materials, semi-finished goods, both present and future, and more particularly in item l
of the Second Schedule hereunder written.
b) All the present and future book-debts, outstanding monies, receivables, claims, bills challans in action,
contracts , engagements and securities of the Borrower and more particularly described in item ll of the
Second Schedule hereunder written.
c) The specific items of movable machinery/vehicles/crafts etc. as more particularly described in items IV of
the Second Schedule hereunder written to secure the Cash Credit/ Loans/S/ Deferred Payment Guarantees/s
facility granted /agreed to be granted by the Bank to the Borrower.\
d) Subject to the exclusive /prior charge created /agreed to be created on the specific items of movable
machinery/vehicles /crafts in respect of the Cash Credit/loan/s/ Deferred Payment Guarantee/s facility
sanctioned to/availed by the Borrower with the consent of the Bank (details of which specific movable
machinery/ vehicles/crafts the Borrower hereby undertake to provide to the Bank),all the movable
machinery/vehicles/crafts of the Borrower, both present and future, and more particularly described in item
lll of the Second Schedule hereunder written. (All of which Stocks, Book-Debts, Movable
Machinery/Vehicles/Crafts of the Borrower are hereinafter collectively referred to as “ the Hypothecated
Premises” as security by way of first charge for due payment on demand of the balance due to the Bank in
839 - III
respect of accounts/accounts of the facilities / accommodations granted to the Borrower by the Bank as
aforesaid.
7.1 The Borrower shall at all time during the continuance of this security keep and maintain such margin of
security in favour of the bank (hereinafter called “ the said margin”) as mentioned in the First Schedule hereto or
such other percentage (s) as the Bank may from time to time determine of the cost or market value (Market value
as found by the Bank) which ever is lower of the Hypothecated Premises or part thereof.
7.2 The Bank shall be entitled to and shall be at liberty to change from time to time the said margin(s) and the
Borrower shall be bound by such change
7.3 The Borrower will at all times maintain a sufficient quantity of the assets constituting Hypothecated Premises to
provide the necessary margins (s) on the security as specified herein and as may be required by the Bank from
time to time and will forthwith, whenever necessary, provide further assets approved by the Bank to restore such
margin(s) or reduce the amount from the time being due to the Bank by cash payment so as to maintain the said
margin(s).
7.4 Except for the purpose of sale or dealing in the ordinary course of business the Borrower shall not, so long as any
monies remain due to the Bank, except with the prior approval in writing of the Bank and subject to the margin of
security required by the Bank being fully maintained, remove or cause to be removed any of the Hypothecated
Premises or divert or dispose of or cause or permit any of the Hypothecated Premises in transit to be diverted or
disposed of or otherwise deal with any of the Hypothecated premises and that the realisation /proceeds of sale of
any of the Hypothecated Premises as soon as received shall be paid over to/ appropriated by the Bank in
satisfaction of the balance due and owing on the said facility/accounts or any of them as hereinafter provided but
not to any of the party without the prior written consent of the bank and till then all sales proceeds and realisations
howsoever in respect of the Hypothecated Premises shall be held by the Borrower in trust for the Bank as the
Bank's exclusive property for appropriation to the said facility/accommodation of account(s) PROVIDED that
the Borrower shall not make any sale of or recover, transfer, assign, dispose of or deal with any of the
Hypothecated Premises upon being prohibited in writing by the bank from doing so.
8.1 The Borrower shall whenever and so often as required by the Bank furnish to the Bank full particulars of all the
assets of the Borrower and of the Hypothecated Premises and shall allow the Bank or its authorized agents to take
inspection thereof and of all records, books and vouchers pertaining thereto and will produce such evidence as
the Bank may require as to the cost and value of the said assets and/or the Hypothecated Premises The Borrower
shall display sign board/s with words “Hypothecated to ...SC Bank ” inscribed thereon, at the place/s where the
Hypothecated Premises or any part thereof may be lying or be stored by the Borrower for the time being time to
time.
8.2 The Borrower shall value the Hypothecated Premises at the appropriate rates whether fixed by the Bank or not
and shall not over value the same . In any case, the Bank shall be at liberty from time to time and at any time to have any
of the Hypothecated Premises inspected and valued by an appraiser or valuer appointed by the Bank which value shall
be conclusive and binding on the Borrower both in and out or court.
8.3 The fees, cost, charges and expenses of such inspection , appraisal or valuation (the Bank's statement in regard
thereto being conclusive)shall be borne and paid by the Borrower to the Bank on demand shall if not so paid ,be
debited by the Bank to any of the said banking facility account(S) namely Cash Credit Loan, Overdraft or Current
Account/s or any other account of the Borrower with the Bank and shall form part of the monies hereby secured.
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9.1 The Hypothecated Premises shall be kept at the Borrower's risks and expenses and the Borrower shall at its own
expenses during the continuance of this security keep the Hypothecated Premises in good and marketable
condition and in proper working order and shall likewise at its own expense insure and keep insured in the name
of the Bank the hypothecated Premises against loss or damages by fire, theft, pilferage, robbery, riot, civil
commotion, earthquakes, malicious damages and all such other risks as the Bank shall require for the full
market/replacement value thereof by insurance company or companies approved by the Bank and shall deliver
the policies of insurance to the Bank and shall likewise deliver receipts for the last premium paid for every such
policy of insurance and if in the name of the borrower, the borrower shall assign and deliver to the Bank every
such policy of insurance and shall pay to the Bank all proceeds of any policy received by the Borrower during the
continuance of this security and shall, renew, keep in force and maintain such insurance throughout the
continuance of this security and deliver to the Bank the renewal receipts and policies. In default the bank may (but
shall not be bound to) effect or renew such insurance .Any premium paid by the Bank and any such costs, charges
and expenses incurred by the Bank shall be repaid by the Borrower on demand forthwith and shall until
repayment with interest at the rate aforesaid, be a charge on the Hypothecated Premises. The Bank shall be
entitled without prejudice to all their other rights and powers to debit the amount of such premium, costs, charges
and expenses to any of the banking facility or account(s) namely the Cash Credit/Overdraft or any other
account(s) of the Borrower in such manner as the Bank deems fit. All sums received under such insurance shall be
applied in or towards liquidation of the amount for the time being due to the Bank as provided therein.
9.2 The Bank shall be entitled to adjust, settle and compromise in any manner whatsoever including by reference to
arbitration, at the Borrower's cost any dispute arising under or in connection with any such policy of insurance
and such adjustment, settlement, compromise and any award made or decision given in such arbitration or
otherwise shall be valid and binding on the Borrower and the Bank shall also be entitled to all monies payable
under any such insurance or under any claim made there under and to issue a valid receipt therefore and that the
amounts so received shall be credited to any of the banking facility account(s) namely the Cash Credit / Overdraft
/ Current or any other account(s) of the Borrower and that the Borrower will not raise any dispute that a larger sum
might or ought to have been received or be entitled to raise any dispute for the balance in any of the said accounts
after such credit, provided that the Bank may at its own discretion waive any of the requirements as to insurance ,
to such extent and in such manner as it may deem fit.
9.3 The Borrower shall pay all rents, rates, taxes, payments and outgoings in respect of any immovable property in or
upon which the Hypothecated Premises or any part thereof may for the time being be laying and shall keep such
property insured against loss or damage by fire and shall also insure the same against such other risks as the Bank
shall require and shall produce the policies of insurance to the Bank whenever required by it.
10.1 The Borrower shall make best endeavours to obtain payment of all debts and assets forming part of the
Hypothecated Premises as and when the same shall become payable and pay all such sums when the same shall
become payable and pay all such sums when received into any of the banking facility account(s) namely Cash
credit/Overdraft or any other account(s) with the Bank. Further, the Borrower shall not, except in the ordinary
course of business, receive release or compound any of the said debts and assets without the consent in writing of
the Bank and will not do anything whereby the recovery thereof may be impeded, delayed, prejudiced, prevented
or becomes time barred.
10.2 The Borrower shall keep proper books of accounts of the business and carefully keep and preserve all the
documents, papers and vouchers in connection with or relating to or which prove or are likely to prove the debts
forming part of the Hypothecated Premises or any part thereof and will at any time when required produce such
books, documents, papers and vouchers for the inspection of the Bank and its officers and agents and allow them
841 - III
or it or him access thereto and to make copies of or extracts from the same.
10.3 Save and except as herein specifically provided for, the Borrower shall not create any further or any additional
change on this hypothecated premises without the written consent of the Bank first had and obtained.
11.1 If the Borrower shall fail to pay on demand any money which ought to be paid by it hereunder or shall commit any
breach of any agreement or declaration on their part herein contained or shall fail to observe or perform any of the
terms and conditions or covenants herein contained or if any circumstance shall occur, which in the sole
judgement of the Bank, is prejudicial to or imperils the security or if any distress or execution is levied or
enforced against any property or assets whatsoever of the Borrower or if any person, firm or company shall take
any steps towards appointment of a Receiver of any property or assets whatsoever of the Borrower or if such
Receiver is appointed or if any person firm or company shall apply for or obtain an order for the winding up of the
Borrower or if any person, firm or company shall apply for or obtain an order for the winding up of the borrower
or if any such order is made or if any step is taken by any person towards passing any resolution to wind up the
Borrower's company or if any such resolution shall be passed or if the Borrowers shall cease to carry on business
or to conduct its business to the satisfaction of the Bank or if any person firm or company shall take any steps for
adjudication of the Borrower as insolvent or if any such adjudication is made then and in any such case, it shall be
lawful for the Bank through any of its officers/agents to enter into or upon the factory or any godown jatha or any
of the place/s of storage of the Borrower where any of the Hypothecated Premises may be lying or stored or kept
and to inspect, value, insure and/or to take charge of and/or to seize, recover, revive, appoint Receivers and/or
take possession of all or any of the Hypothecated Premises and the books of account and other documents
relating to the debts and assets forming part of the Hypothecated Premises inter-alia by putting its locks on
godowns and other premises where the said goods or account books and other documents relating to the debts and
assets forming part of the Hypothecated Premises are lying or kept and thereupon either forthwith or at any time
and from time to time and without any notice either by public auction or tender or private contract or tender, sell
and dispose of all or any part of the Hypothecated Premises in such manner as the Bank shall think fit and also to
give notices of demand to the Borrower's debtors and third parties liable therefore sue for, recover, receive and
give effectual receipt for the same and sell and realize for the same and sell and realize by public auction or
private contract and transfer, assign or otherwise dispose of or deal with all or any part of the Hypothecated
Premises. Without prejudice to the foregoing powers, if necessary, the Bank shall at the Borrower's risk and
expenses be entitled to act either as attorney for and on behalf of and in the name of the Borrower or otherwise as
the Bank may deem fit (the Borrower hereby appointing the Bank as its attorney). The Bank shall be entitled to
deduct and appropriate from the proceeds realised as aforesaid all expenses in connection with the exercise of the
aforesaid powers and to appropriate the net proceeds towards the balance due to the Bank in any of the account(s)
pertaining to the banking facilities.
11.2 The Company irrevocably appoints the Bank to be the Attorney of the Company and in the name and on behalf of
the Company to execute and to do any assurances and things which the Company ought to execute and do under
the covenants herein contained and generally to use the name and seal of the Company in the exercise of all or any
of the powers hereby conferred on the Bank or any Receiver appointed by the Bank.
11.3 The Bank shall also be at liberty to enforce, realize, recover, settle, compromise, refer to arbitration and for the
purpose deal in any manner with any rights or claims which may be set up in respect of the Hypothecated
Premises, to complete any engagements and carry on the business of the Borrower through agents, managers
nominees or otherwise without being bound to exercise these powers. The Bank shall not be liable in the event of
the exercise of any of the aforesaid powers for any involuntary loss which may occur in or arise from such
exercise shall be without prejudice to any other rights and remedies and notwithstanding any pending suit or
842 - III
other proceedings relating to the Hypothecated Premises. Notwithstanding that there may be any pending suit or
other proceedings the Borrower hereby undertakes to transfer and deliver to the Bank all relative contracts,
securities, bazaar chits, bills, notes, hundies and documents. The borrower shall accept the Bank's account of
sales and realisation as conclusive and shall forthwith pay to the bank on demand any shortfall or deficiency
thereby shown. And if the net sum realised by such sales is not sufficient to pay the amounts secured, the Bank
shall be at liberty to apply any other money or monies in the hands of the Bank standing to the credit of or
belonging to the Borrower in or towards the payment of the balance due to it, AND in the event of there being still
some deficiency, the Borrower shall forthwith pay/make good such deficiency provided that nothing herein
contained shall in any manner prejudice or affect the rights and remedies of the Bank against the Borrower.
11.4 The Borrower shall not be in any way concerned with the proportion in which any monies realised and applicable
under these presents are appropriated towards the balance due to the Bank and shall not have any claim
whatsoever against the Bank in relation to any act thing done, omitted, permitted or suffered by the Bank in
regard to the appropriation of any money applicable as herein provided,
11.5 As and when the Bank seeks to enforce the securities and take possession of the Hypothecated Premises
hereunder the Borrower shall comply with all such directions as may be given by the Bank and afford every
facility for placing and keeping the Bank in exclusive possession, custody and control of the hypothecated
premises, and the books of account and other documents relating to the books of account and other documents
relating to the debts and assets forming part of the Hypothecated Premises, in such manner that such possession,
custody and control shall be apparent and indisputable. It is hereby further agreed that if any when the Bank
exercises its rights to demand payment of the monies due to it or take possession or assignment of the
Hypothecated Premises and the books of accounts and other documents relating to the said debts and assets, the
Borrower until actual delivery or assignment thereof to the Banks shall be deemed to be in possession of the same
as agent of the Bank but entirely at the risk and costs of the Borrower. Provided always and it is expressly agreed
and declared that even after the Bank shall have taken possession of the Hypothecated Premises and/or the books
of accounts and other records, documents, etc. relating to the said debts and assets in enforcement of the
securities or the Bank has got appointed or caused to have appointed a Receiver thereof or shall have taken any
other action in exercise of the powers or any of them hereby conferred on the Bank, the Bank shall be entitled to
store the said goods and the books of accounts and other records, documents, etc. relating to the said debts and
assets in the Borrower's Premises where they may be lying until the full and complete enforcement and
realisation of the security and the Borrower shall be liable to and shall bear any pay on demand the cost of storing
the Hypothecated Premises and the books of accounts, records, documents, etc. relating to the said debts and
assets in such premises including the rent or compensation payable to such premises and the salary and
remuneration of watchman and other personnel that may be engaged for security, preservation and handling of
the Hypothecated Premises and the books of accounts and other records, documents, etc. relating to the said debts
and assets. It is agreed that the Borrower shall not until realisation of the security created in favour of the Bank
adversely deal with such premises belonging to or occupied by the Borrower not the Borrower`s right thereto.
The Bank shall also be entitled to hire or acquire storage space in any other premises and to engage watchman and
other personnel as aforesaid and the Borrower shall pay the rent or compensation payable for or in respect of such
other premises and salary of watchmen and other staff on demand to the Bank and in default the Bank may pay the
same but until repayment by the Borrower of such rent or compensation and other monies to the Bank the same
with interest thereon at the rate provided for shall be charged upon the Hypothecated Premises.
11.6 Among such directions as aforesaid, the Bank may without incurring any responsibility for the consequence
provide for the following:
843 - III
a) that the Hypothecated Premises shall be stored in such godown or other places of storage and the books of
accounts or other records be kept and maintained at such places/s as the Bank shall direct b) that the
register(s) shall be kept of the Hypothecated Premises brought in or removed from any godown or other
place of storage. Such register(s) shall be open for inspections to the Bank at all times and shall always be
considered to be the property charged to the Bank;
c) For the placing of private identification marks/numbers of the Bank on any of the Hypothecated Premises
stored in any godown or other place/s of storage.
11.7 From and after the Bank have taken possession the Hypothecated Premises or any part thereof and/or the books
of accounts and other records, documents, etc. relating to the debts and assets shall not be removed from the said
godowns/s or other place/s of storage except on production of delivery orders(s) signed by the bank or any of its
officials authorized in this behalf.
11.8 From and after the Bank shall have taken possession, the Borrower shall be solely responsible in all respects and
the Bank shall not in any way be responsible for or in respect of the quality or condition or final turn-out or for
loss, destruction or deterioration of the Hypothecated Premises, books of accounts, vouchers, papers and other
records relating to the debts and assets or damage thereto occasioned by theft, pilferage, robbery, fire, riot,
strikes, civil commotion or otherwise howsoever whatever may be the circumstances or the reasons under or for
which such loss, destruction, deterioration, or damage may arise including any act, omission, negligence or
default of the Bank or any of their servants or agents.
11.9 The Borrower shall accept without question the accounts of such sale or sales or other transactions signed by any
agent or other authorized officer of the Bank as sufficient proof of the amount realised or due under the sale or
sales or transactions and the costs, charges and expenses incurred in connection therewith.
11.10 The Bank shall have all other power incidental to and necessary for the realisation of its security under these
presents.
11.11 On the sale by private contract or public auction under the provisions of sub-clause (1) hereof, the Bank shall be
entitled to charge and retain as part of the costs, charges expenses incurred in connection therewith such
commission as the Bank shall in its sole discretion fix and shall not be liable to accounts for the same to the
Borrower. Such commission shall be in addition to any brokerage or outgoings payable in respect of any such
sale. If the sale proceeds are not sufficient to pay the amount of such commission the Borrower shall pay the same
forthwith to the Bank on demand.\
11.12 The Borrower shall indemnify and always keep indemnified the Bank against all losses, damages, claims,
demands, charges and expenses in respect of the Hypothecated Premises sustained by or made against the Bank.\
12. In case the Bank does not consider it necessary or desirable for any reason either to exercise any authority or
power hereby exercisable by the Bank and /or to take action in pursuance of the foregoing clause 11 or in the
event of its not exercising such power or authority or to taken any action in pursuance of that clause, the Bank
shall so far as regards the Borrowers be at liberty to exercise any power or authority exercisable hereunder by the
Bank including to file any suits or legal proceedings for recovery of its dues from the Borrower and to take steps
to realize or enforce the security hereby created in favour of the Bank either by sale or otherwise and either
through the intervention of the court or by appointing a receiver or in any other manner howsoever as it thinks fit
and may close the said accounts (s) with it relating to the banking facilities.
844 - III
13. All monies resulting from the enforcement and/or realisation of the securities, i.e. Hypothecated Premises or any
part or portion thereof or otherwise, howsoever, and the amounts realised under any policy or policies of
insurance or any compensation monies for acquisition or requisition of the securities or any of them on any part
thereof or any other realisation from the said securities either by enforcement or otherwise and whether the same
is received or realised by the Bank directly or by any Receiver appointed in any suit filed by it shall be applied
with all convenient dispatch in the manner hereinafter provided.
FIRSTLY:
There shall be paid out of such monies or provision made there out for all costs, commission, charges and expenses
paid or incurred and to be paid or incurred by the Bank and/or any Receiver, agent or manager for or incidental to the
enforcement of the said securities or realisation or receipt of such monies.
SECONDLY:
The balance shall be applied in liquidation of the respective amounts due for interest, interest tax, additional interest,
further interest, penal interest due to the Bank in the said, account(s) in respect of the banking facilities.\
THIRDLY:
(i) In the event of the monies available being sufficient to pay the principle monies due to the Bank then the
same shall be applied towards payment of the principle monies in respect of the facilities given and/or
continued, infull PROVIDED THAT an amount equivalent to the monies that may become payable to the
Bank in respect of any contingent liability or liabilities under any facility or facilities given under these
presents and secured by the security created hereunder shall be kept aside by the Bank in a separate account
to be opened with the Bank and shall be appropriated towards reimbursement to the Bank in the event of the
said contingent liability/ies arising or becoming due and payable and are paid by the Bank.
(ii) In the event of the said contingent liability or liabilities not arising or becoming due and payable the amount
allocable to liability or liabilities which is/are not required to be paid by the Bank shall be treated as part of
the surplus realisation from the hypothecated security; The surplus realisation, if any, from any
hypothecated security including any surplus becoming available on account of any contingent liability or
liabilities not arising or becoming due and payable as aforesaid shall be applied for repayment to the Bank of
all other debts and liabilities of the Borrower due and payable to the Bank on any other account or accounts
whatsoever whether actually or contingently, alone or jointly with other/s and whether as principle or surety.
(iii) In the event of monies so available being insufficient to pay to the Bank all the monies due to it as provided in
(i) above the Borrower shall be liable forthwith on production to the Borrower of an account to be prepared
and signed as provided herein (which shall be conclusive) to pay the balance appearing due to the Bank.
Without prejudice to the obligation of the Borrower, the Bank shall be entitled (but shall not bound) to apply
any other money or monies in the hands of the Bank standing to the credit of or belonging to the Borrower
towards satisfaction of the balance then remaining due to the Bank
(iv) Provided however, that in respect of monies due in Cash Credit Account, or accounts of the Borrower, the
principle sum shall be treated inclusive of interest accumulated and applied to such account and amount due
at the foot of the account without any distinction thereof from principle as per prevailing Banking practice.
14. Pending seizure and/or taking possession of by the Bank, all the Hypothecated Premises and all proceeds of sale
of other realisations and proceeds of insurance thereof and all documents under this security shall always be kept
845 - III
distinguishable and held as the exclusive property of the Bank specifically appropriated to the security to be dealt
with only under the directives of the Bank and the Borrower shall not without the prior written permission of the
Bank create any mortgage, charge, lien or encumbrance upon or over or affecting the same or any part thereof.\
15.1 The Borrower shall promptly submit to the bank particularly monthly or as often as may be required stock
statement and also statements of book-debts and particulars of other Hypothecated Premises together with the list
of current insurance polices and amounts insured verified by certificates of the Borrower or the Manager for the
time being of the Borrower that the quantities, amounts, value and marks stated in the statements are correct and
that all the tangible assets are fully covered by insurance and containing such other certificates and particulars as
may be specified by the Bank and will also furnish and verify all financial and other statements, reports, returns,
certificates, accounts, documents, particulars and information and such other periodical data as may be required
by the Bank.
15.2 The Borrower will also execute all documents, transfers, assignments and endorsements and do all acts deeds and
things which the Bank may require for vesting the Hypothecated Premises or any of them in favour of the Bank
and to render the same readily realizable or transferable by the Bank at any time and also for giving full effect to
this security.
15.3 The Borrower hereby irrevocably appoints the Bank to be attorney of and for and in the name of the Borrower to
do all such acts, deeds and things and execute all such documents, transfers, assignments, endorsements whatever
which the Borrower may be required by the Bank to do or execute under or in respect of this Agreement in the
event of the Borrower failing to do so within a week from the date of demand by the Bank for such purpose.
16. The security hereby created shall be a continuing security for the balance from time to time due to the Bank on the
said banking facilities and for all monies, indebtedness and liabilities hereby secured, and none of the accounts in
respect of the said banking facilities is to be considered to be closed for the purpose of this security and the
security is not to be considered exhausted by reason of the said accounts or any of them being brought to credit by
payment made into the said accounts(s) at any time or from time to time or of its/ their being drawn upon to the full
extent or its/their being reduced or extinguished and afterwards reopened.
17. Subject to the provisions of clause 14 hereof, any general or special lien to which the Bank is or may be by law or
otherwise entitled or any rights or remedies of the Bank in respect of any present or future indebtedness or
liabilities or guarantee obligations of the Borrower to the Bank shall continue to be in force and effect and it shall
be open to the Bank to enforce or have recourse to such rights or remedies or securities without being bound to
enforce any security, right or remedies under this agreement.
18. The Borrower hereby covenants with the Bank that all the Hypothecated Premises are the absolute property of the
Borrower at the sole disposal of the Borrower and free from any prior charge or encumbrance and that all future
stocks, debts, assets and properties that will be hypothecated shall be likewise the unencumbered and absolute
and disposable property of the Borrower.
19. The Borrower shall carry on the entire banking transactions of its business through the Bank only wherever they
are having their office. Such banking business of the Borrower at other centers also shall, as far as practicable , be
placed with the Bank.
20. The Borrower shall at the beginning of each quarter in the calendar year advise the Bank the aggregate amount
that the Borrower proposes to draw from the Bank during the quarter and upon being advised by the Bank of its
commitment, the Borrower shall pay to the Bank any commitment charge that may be agreed upon from time to
846 - III
time between the Borrower and the Bank. In default of such payment, the Bank may without prejudice to its
rights hereunder debit the amount of such commitment charge to any of the banking facility account(s)namely
the Cash Credit/Overdraft or any other account(s) of the Borrower and the same shall thereupon from part of the
moneys hereby secured.
21. The Borrower has and shall continue to have necessary powers to enter into this agreement and do all things
incidental therto and the Bank shall not be bound to enquire into the powers of the Borrower and this security
shall not be affected by reason of absence or deficiency or excess or irregularity in the exercise of any powers of
the Borrower.\
22. The officers or agents or nominees acting or purporting to act on behalf of the Borrower in this respect and
executing these documents have and shall continue to have the necessary powers from the Borrower and further
that the Bank shall not be bound to enquire into the powers of any officer or agent acting or purporting to act on
behalf of the Borrower and this security shall not be affected by reason of absence or deficiency or excess or
irregularity in the exercise of any powers of any such officers or agents aforesaid.
23. Any delay in exercising or omission to exercise any right, power or remedy exercisable by the Bank under these
present shall not impair any such right, power or remedy or be constructed to be an acquiescence in any default,
nor shall the action of the Bank in respect of such default or any acquiescence affect or impair any right, power of
remedy of the Bank in respect of any other or subsequent default.
24. This Agreement shall not prejudice the rights or remedies of the Bank against the Borrower irrespective and
independent of this agreement in respect of any other advances made or to be made by the Bank to the Borrower.
The Borrower agrees that in the event of the Bank receiving intimation from the Reserve Bank of India of any
default by the Borrower in payment of any one or more instalments of the loan and/or interest due and payable to
any financial institution/s from whom the Borrower has taken any advance or otherwise borrowed any moneys,
the Bank shall be entitled to stop any further operations by the Borrower in the said banking facility account(s)
and the Bank shall be at liberty to refuse to make payment of cheque/s drawn by the Borrower to the debit of such
account(s) and the Borrower shall not hold the Bank responsible or liable in any manner by reason of the Bank's
refusal to make payment of such cheque/s and the Borrower further agrees that in the event of there being any
fixed deposit account, recurring deposit account or anytime deposit account with the Bank in the Borrower's
name ,the Bank will be at liberty to withhold payment to the Borrower of the amount/s deposited with the Bank
on the date/s of maturity thereof and the Bank will be entitled in its sole discretion to appropriate the balance or
proceeds of such deposit account/s on or before maturity and towards any advances/s granted by the Bank to the
borrower or remit the balance in any of the said facility accounts or the proceeds of such deposit accounts as the
case may be ,to any financial institution/s from whom the Borrower may have taken advance or borrowed monies
and has defaulted in making payment thereof or interest thereon as aforesaid.
847 - III
LDOC 19
HYPOTHECATION OF MOVABLE MACHINERY
---- SCBANK Place
___________branch Date:____________
AN AGREEMENT made this_____________day of ___________________________

BETWEEN__________________________________________________________________________
__(hereinafter called the “Borrower”) of the one part and SC BANK, incorporated in and having aplace of
business amongst other place in __________________(hereinafter called “the Bank') of the other part
WHEREAS the Borrower has applied to the Bank to open a Cash Credit/Loan /other account with the
Borrower in the Books of the Bank at ________________ and the Bank has agreed to do so upon being
secured in the manner hereinafter appearing and upon being further secured by a single joint and several
Demand Promissory Note signed by the Borrower, viz______________________
__________________________________________________________________________________
______________________and upon being further secured by all movable machinery of the Borrower
including all stocks and spare parts, both present and further, belonging to the Borrower being and lying in
the Borrower's premises or godowns of or returned by the Borrower or otherwise used in connection with
the business of the Borrower.
NOW IT IS HEREBY AGREED as follows:-
1. This Agreement shall operate as a security to the Bank in addition to any other security already held by
the Bank for the repayment to the Bank at____________________on demand of the balance due to the
Bank by the Borrower at any time or ultimately on the closing of the said Accounts upto the sum of
Rupees _________________________________________________ (Rs.____________________).
The expression “the balance due to the Bank” in this and the subsequent clauses of this Agreement shall
be taken to include the Principle moneys from time to time due to on the said Accounts, whether
demanded or not and also all interest, calculated from day to day in manner and at the rate hereinafter
mentioned and the amount of all cost (between attorney and client),charges and expenses of the Bank
which the Bank may have paid or incurred in any way in connection with the hypothecated premises
described in clause 2 here of including the sale or disposal thereof and any other sum that is hereunder
declared to be debitable to the account.
2. The Borrower hereby hypothecates and charges to the Bank all movable machinery of the company,
including all stocks and spare parts, both present and future, belonging to the Borrower being and lying
in the Borrower's Premises or godown of or rented by the Borrower or otherwise used in connection
with the business of the Borrower (but excluding claims such as claims on Life Insurance policies ,
Goodwill, Outstandings, Debts, Claims for arrears of Rent, Benefit of executors contracts and share in
partnership) as security for the payment to the Bank on demand of the balance due to the Bank by the
Borrower on the Cash Credit/Loan /other Account. All such movable machinery of the Borrower
848 - III
including all stocks and spare parts, both present and future, belonging to the Borrower being and lying
in the Borrower's premises or godown of or rented by the Borrower or otherwise used in connection
with the business of the Borrower are hereinafter referred to as “the hypothecated premises”.
3. The Borrower hereby engages that all sums drawn from the Bank in the said Cash Credit/Loan other
Accounts shall be solely applied for the ordinary purposes of the Business of the Borrower as now
conducted.
4. It is distinctly understood that all advances made under their above Cash Credit/Loan/other accounts
and the balance due to the Bank shall be repayable to the Bank on demand.
5. Interest at the rate of ________% over Base rate of the Bank with a minimum of _____ % per annum
with monthly/quarterly/half-yearly/yearly rests or at such rate or rates as the Bank may specify to the
Borrower in writing in accordance with the Bank's Prime Lending Rate and the Borrower's credit rating
with the Bank from time to time shall be calculated on the amount due on the said account. It is agreed
that all interest calculated as above shall accrue due from day to day and shall be debited to the account
at the end of each and every month or day to day and shall be debited to the be account at the end of each
and every month or on the 31stMarch, 30th June, 30th September and on the 31st December in each year and
thenceforth carry interest at the like rate and that in the event of the Bank making demand for payment
on any not being the date not being the date of expiration of any such (month/quarter/half year/year)the
Bank shall be at liberty to debit in the account all interest down to the rate of demand and to include the
same in the demand for payment. And that the total amount demanded shall continue to carry interest as
aforesaid until payment with monthly/quarterly/half yearly/yearly rests. And that the Borrower shall at
all times accepts the Bank's figures as correct (manifest errors excepted ) in or out of Court.
6. The Borrower agrees that the balance due to the Bank on the said account at any time shall be payable on
demand to the Bank at ________________ at the Office of the Bank together with all further interest
calculated as above provided at the rate above mentioned together with the amount of all further charges
and expenses (if any) to the date of payment PROVIDED that nothing in this clause shall be deemed to
prevent the Bank from demanding payment of the interest for the time being due or other amounts
hereby made debitable to the said account without at the same time demanding payment of the balance
due to the Bank exclusive of such interest or other amounts.
6. A The Borrower agrees and undertakes to deposit from time to time all the sale proceeds of the
hypothecated premises as and when the same are sold and undertakes not to open any advance or
deposit account with any other bank/s without the prior consent in writing of the Bank during the
continuance of this advance. The borrower is aware that relying on the aforesaid representations, the
Bank has agreed to grant the borrower the advance against the security of the hypothecated premises.
7. The hypothecated premises shall at all times during the currency of this security and so long as any
money shall remain due to owing in the said Cash/Credit/Loan/other Accounts be maintained in good
and saleable condition and insured and kept insured by and at the expense of the Borrower against fire
and such other risks as may be required by the Bank or be required by law to the full extent of the value
thereof in an Insurance Office or Offices approved by the Bank in the name of the Bank or in the name of
849 - III
the Borrower and assigned to the Bank, and in either case the said Policies shall be handed to the Bank,
The borrower shall duly and punctually pay the premia due to the policies at least one week before the
same shall have become due or payable and hand the receipts to the Bank and the Borrower agrees not to
arise at any time any dispute as to the amount of the insurable interest of the Bank. If the Borrower
makes default in effecting such insurance as aforesaid or renewing any policy or in payment of such
premia or in keeping the hypothecated premises so insured or in delivering the bank the policies or
receipts for the premia it shall be lawful for (but not obligatory) the Bank to effect such insurance or to
renew or to pay such premia and to keep the hypothecated premises insured and to debit the expenses
incurred by the Bank for the purpose to the said account and the same shall be treated as advances
secured by this Agreement. The Borrower agrees to pay the same on demand with interest as provided in
clause 5 hereof. All sums received under any such insurance as aforesaid shall after deduction there out
of all expenses be applied in or towards the liquidation of the balance due to the Bank for the time being
and in the event of there being a surplus the same shall be applied as provided in clause 18© hereof . The
Borrower agrees that if any moneys under any such insurance are received by the Borrower, he will pay
the same forthwith to the Bank. In the event of the movable machinery hypothecated to the Bank and
insured as aforesaid being destroyed by fire or otherwise howsoever, the bank shall be entitled to
negotiate and settle the claim in respect thereof arising under the Insurance Policy with the Insurance
Company without any reference as if the borrower himself has made the claim and the borrower will not
dispute the Bank's right to negotiate and settle the claim with the Insurance Company or question the
settlement.
8. It shall be lawful for the bank and its Agents without notice and at the expense in all respects of the
Borrower to enter at any time into or upon the offices, godowns or jaithas of the Borrower or places of
storage of any of the hypothecated premises for the purpose of taking inspection of or checking the
hypothecated premises and taking account and inspecting of the books of account of the Borrower
(which the Bank is hereby authorized to do) and it shall also be lawful for the Bank from time to time as
it may see fit to have all or any of the hypothecated and charged as aforesaid valued by an appraiser or
other valuer to be appointed by the Bank and all such expenses and the fees and expenses of such
valuation shall be treated as advance by this Agreement debited to the Borrower in the said Cash
Credit/Loan/other Account as be payable accordingly and shall until payment be treated as an advance
secured by this Agreement.
9. The Borrower shall, if so required by the Bank, cause and in default the bank may itself cause a Board or
Boards with the name of the Bank legibly and distinctly printed or written thereon to be placed and at all
times maintained in a conspicuous position upon and within all godowns, jaithas or other places of
storage into or upon which any of the hypothecated premises for the time being hypothecated and
charged as aforesaid are or shall be brought during the continuance of this agreement.
10. The Borrower shall forthwith upon obtaining leave or license to occupy any godown or jaitha or any
place containing any of the hypothecated premises which is not his own property, if so required by the
Bank, register the same in the name of the Bank and hand the receipts for any rents or other dues payable
in respect thereof to the Bank and keep the Bank indemnified against all liability in consequence of such
transfer or registration in the Bank's name and any sum becoming payable to the Bank by reason of such
850 - III
indemnity shall be debited to the Cash/Credit/Loan /other Accounts and shall carry like interest and
shall be treated as an advance secured by this Agreement.
11. The Borrower shall from time to time on demand by the Bank in writing at anytime furnish to the bank a
full and correct written statement with such particulars as the Bank ,may require of the hypothecated
premises together with the market value or (where the market value exceeds normal value ) the normal
value thereof and produce such evidence in support thereof as the Bank may from time to time require.
The Borrower shall also without demand render unto the Bank weekly and on the first day of each
Calendar month a similar written statement.
12.The Borrower shall on demand in writing by the Bank forthwith deliver to the Bank on account of such
part of the hypothecated premises as shall be in course of transit to _________ or else where and shall on
demand by the bank deliver the Railway Receipts or other documents of title in respect therof duly
endorsed to the Bank or as the Bank shall direct.
13. The Borrower will so long as any moneys due under the said Cash/Credit/Loan/Demand Loan Account
or interest thereon remain unpaid, carry on and conduct the business of the Borrower and use the
hypothecated premises in a proper and efficient manner.
14. The Borrower shall not remove or dismantle any of the movable machinery including all stores and
parts thereof or other hypothecated premises now in use in the Borrower's premises without the consent
in writing of the Bank except in any case where such removal or dismantling shall in the opinion of the
Borrower be rendered necessary by reason of the same being worn out, injured, damaged or broken by
others of a similar nature and of at least equal value, and shall also whenever necessary renew or replace
all such plant, machinery or other hypothecated premises with other of a like nature and values as now
used or henceforth to be used for the purpose of or in connection with the business of the Borrower when
and as the same shall be worn out, injured, damaged or broken.
15. The Borrower will keep all the plant, machinery and other hypothecated premises in a good state of
repair and in perfect working order and condition and further that all such movable machinery,
including all stores and parts thereof, and other hypothecated premises at present or for the time being
not in use will be properly coated with rust proof preservatives and oiled, packed or encased and stored
or housed in proper rain and waterproof premises.
16. This Agreement is made on the faith (a) of the declaration which the Borrower hereby makes that the
hypothecated premises now and from time to time hereafter comprised in the security hereby created
are and will at all times be the absolute property of the Borrower (except for and subject to the security
hereby created) and free from other trust, pledge, lien, claim, or encumbrances and (b) on the
undertaking hereby given by the Borrower, that the Borrower will not create a further mortgage or lien
or any charge upon the hypothecated premises during the currency of the said Cash/Credit/Loan /other
Account.
17. If the Borrower shall fail to carry out and perform any of his obligations under these presents or in the
event of any damage occurring to the hypothecated premises from any cause whatsoever or if any event
851 - III
shall happen or is believed by the bank to have happened so as in the opinion of the Bank to impair the
security hereby created or the credit, of the borrower or, if the Bank shall be of opinion that the security
hereby created is otherwise imperiled (as to all or any of which matters the opinion of the Bank shall be
conclusive) it shall be lawful for the Bank, its Agents and Nominees with a view to obtaining possession
for and on behalf of the Bank at all times and without assigning any reasons and without any previous
notice to the Borrower but at the Borrower's risk and expense and if so required as Attomey for and in
the name of the Borrower ( but not so as to alter the character of the possession which shall be the
possession of the Bank) to enter any place where the hypothecated premises or any of them may be and
taken charge and or possession of all or any part of the hypothecated premises and the Borrower shall
afford every facility for placing and shall place the hypothecated premises and every part thereof as the
Bank may require in the exclusive possession of and the exclusive control of the Bank and in such
manner that such possession and control shall be apparent and indisputable. The Borrower shall on
demand deliver to the Bank the keys of any place in which any of the hypothecated premises may from
time to time be stored. In default the Bank may take any necessary steps to open and close the said place
without any further notice At any time after taking possession the Bank may place the said godown or
godowns or other place or places of storage in charge of a clerks and/or durwan or durwans who shall
hold the possession of the hypothecated premises and the Borrower shall pay regularly on or before the
first of every month the monthly salaries of such clerks and durwans who may be placed by the Bank in
charge of the said godown or godowns or other places of storage to hold possession for and on behalf of
the Bank of hypothecated premises and the Borrower shall provide suitable lodgings in the compound
of the said godown or godowns for such clerks / durwans and shall pay upon demand all the traveling,
board and housing accommodation cost and expense of or in connection with the sending at any time of
a representative or representatives of the Bank to such place or places to inspect the said goods and the
fees and expenses of an appraiser or valuers. Any moneys payable by the Borrower (under this clause
shall until payment by the Borrower) be debited to the Borrower in the said Cash Credit/Loan/other
Accounts and be payable accordingly and shall until payment be treated as an advance secured by this
Agreement.
18. The Bank shall not be in any way liable or responsible for any loss, damage or depreciation which the
hypothecated premises may suffer or sustain on any account whatsoever while the same are in
possession of the Bank during the continuance of this agreement or thereafter and all such damage or
depreciation shall be wholly on account to the Borrower howsoever the same shall have been caused
nor shall the Bank be responsible for any shortage resulting from/arising out of theft or pilferage or
otherwise however notwithstanding that the hypothecated premises may be in the possession of or
under the control of the Bank.
18. (a) It shall be lawful for the Bank at any time after taking possession of the hypothecated premises
without assigning any reason after 48 hours' notice to the Borrower demanding payment (which the
Borrower hereby agrees to be reasonable notice) or at any time or times thereafter (with prejudice
to the Bank's right of suit or any other right against the Borrower) to recover, receive, appoint
Receivers of or remove and/or sell either by public auction or private contract subject to such
conditions as the Bank may deem fit to otherwise dispose of or deal with at any time or times the
hypothecated premises or any part or parts thereof and to enforce, realize, settle, compromise and
852 - III
to deal with at any rights or claim regarding any of the hypothecated premises without being bound
to exercise any of these powers or liable for any losses in the exercise thereof and notwithstanding
there may be any pending suit or other proceeding the Borrower undertakes to transfer and deliver
to the Bank all relative contracts securities, bazaar chits, bills, notes, hundies and documents. The
Borrower hereby agrees that the Bank shall be entitled to admit, reject to arbitration or compromise
without consulting the Borrower any claims by any other person to the hypothecated premises or
any part thereof and that the Borrower shall be bound by the Bank's decision and that any loss
damage or costs & expenses that may arise or be caused by such decision shall be at the risk and on
account of the Borrower.
b) The Bank shall apply the net proceeds of sale of the premises in satisfaction so far as the same shall
extend of the balance due to the Bank or so much thereof as shall remain unpaid including interest
at the rate aforesaid until payment and including all costs as between Attorney and Client charges
and expenses incurrent by the Bank on any account whatsoever including Sales. If the net sum
realised by such sale be insufficient to cover the balance due to the Bank, the Borrowers shall be
liable forthwith on production to the Borrower of an account to be prepared and signed as provided
in clause 18 (e) hereof (which shall be conclusive) to pay the balance appearing due to the Bank.
Without prejudice to such obligations of the Borrower the Bank shall be entitled (but shall not be
bound) to apply any other money or moneys in the hands of the Bank standing to the credit of or
belongings to the Borrower(or if there be more than one Borrower or if there be more than one
partner in the Borrower firm then to the credit of or belonging to any one or more of such persons)
or any money which the Borrower (or which any one or more of them as the case may be) may then
or at any time thereafter be entitled to draw from the Bank under any Loan, Cash Credit, Overdraft
or other arrangement or goods the property of the Borrower (or any one or more of them as the Case
may be) stored in the Bank's premises or godowns in or towards payment of the balance for the time
being due to the Bank . And in the event of such money or moneys being insufficient for the
discharge in full of such balance, the Borrower shall be liable forthwith on production to the
Borrower of an account to be prepared and signed as in the clause 18 (e) hereinafter provided
(which shall be conclusive) to pay any balance which may appear to be due to by the Borrower
thereon PROVIDED ALWAYS that nothing herein contained shall be deemed to negative, qualify
or otherwise prejudicially affect the right of the Bank (which it is hereby expressly agreed the Bank
shall have) to recover from the Borrower the balance for the time being remaining due from the
Borrower to the Bank upon the said Cash Credit/Loan /other Account notwithstanding that all or
any of the hypothecated premises may not have realised.
c) In the event of there being a surplus available of the net proceeds of such sale after payment full of
the balance due to the Bank it shall be lawful for the Bank to retain and apply the said surplus
together with any other money or moneys belonging to the Borrower for the time being in the hands
of the Bank in or under whatever accounts as far as the same shall extend against in or towards
payment of liquidation of any and all other moneys which shall be or may become due from the
Borrower whether solely or jointly with any other person or persons, firm or company to the Bank
by way of loans, discounted bills, letters of credits, guarantees, charges or of any other debits or
liability including bills, notes, credit, and other obligations current though not then due or payable
853 - III
or other demands legal or equitable which the Bank may have against the Borrower or which the
law of set-off or mutual credit would in any case admit and whether the Borrower shall become or
be adjudicated bankrupt or insolvent or be in liquidation or otherwise with interest thereon from the
date on which any and all advances in respect thereof shall have been made at the rate of respective
rate at which the same shall have been so advanced.
d) If after the settlement of all claims of the Bank against the Borrower any surplus shall remain, the
Bank shall pay such surplus to the Borrower.
e) The Borrower agrees to accept without question in and out of Court as conclusive proof of the
amount realised by any such sale as aforesaid and of any sum claimed to be due from Borrower to
the Bank under this Agreement and of the costs and expenses incurred in connection therewith a
statement account made out from the papers and/or Books of the Bank and signed by the Manager
or the Agent or the Accountant or other duly authorized officer of the Bank without the production
of any other voucher, document or paper.
19. This agreement and the securities here in referred to shall be security for the payment by the Borrower
of the balance due to the Bank from time to time and also of the ultimate balance with interest thereon
plus costs and expenses to become payable on the said Cash Credit /Loan /Other/Account.
20. The Borrower shall duly and punctually pay perform and observe all rents, rates taxes, assessments and
other outgoing whatsoever convenient and obligations which ought to be paid or observed or performed
by the Borrower in respect of the premises in which any of the hypothecated premises may from to time
to time be situated.
21. This Agreement is not to prejudice the rights or remedies of the Bank against the Borrower irrespective
and independent of this agreement in respect of any other advances made or to be made by the Bank to
the Borrower. The Borrower agrees that in the event of the Bank receiving intimation from the Reserve
Bank of India of any default by the Borrower in payment of any one or more instalments of the loan
and/or Interest due and payable to any financial institutions/s from whom the Borrower has taken any
advance or otherwise borrowed any moneys, the Bank shall be entitled to stop any further operations by
the Borrower in the said loan/Cash Credit/other account and the Bank shall be at liberty to refuse to
make any payment of any cheque drawn by the Borrower to the debit of such account and the Borrower
shall not hold the Bank responsible or liable in any manner by the reason of the Banks refusal to make
payment of such cheques; and the Borrower further agrees that in the event of there being any fixed
deposit account, recurring deposit account, or any time deposit account with the Bank in the Borrower's
name, the Bank will be at liberty to withhold payment to the Borrower of the amount/s deposited with
the Bank on the dates of maturity thereof, and the Bank will be entitled in its sole discretion to
appropriate the balance or proceeds of the time deposit account/s on the due date/s or before maturity for
any advance/s granted by the Bank to the Borrower or remit the balance in the said loan/Cash
Credit/other account or proceeds of time /demand deposits account/s ,as the case may be , to any
financial institution/s from whom the Borrower may have taken advance or borrowed moneys and has
defaulted in making payment thereof interest thereon as aforesaid.
854 - III
22. Any notice in writing required to be served hereunder shall be sufficiently served if addressed to the
Borrower at his address registered in the Bank or in the event of any such address being registered, at the
last known place of residence or business and left at such address or place or forwarded to him by post at
the address or place aforesaid. A notice sent by post shall be deemed to be given at the time when in due
course of post it would be delivered at the address to which it is sent , and in proving such notice when
given by post it shall be sufficient to prove that the envelope containing the notice was posted and a
certificate signed by the Bank's local Manager or Agent or Accountant or other authorized Officer that
the envelope was so posted shall be conclusive. If for any reason the Borrower cannot be given any such
notice, the same inserted once in any advertisement in a newspaper circulating in the District of the
Bank's office shall be deemed to have been effectually given and received on the day on which such
advertisement appears.
23. If the Borrower be more than one individual all shall be bound hereby jointly and severally and if the
Borrower shall be a firm, such firm and all members from time to time thereof and all remaining
members shall be bound hereby notwithstanding any change in the constitution or style thereof and
whether the firm shall consist of or be reduced to one individual. No changes whatever that may take
place in the constitution of the Borrower or Bank (whether by amalgamation or otherwise) shall impair
or discharge the liability of the Borrower hereunder. The Borrower (if a firm) shall not however make
any change in the firm without previous reference to the Bank.
24. The Borrower hereby agrees on demand by the Bank in that behalf to execute such documents in favour
of the Bank as may be necessary or advisable to hypothecate or further assure the hypothecated
premises in favour of the Bank.
25. The Borrower also agree that notwithstanding anything herein before contained, the Bank shall not be
bound to allow or continue the Cash Credit/Loan/Other Accounts to any extent or for any time other the
Bank shall in its absolute discretion see fit to do.
IN WITNESS WHEREOF the Borrower has executed these presents the day and year above written.
855 - III
LDOC 20
INSTRUMENT OF HYPOTHECATION OF VEHICLE
Stamp as
on
agreement
-----------SCBANK Place
_________ branch. Date:_________
AN AGREEMENT MADE at ________________ the __________day of _____________________

BETWEEN___________________________________(hereinafter called the “Borrower” which
expression shall include his/her heirs, executors, administrators) of the ONE PART and SC BANK having its
Head Office at State of …….. and a Branch Office amongst other places at _________________(hereinafter
referred to as “the Bank” which expression shall include the successors and assigns ) of the OTHER
PART.\WHEREAS the Borrowers applied to the Bank for a loan of Rs. __________ for the purpose of
enabling the Borrower to purchase therewith from __________________________________
_________the news/second hand __________________ (name of vehicle described in the Schedule `A`
hereunder written which the Bank agreed to do upon having repayment thereof secured on the terms and
conditions hereinafter mentioned.
NOW IS HEREBY AGREED as follows :-
1. The Borrowers to open and maintain with the Bank a Current or Savings Bank Account and keep the
account in sufficient funds and hereby authorizes the Bank to debit the same with the amount of the loan
as and when it falls due.
2. The Borrowers shall repay the said loan of Rs. _____________by _________________equal
monthly/quarterly/ half-yearly/yearly instalments of Rs. ___________________each the last of such
instalments being of Rs. _______________ as set out in Schedule `B` hereunder written, the first, of
such instalment being payable on the _____________________day of _______, and the subsequent
instalments being payable on the __________________day of each succeeding month/ quarter/ half-
year/yearly until entire loan is repaid in full.
3. The Borrowers shall pay interest on the loan amount at the rate of_________% over Prime Lending
Rate of the Bank with minimum ___________ % p.a. with Monthly /Quarterly / half yearly rests.
st th th st
Payment on the 31 March,30 June,30 September and 31 December in each year.
4. The Borrower doth hereby hypothecate by way of first charge in favour of the Bank all that the said
vehicle which is described in the Schedule `A` hereunder written (hereinafter called `` the hypothecated
article `` which expression shall include all fittings, tools, accessories, spares and parts whatsoever
pertaining to the said vehicle and all replacements or additions made therein or thereto from time to
856 - III
time) as security for due repayment to the Bank of the said loan of Rs.______ by the instalment on the
days and manner aforesaid and for interest at the rate stated in Clause 3 hereof and for all costs, charges
and expenses (the legal costs being between Attorney and client) incurred by Bank for the protection,
preservation, defence and perfection of this security and for attempted or actual realisation thereof.
5. That the Borrowers shall not during the continuance of this agreement, sell, transfer, dispose of, pledge,
hypothecate or otherwise charge or encumber, lend or in any manner part with the possession of or deal
with the hypothecated articles nor shall the borrowers do or permit to be done any act whereby the
security given to the Bank hereunder shall be in any way prejudicially affected or whereby any distress
or attachment or execution may be levied thereon by any creditor or other person.
6. So long as any money remains due in respect of the said loan, the Borrower shall not use or suffer the
same to be used contrary to law and shall not use or allow to be used the said vehicle for any reliability
trial or racing competition, without the permissions of the Bank.\
7. The Borrower undertakes at all time to keep the hypothecated article and all parts thereof and all
equipment therein in thorough working order and in good repair and condition and to make no major
alterations therein without the previous consent of the Bank and to keep the hypothecated article fully
and regularly serviced. Provided always that the Borrower shall not have or be deemed to have any
authority to create a lien upon the same in respect of such repairs.
8. The Borrower shall notify the Bank at once of any change in his own address and the address of the
Premises to which the hypothecated article may be moved subject to the provisions of Clause 6 above.
9. The Borrower hereby empowers the Bank and any person or persons from time to time authorized by
the Bank in that behalf and without previous notice to the Borrower to enter any premises whatsoever
for the purpose of inspection of the hypothecated article or taking possession thereof pursuant to the
power herein contained.
10. The Borrower shall whenever required by the Bank allow the Bank or its authorized agent to inspect
and/or value the hypothecated article. All costs, charges and expenses incurred by the Bank of and
incidental to such inspection and valuation shall to paid to Bank forthwith on demand (the Bank's
statement being conclusive) and until payment the same shall with interest at the rate of ___% p.a. be a
charge upon the hypothecated article. Any such valuation shall be conclusive and binding on the
Borrower.
11. The Borrower shall pay all rents, taxes, rates and outgoings in respect of the premises in which the
hypothecated article is or may be garaged and also all taxes, licence duties , fees, registration and other
charges payable in respect of the hypothecated article either to the Government or to the Municipality or
to any local /or public body or authority. In default the Bank may (but shall not be bound to) pay the
same without prejudice to any of its right hereunder.
12. The Borrower shall at his own expenses keep the hypothecated article insured against all such risks as
may be required by law and also against all such further and other risks as the Bank shall from time to
857 - III
time require for the full amount required by the Bank in one or more insurance office/s approved by the
Bank in the joint names of the Borrower and the Bank and shall pay the premises payable in respect
thereof atleast one week before the same shall have become due or payable and shall deliver to the Bank
the policies of insurance (duly assigned to the Bank if so required by it) and shall keep on foot and
maintain such insurances throughout the continuance of the security and deliver to the Bank the renewal
receipts. The Borrower shall forthwith notify the Bank of any loss of or damage to the hypothecated
article or any parts or accessories by theft, fire, collision, accident or any other cause and shall on the
happening of any such event lodge the necessary claim with the Insurance Company within the
prescribed time and shall also take steps to have the hypothecated article put in thorough working order
and in good repair and condition as soon as possible. All moneys receivable by Borrower under the
Insurance Policy shall be applied by him in towards repayment of the amount for the time being due
hereunder to the Bank.
13. If default is made by the Borrower in payment of any rents, rates, taxes, duties fees, charges and out
goings or any premium or any costs, charges and expenses of keeping the hypothecated article, its parts
and accessories in good repair and condition and in thorough working order or for any other purpose or
any other sum of money payable by the Borrower hereunder the Bank may (but shall sums not be bound
to) pay the same without prejudice to its rights hereunder and all such sums of money shall be repaid by
the Borrower forthwith on demand by the Bank and Shall until repayment with interest at the rate
aforesaid be a charge on the hypothecated article.
14. Notwithstanding anything herein contained the whole advance or the entire balance thereof outstanding
at the time become forthwith due and payable by the Borrower to the Bank and the Bank will be entitled
to enforce its security hereunder upon the happening of any of the following events, namely:
a) any instalment of the said loan being unpaid upon the respective due date for payment thereof:
b) the Borrower committing any breach or default in the Performance or observances of any term or
condition contained in these presents.
c) Any execution or distress or other process being enforced or levied upon or against the whole or
any part of the Borrower's account with the Bank on the hypothecated article or any other property
of the Borrower.
d) The Borrower being adjudicated insolvent or taking advantage of any law for the relief of insolvent
debtors or entering into any arrangement or composition with his creditors or committing any act of
insolvency;
e) If the Borrower shall without the consent in writing of the Bank create or attempt or purpose to
create any mortgage, pledge hypothecation or lien or encumbrances on the hypothecated article.
f) If any event or circumstances shall occur which shall in the opinion of the Bank be prejudicial or
endanger or be likely to endanger its security hereunder.
858 - III
15. If the Borrower makes any default in payment of any instalment of the said loan on the respective due
dates for payment thereof as mentioned above for one week after the same shall have become due
whether demanded or not or if any event or circumstances shall occur which shall in the opinion of the
Bank be prejudicial to or endanger or be likely to endanger this security or if any event or if any event or
circumstances mentioned in Clause 14 above happens or occurs the Bank if it thinks fit shall be entitled
at the risk and expense of the Borrower without any notice at any time or times after such default or
event or circumstances occurs or happens to enter (and for that purpose to do any necessary act, deed or
thing) any place where the hypothecated article may be and to inspect, value, insure and take charge or
possession of the hypothecated article . And to seize, recover, receive, appoint receivers of or remove
and/or sell by public auction or private contract or otherwise dispose of or deal with the hypothecated
article. And to enforce realise / settle compromise and deal with any rights aforesaid without being
bound to exercise any of these powers or being liable for any losses in the exercise thereof and without
prejudice to the Bank's rights and remedies of suit or otherwise and notwithstanding there may be any
pending suit or other proceedings.
The Borrower hereby also agrees to accepts the Bank's accounts of sales and realisation and to pay an
shortfall or deficiency thereby shown; And if the net sum realised by such sale shall be insufficient to
pay amount secured, the Bank shall be at liberty to apply any other money or moneys in the hands of the
Bank standing to the credit or belonging to the Borrower towards the payment of the balance. And in the
event of there being still deficiency, the Borrower shall forthwith pay such deficiency provided that
nothing herein contained shall in any manner prejudice or affect the Bank's remedy against the person of
the Borrower.
16. In the event of there being a surplus available out of the net proceeds of such sale after payment in full of
the balance due to the Bank it shall be lawful for the Bank to apply the said surplus together with any
other money or moneys belongings to the Borrower for the time being in the hands of the Bank in or
under whatever accounts as far as the same shall extend in or towards payment or liquidation of any and
all other moneys which shall be or becomes due to from the Borrower whether solely or jointly with any
other persons, firm or company to the Bank by way of loans or overdraft or any other demands legal or
equitable which the Bank may have against the Borrowers or which the law of set-off or mutual credit
would in any case admit and whether the Borrower shall become or be adjudicated bankrupt or
insolvent or otherwise and interest thereon from the date on which any and all advance or advances in
respect thereof shall have been made at the rate or respective rates at which the same shall have been so
advanced.
17. The Borrower hereby declares and guarantees that the hypothecated article is and shall remain the
absolute and unencumbered property of the Borrower with full power of disposition there over.
18. The Borrower shall furnish and certify all statements and information from time to time and as required
by the Bank and give and execute any necessary documents required to give effect to this security.
19. The Borrower agrees to accept as conclusive proof of the correctness of any sum claimed to be due from
him to the Bank under this Agreement a statement of account made out from the Books of the Bank and
signed by the Accountant and/or other duly authorized officer of the Bank without the production of any
859 - III
other voucher document or paper.
20. The Bank shall not in any way be liable or responsible for any damage or depreciation which the
hypothecated article or any part thereof, may suffer or sustain on any account whatsoever while the
same shall at any time come into possession of the Bank.
21. Nothing herein shall operate to prejudice the Bank's rights or remedies in respect of any present or
future security, guarantee, obligation or decree for any indebtedness or liability of the Borrower to the
Bank.
22. Any notice by way of request or otherwise hereunder may be given by the Bank to the Borrower
personally or may be left at the then or last known place of service of residence of the Borrower (as the
case may be) or may be sent by post to the Borrower as aforesaid and if sent by post such notice shall be
deemed to have been given at the time when it would be delivered in due course of post and in providing
such notice when given by post, it shall be sufficient to prove that the envelope containing the notice
was posted, and a certificate signed by the Bank's Local Manager or Agent that the envelope was so
posted shall be conclusive.
Dated at __________________this _______________ day of _____________
SCHEDULE 'A'
(Description of Vehicles)
SCHEDULE'B'
(Repayment Schedule)
Signed and delivered by the above named.
860 - III
LDOC 23
REFINANCE ARGEEMENT “A”
Stamp as
on
agreement
Place: _______________
ARTICLES OF AGREEMENT made this the ___________ day of ________ between __________
_____________________________ (hereinafter referred to us “the Borrower “) of the one part and
SCBANK having its Head Office at …….…… and a branch office at ______________ (hereinafter referred
to as “the Bank”) of the other part.
WHEREAS the Borrower has applied to the Bank for a loan/ advance of Rs. _________________ upon the
basis of and for the purpose set forth in the Borrower's proposal dated the _________________a copy
whereof is annexed to this Agreement (hereinafter called ”the Borrower's proposal”).
AND WHEREAS the Bank has agreed to advance such loan upon the terms set forth in these present and in
other documents listed in the Schedule hereto (hereinafter collectively referred to as “the security
documents”).
NOW IT IS AGREED in consideration of the premises as follows:-
1. The Borrower's proposal shall be deemed to constitute the basis of this Agreement and of the loan to be
advanced by the Bank hereunder and the Borrower hereby warrants the correctness of each and every
one of the statements and particulars herein contained and undertakes to carry out the proposals therein
set forth.
2. The Borrower hereby agrees that the said advance shall be governed by the terms contained herein as
well as those embodied in the security documents listed in the Schedule hereto except in so far as the
security documents may expressly or by necessary implication be modified by these presents.
3. The Borrower expressly agrees and undertakes that the said advances shall be utilized exclusively for
the purpose set forth in the Borrower's proposal and for no other purpose, and that the Borrower will not
undertake any expansion programme during the pendency of the advance without obtaining the Bank's
prior permission in writing to do so. We understand that it is on the faith of the aforesaid representation
that the Bank has consented to entertain the Borrower's proposal for an advance.
4. The Borrower agrees and undertakes to notify the Bank in writing of any circumstances affecting the
correctness of any of the particulars set forth in the Borrower's proposal within _______days after the
861 - III
occurrences of any such circumstance.
5. The advance shall be repayable by the Borrower as under and the Borrower shall in the meantime pay
interest at the rate of ______________% over Prime Leading Rate of the Bank with minimum
_______________% p.a. with monthly/quarterly/half yearly/yearly rests or at such rate or rates as the
Bank may specify to the Borrower in writing in accordance with the Bank's Base rate and the
st th
Borrower's credit rating with the Bank from time to time payable every quarter as on the 31 March ,30
th st
June, 30 September and 31 December in each year:-
Amount of Instalment Due on“In case of default in payment of the instalment of principle and/or
regular payment of interest on the due dates as agreed to, the Borrower shall be liable to pay additional
or penal interest on the amount in default at the rate of ________ % per annum over the rate of interest
on the loan, for the period from the due date of instalment/interest to the date on which the amount is
actually paid.”
6. Notwithstanding anything herein or in the security documents contained the whole advance shall
become forthwith due and payable by the Borrower to the Bank and the Bank will be entitled to enforce
its security upon the happening of any of the following events, namely--
(a) any instalment of the principle moneys being unpaid on the due date of payment thereof;
(b) any interest remaining unpaid and in arrears for a space of three months after the same shall have
become due whether demanded or not.
(c) The Borrower's committing any breach or default in the performance or observance of these
presents and/or the borrower's proposal and/or security documents or any other term or condition
relating to the advance;
(d) The Borrower's entering into any arrangement or composition with its creditors or committing any
act of insolvency.
(e) Execution or distress being enforced or levied against the whole or any part of the Borrower's
property;
(f) The Borrower's (if a Company) going into liquidation (except for the purpose of amalgamation or
reconstruction);
(g) Any of the partners of the Borrower (if a firm) being adjudicated insolvent or taking advantage of
any law for the relief of insolvent debtors;\
(h) A Receiver being appointed in respect of the whole or any part of the property of the Borrower;
(i) The Borrower ceasing, or threatening to cease, to carry on business;
(j) The occurrence of any circumstances which is prejudicial to or impairs, imperils or depreciates or
862 - III
is likely to prejudice, impair, imperil or depreciate the security given to the Bank;
(k) the occurrence of any event or circumstance which would or is likely to prejudicially or adversely
affect in any manner the capacity of the Borrowers to repay the loan; On the question whether any
of the above has happened, the decision of the Bank shall be conclusive and binding on the
Borrower.
6 A. It is hereby agreed that if any instalment is paid by the Borrower before, it falls due the amount will
not be credited to the loan account but will be treated as a separate deposit with the Bank on which
interest will be allowed at our current rate on similar deposit.
7. It is hereby expressly agreed that the Bank shall be at liberty to assign the debt and the benefit of these
presents and the securities for the advance and the security documents to the Small Industrial
Development Bank of India as security for any refinance obtain by the Bank from the said Small
Industrial Development Bank of India in respect of the loan agreed to be advanced by the Bank to the
Borrower and the Borrower shall if and whether required by the Bank to do so at the Borrower's own
expense do and execute and join in doing and executing all such acts, things, deeds, documents or
assurances, as the Bank may require for the effectuation of such assignment.
7. (a) The Borrower shall not, without the written consent of the Bank sell or otherwise dispose of , or
create in any manner any charge, lien or other encumbrance on the security given to the Bank in
respect of such advance or create any interest in such security in favour of any other party or
person.
8. The Borrower shall insure to the satisfaction of the Bank and keep insured all property constituting the
bank's security against fire and all other risks in a sum equivalent to its full market value in an office
approved by the Bank in the joint names of the Bank and the Borrowers or otherwise as the Bank may
require and shall duly and punctually pay all premises and shall not do or suffer to be done any act which
may invalidate or avoid such insurance and shall deposit the insurance policy and all cover notes,
premium receipts and other documents connected therewith with the Bank. Any moneys realised from
such insurance shall at the option of the Bank be applied either in reinstating the security or in
repayment of the loan advance and interest.
9. The Borrower shall, upon every reasonable request of the Bank allow the Bank and any nominee,
servant or agent of the Bank to inspect the Borrower's premises and plant and the Borrower's book of
account for ensuring that the Borrower has duly complied with the terms of the advance.
10. The Borrower will furnish the Bank with all such information as the Bank may reasonably require for
the Bank's satisfaction as to due compliance with the terms of the advance and all such periodical
reports and information at such times, In such form and containing such particulars, as the Bank may
call for, for the purpose of ascertaining the results of the utilization of the said advance.
11. The Bank shall be at liberty to furnish to the Small Industrial Development Bank of India any such
information or report, whether received by the Bank from the Borrower or otherwise in the Bank's
possession.
863 - III
THE SCHEDULE
Date of Parties Brief Description Brief particulars of property

Document Secured by instrument
IN WITNESS where of the Borrower has caused Common Seal to be affixed hereunto and the Bank has set
its hands hereunto through its accredited representative on the ________________ day of ___________
The common Seal Of __________________________________________ was hereunto affixed pursuant
to a resolution passed by the Board of directors of the Company at their meeting held on
__________________in the presence of _________________ SIGNED AND DELIVERED by ...SC Bank
by its accredited representative,_______________ acting in the premises on behalf of and under the
authority of Board Resolution.
864 - III
LDOC 33
GENERAL FORM OF GUARANTEE
Stamp as on
agreement
plus Power
of Attorney
...SC Bank, Place:_____________
_____________ branch Date: _____________

In consideration of ……. SC Bank (hereinafter called the Bank ) giving credit or accommodation or granting
facilities to _________________________________by making/ opening/continuing a
Loan/Overdraft/Cash Credit account or by discounting / purchasing and/or negotiating bills with or without
security and / or in consideration of the Bank opening and giving Letters of Credit and/or trust receipt
facilities in favour of ____________________ on terms and conditions that may be settled between you and
the said _____________________________________ at any time or from time to time without reference to
me /us, I/We ________________________ jointly and severally hereby agree with and guarantee to you the
due payment and discharge on demand of all amounts due and payable to you by _________________
__________________________________ (hereinafter called The “Principal”) at any time and also of all
bills, promissory notes or guarantees held by the Bank bearing the Principal's signature in respect of the said
facilities together with interest, banking and other charges and expenses that the Bank may in course of its
business charge against the Principal together with all relative interest, charges, cost,(as between attorney,
advocate, and client) and expenses Provided Nevertheless that our liability under this Guarantees shall not
exceed in the whole the sum of Rupees ____________ apart from and in addition to all interest, Banking,
Law and other costs, expenses above-referred-to.
For the consideration aforesaid I/We jointly and severally further agree as follow:
1. This guarantee shall be continuing security binding me/us and my/our personal representative until the
expiration of three calendar months from the receipt by the Bank of a notice in writing to discontinue in
and notwithstanding the discontinuance by or any release or granting of time or indulgence to any one
or more of us this Guarantee shall remain a continuing security as to the others and if discontinued by
notice this Guarantee shall nevertheless as to the party or parties giving such notice continue to be
available (subject to the aforesaid limit of total amount)for and shall extend to all indebtedness and
liabilities of the Principal to you at the date of receipt of such notice whether then certain or contingent
and whether then payable forthwith or at some future time or time and also for and to all credits then
established by you for the Principal and for and to all credit facilities granted and to all cheques, drafts,
bills, notes and negotiable instruments drawn by or for the account of Principal on you and dated or
purporting to be dated on or before such date although presented to or paid by you after such date and all
guarantees signed by the Principal and delivered to you or on or before such date and that in the event of
my/or any of us dying or becoming under disability the liability of the executors, administrators or legal
865 - III
representative of such person so dying and of his estate shall continue until the expiration of three
calendar months from the receipt by the Bank of a written notice given by such legal representative (or
the survivors of survivors of me/us) to determine this guarantee. You shall be at liberty on receipt of any
such notice as contemplated in this clause at any time within the three calendar months to open a fresh
account and/or to grant fresh facilities to the Principal and to appropriate thereto all payments
subsequently made to you by the principal and not expressly appropriated to the old account without
prejudice to my/our estates liability to the extent aforesaid. I/We shall not be released from my/our
liability in respect of B.P. limit of Rs. _________ covered by this guarantee in the event of any omission
delay or default in presentation of bill or in the issue of notices of dishonour on the part of the Bank.
2. The Guarantee is additional and without prejudice to any securities or obligation which you may now or
hereinafter have from us, from the Principal or from anyone else in respect of any indebtedness or
liabilities hereby guaranteed and all rights and remedies in respect thereof are reserved.
3. This Guarantee shall be a continuing guarantee and shall not be considered as wholly or partially
satisfied or exhausted by any payments from time to time made to the Bank or any settlement of any
account or by reason of the account being brought to a credit at any time or from time to time or its being
drawn upto the full extent or exceeding the extent of the limit from time to time and its being reduced or
extinguished and thereafter re-opened. The Guarantee shall continue in force notwithstanding the
discharge of the Principal by operation of law or my death or of any one of us and shall cease only on
payment of the amount guaranteed hereunder either by me or any of us.
4. I/We expressly agree that the Bank shall have full discretionary power, without my / our further assent
or knowledge and without discharge or in any way affecting my / our liability under this guarantee from
time to time AND at any time to negotiate with the Principal and settle and alter the terms and
conditions, to promise, to grant time or indulgence to or not to sue the Principal or any person liable with
or for Principal, whether as guarantor or otherwise or make any other arrangement with the Principal or
any persons so liable with or for the Principal as the Bank may think fit and to hold over, renew, vary,
exchange or release in whole or in part and from time to time any securities held or to be held by the
Bank for or on account of the moneys and liabilities intended to be hereby secured or any part thereof.
I/We also agree that I/We shall not be discharged from my/our liability by your releasing the Principal
debtor or by any act or omission of yours the legal consequence of which may be to discharge the
Principal debtor or by any act of yours which would, but for this present provision, be inconsistent with
my/our rights as surety or by your omission to do any act, which but this present provision your duty to
me/us would have required you to do. We hereby consent to each and every of the acts mentioned above
you may think fit. Moreover though as between the Principal debtor and me/us, I am /We are sureties
only, I/We agree that as between yourselves and me/us, I/am/We are Principal debtor(s) jointly with him
and accordingly I/We shall not be entitled to any of the rights conferred on sureties by Sections
133,134,135,139 and 141 of the Indian Contract Act. And we further expressly agree that the Bank shall
also have discretionary power without my/our further assent or knowledge or without discharging or in
any way affecting my/our liability under the Guarantee from time to time and at any time to agree to the
variations of the terms and conditions of any Letter of Credit that has been and/or may be opened for the
benefit of the Principal to convert documentary Letter of Credit into clean or open Letter of Credit and
vice versa, to convert a revocable Letter of Credit into irrevocable one and vice versa, to vary or alter the
866 - III
other terms, as to the nature and amount of credit, war risk, as regards the conditions of advance, the
nature of the documents to be tendered, the names of the beneficiaries the nature, quality, quantity of
goods, the country of origin and the conditions regarding port of shipment, certificates of country of
origin, nature, quality, quantity, weight or otherwise, the terms of shipment such as F.O.B./ CIF C/FA.
S/C. I.F. /C&F as regards shipments by instalments or to convert a contract for shipment by instalment
into shipment into one lot, the terms of draft as to insurance and the terms thereof , the terms regarding
payments and to part with the shipping documents and/or goods covered by such shipping documents
negotiated under the said Letter of Credit or a Trust Receipt of the principle or otherwise, and other
conditions as may be comprised in the Letter of Credit within the limit of Rs. ____________________
referred to in cl.1 hereof and to release or vary any security granted therefore and for the purpose
aforesaid to settle and/or alter the terms and conditions to grant time or indulgence to Principal or any
person liable with or for the Principal whether as Guarantor or otherwise or compound or any other
person so liable with or make any other arrangement with the Principal or any other person so liable
with or for the Principal as the Bank may think fit and to hold over, renew, vary, exchange or release
whole or in part and from time to time any securities held or to be held by the Bank for/or on account of
the moneys and liabilities intended to be secured hereby or any part thereof. And for all purposes of this
claim the Principal is empowered to give consent on my/our behalf and any consent given by the
Principal shall be deemed to have been given by me/us and shall bind me/us in all respects as if the same
had been expressly given by me /us in writing. The Principal is also hereby empowered to acknowledge
the debt/s and/or security/ies for and on behalf of me /us and the said acknowledgement and/or the
security /ies shall be valid as against me/us though they were executed by me/ourselves.
5. The Bank may recover against me/us to the extent herein before mentioned notwithstanding that the
principal or his agents, partners, directors or officers may have exceeded his or their powers or that the
arrangement with the Bank may have been ultra vires and without being bound to enforce its claims
against the Principal or any other person or other security held by the Bank. The Bank shall not be bound
to inquire into powers of the Principal or his agents or partners, directors or officers purporting to act on
behalf of the Principal and all moneys dues or liabilities incurred shall be deemed to form part of the
present guarantee notwithstanding that the Principal or his agents, partners, directors and officers may
have exceeded his or their power or the arrangement with the Bank may have been ultra vires.
6. I/We waive in the Bank's favour all or any of my/our rights against the Bank or the Principal as may be
necessary to give effect to any of the provisions of this guarantee.
7. I/We declare that I/We have not received any security from the Principal for the giving of this guarantee
and I/We agree that I/We will not so long as any moneys remain owing by the Principal to the Bank or
any liability incurred by the Bank remains outstanding, take any security in respect of my/our liability
hereunder without first obtaining the Bank's written consent and I/We agree that in the event of my/our
taking any such security amount for which I/We am/are to be liable under this guarantee shall be
increased by the amount by which dividends payable by the Principal to you on a winding up is thereby
diminished. I/We have not received any consideration by way of Commission or otherwise for giving
this guarantee; nor shall I/We receive any consideration of my/our standing as Guarantor/s to the
Facility/ies above mentioned.
867 - III
8. I/We further agree that in respect of my/our liability hereunder the Bank shall have a lien on all
securities belonging to me /us now or hereafter held by the Bank and at moneys now or hereafter
standing to my/our credit with the bank on my Current or any other Account.
9. And this guarantee shall be applicable to the ultimate balance that may become due to the Bank from the
Principal and until repayment of such balance the Bank shall be entitled to retain, realize, or otherwise
dispose of in such manner as the Bank may think fit any securities now or hereafter held by the Bank and
without any liability to account to me/us for my/our any portion of such securities or of the proceeds
thereof until all your claims have been fully satisfied, and in the meantime I/We will not take any steps
to enforce any right or claim against the Principal in respect of any moneys paid by me/us to the Bank
hereunder. And, further that if Bank should receive payment from the Principal or any person on behalf
of the Principle or from any security held by the Bank, or if the Principal shall become insolvent or go
into liquidation or compound with his creditors, the Bank shall be at liberty without discharging my/our
liability to make or assent to any compromises, compositions or arrangements or to prove and to rank as
creditor, in respect of the amount claimable by the Bank or any items thereof, and to receive dividends
thereupon and all such payments and dividends received shall be treated as payments in gross and
my/our liability shall extend to the ultimate balance after deducting such payments and to the entire
exclusion and surrender of all my/our rights as sureties in competition with the Bank any rule of law or
equity to the contrary notwithstanding. And I/We shall not be paying off the sum guaranteed or any part
thereof or upon my ground, proven or claim to prove in respect of the sum guaranteed or any part there
of or take advantage of any securities held by the Bank until the whole of your claim against the
Principal has been satisfied.
10. A demand in writing shall be deemed to have been duly given to me/us or my/our heirs or assigns by
leaving the same at my/our last known address hereunder written and shall be effectual notwithstanding
any change of address or notwithstanding notice thereof to the Bank, and such demand if sent by post
shall be deemed to be received by me/us or my/our heirs, assigns 24 hours after posting thereof and shall
be sufficient if signed by any officer of the Bank and in proving such service it shall be sufficient to
prove that the letter containing the demand was properly addressed and put into the Post.
11. In the event of this guarantee being determined either by notice by me/us or by demand in writing by the
Bank, it shall be lawful for the Bank to continue the account of the Principle notwithstanding such
determination and my/our liability or for the moneys advanced or paid or agreed to be advanced or paid
and liabilities or obligations incurred by the Bank at the date when the guarantee is so determined shall
remain notwithstanding any subsequent payment or out of the Cash Credit Account by or on behalf of
the Principle up to the limit aforesaid.
12. The Guarantee shall not affect or be affected by any other or further securities taken or held by you or by
any loss by you of any collateral or other security nor by your failing to recover by the realisation of
collateral securities or otherwise any such sum or sums due from, the Principal or any other person, or
any lacks on your part, nor shall you be responsible to me/us for any such loss or lacks.
13. Any account settled or stated between you and the Principal or admitted by the Principal shall be
accepted by me/us as conclusive evidence. A certificate in writing signed by any officer of the Bank
868 - III
stating the amount at any particular time payable under this guarantee shall be conclusive evidence
against me/us.
14. This guarantee shall be enforceable notwithstanding any change in the name of the bank and it shall
ensure for the benefit of any banking company with which the Bank may become amalgamated or to
which the Bank shall assign it.
15. Should the Principal be a limited company, corporate or unincorporated body, committee, firm,
partnership, trustees, or debtors on a joint account, the provisions herein before contained shall be
construed and take effect where necessary as if words importing the singular number included, also the
plural number. This guarantee shall remain effective notwithstanding any death, retirement, change ,
accession, or addition, as fully as if the person or persons constituting or trading or acting as such body,
committee, firm, partnership, trustees or debtor on joint account at the date of the Principal's default or
at any time previously was or were the same as the date hereof. In the event of there being more than one
guarantor the liability of the remaining guarantors shall not be affected or released or given up by time
or other indulgence to one or more of the guarantee nor by the death of any one or more of the guarantors
until notice shall have been given to the Bank as provided in Clause 1 hereof. The Bank shall be entitled
to fix with the Principal a period for such loan, Overdraft Cash-Credit account facility and to alter to
extend such a period from time to time. The Bank shall be entitled from time to time to take renewals of
hundies, promissory notes or other documents and securities from the Principal. The Bank shall be
entitled to take one hundi or promissory notes or other documents for the whole amount hereby
guaranteed or to split up the amount and takes separate documents for each part and taken any such
document from the Principal alone or from the Principal and other persons whose identity may vary
from time to time. My/Our liability under this Guarantee shall not be discharged or affected in any way
by reason of any such or similar acts or dealings.
Name & Address Signature(s) of the Guarantor(s)
869 - III
LDOC 34
COUNTER INDEMINITY FOR GUARANTEES
Stamp as on
agreement
SC Bank, Place: ___________

__________________ Branch Date: ____________
Dear Sirs,
In consideration of SC Bank agreeing at my / our request to execute and executing a guarantee favoring
__________________________________________________________________ I /
We_________________ __________________________________________________________do
hereby agree and undertake to indemnify and keep indemnified SC BANK of from and against all actions,
losses, costs, consequences, charges, expenses, claims and demands which SC BANK may incur or sustain
by reason or on account of its agreeing as above or howsoever in the premises.
I / We hereby agree to pay interest at the rate of _______% over the Base rate of the Bank with a minimum
of ______________ % p.a. with monthly / quarterly / half yearly / yearly rests on over due / outstanding
amount I /we also agree to pay an additional interest at the rate of _______________ % p.a. with monthly /
quarterly / half yearly / yearly rest over and above the aforesaid rate of interest on outstanding amount (i.e.
amount inclusive of interest) beyond _________ months till entire amount is actually paid.
If for any reason., the Bank is prevented by any actions initiated by me/us from making payment to the
beneficiary, of the guaranteed amount, I/ we will also be liable to pay the Bank, apart from other amounts
payable to the Bank, guarantee commission for the period for such action, the payment or discharge of the
guarantee.
This counter indemnity will extend to any extension of the guarantee referred to herein for which I / we may
apply from time to time and which the Bank may agree to grant at my / our request subject to the Bank's
absolute right and discretion whether to extend the guarantee or not and without casting any obligation on
the Bank for extending the said guarantee.
Yours faithfully,
(Signature)
870 - III
LDOC 37
LETTER OF UNDERTAKING WITH NEGATIVE LIEN CLAUSE
Stamp as on
agreement
SC Bank Place: _______________

______________ Branch Date: ________________
Dear Sirs,
Ref: Clean demand loan facility of Rs._________________________________
In consideration of your having agreed to grant me / us a _____________ facility up to a limit of
Rs._________________ inter alia against a Demand Promissory Note for the like amount and on the faith of
undertaking as appearing hereunder.
I / We / Mr. / Mrs./ _______________________________________ place on record the fact that there is no mortgage
or lien of any kind whatsoever created on my our properties and that I /we undertake not to create any mortgage or lien
of whatsoever kind or nature over the same nor to sell or alienate, transfer, assign or deal with or dispose of any of my /
our immovable properties or assets of a capital nature until all the debts due by me / us to you are fully paid.
I / we understand that it is on the faith of this representation and undertaking that the Bank has agreed to grant me / us
aforesaid clean demand loan facility.
Yours faithfully
LDOC 38
LETTER OF SOLE PROPRIETORSHIP

(Unstamped)
SC BANK Place: ___________
_______________ Branch Date : ____________
Dear Sirs,
I , the undersigned, beg to inform you that I am the sole proprietor of the firm of
__________________________________________ and am solely responsible for liabilities thereof. I shall advise
you in writing of any charge that may take place in the constitution of the firm and I will be liable to you on any
obligation which may be standing in the firm's name in your books on the date of the receipt of such notice and until all
obligations shall have been liquidated.
Yours faithfully,
(Personal Signature of the Proprietor)
Full name of the sole proprietor - __________________________
871 - III
LDOC 39
LETTER OF PARTNERSHIP
(Unstamped)
SC Bank Place: ____________
________________ Branch Date: ____________
Gentlemen,
st
We beg to inform you that the parties whose full names and addresses are set out in the 1 column at foot of this
letter are carrying on business under the name and style of _____________. The said firm is desirous of having
dealings in the name of the firm with your _______ branch. It is understood that in the event of the bank acceding to
such desire then this present form of request will, if not already completed, be duly completed by all the partners and
that the provisions hereinafter contained are to bind the firm and each of the partners and his personal representatives.
The provisions are as follows:-
We hereby declare that we are the only partners of the said firm.
In the event of any charge occurring in the said firm by the introduction of any new partner or the retirement,
death expulsion or insolvency of any partner or the dissolution of the firm, notice shall forthwith be given in writing to
the Bank's _______ ___________________________ branch. Pending receipt of such notice in writing as aforesaid
of any retirement, death or expulsion the Bank shall be entitled to treat the partner affected by such retirement or
expulsion or in the event of death his estate as if or his representatives as the case may be is still a partner to the intent
that such partner or his estate shall be liable jointly and severally with the other partners for all indebtedness or
obligation of the firm incurred after such retirement, expulsion or death down to the date of receipt of the notice
aforesaid in addition to any liability which he may have incurred as partner to the Bank prior to such retirement, death
or expulsion or insolvency notwithstanding that but for this present provision such partner or his estate might not be
liable after such retirement, expulsion or death by reason of any statutory provision.
Specimen signatures in the firm's name and the respective partner's personal signatures are appended in the second
and third column hereunder.
We and each of us confirm that.
1) All the undersigned partners jointly and the survivors of them jointly and the survivor.
2) The undersigned _____________________________ _________________________________ jointly or any

______________________________ of them jointly.
3) Each of undersigned ___________________________ singly and severally is / are authorised.
A. To Borrow for and on behalf of the firm from time to time all sums, moneys from your Bank and as security
for such borrowing to pledge, hypothecate, charge or mortgage such of the goods, and properties movable
and immovable of the firm and to give such other securities as may be demanded by the Bank from time to
time.
872 - III
B. To sign promissory notes, documents of guarantee or indemnity and all other documents required by Bank
in connection with such borrowing, and
C. To sign the Firm's name for the Firm to any cheque promissory note or other document relating to any
operation on the account of the firm (including any operation which involves an advance to the Firm) and
that the Bank is entitled to act upon the faith of any cheque, promissory note or the other documents so
signed in the firm's name over such joint or several signature or signatures as the case may be according as is
herein above authorised. In the event of any new partner being introduced upon the Bank being duly notified
and consenting to continue the account and new partner having signed this or any new form or request
required by the Bank then for the purpose of operation on the account such new partner will be treated as a
partner and shall be authorised to sign for the firm unless the Bank be expressly advised to the contrary and
by his signature to this or any such new request such partner will be understood to have accepted and be
beyond by the foregoing undertakings.
Without prejudice to what is stated above, we hereby agree that notwithstanding anything contained in any
agreement of partnership any borrowings made by any of the partners on behalf of the firm under a Cash
Credit or Overdraft or any other facility pursuant to the letter of the partnership given to you, and all
securities by way of pledge hypothecation, charge or mortgage of goods and / or properties movable and
immovable given thereof shall be deemed to have been so made and given for the purposes of the firm under
the express authority of partners of the firm conferred by all and each of them upon the others or other of
them individually and all liabilities created / acknowledged by any of the partners on behalf of the firm shall
be binding upon the firm and all the partners thereof, in their respective capacity as partner and in their
respective individual capacities.
It is understood that the above provision shall stand in full force notwithstanding that any Current, Loan or
Overdraft Account of the firm may be balanced closed or reopened at any time or from time to time.
Yours faithfully,
(Personal signatures of the Partners)
873 - III
LDOC 39 (A)
LETTER OF AUTHORITY
(IN PARTNERSHIP ACCOUNTS)
SC BANK……. Branch Not to be

stamped
Dear Sirs,
Ref: Our Cash Credit / Overdraft A/c./ Other A/cs.
Up to limit of Rs.________________________
Owing to the change in the constitution of our firm, M/s. ___ consequent upon the retirement / sad demise / of
________ our _____________ we ________ the existing partners of the said firm have to request you to close our
existing account and open a new account in the same name with Merssrs. _________ as partners of the reconstituted
firm.
Kindly transfer the existing facility to the new account. Kindly also transfer the balance in the existing account to the
new account and securities held in the existing account may be transferred to the new account. Also note that the
cheques drawn on the existing account and not yet presented for collection may be debited to the new account.
Likewise, cheques lodged in the existing account and not yet realised may be credited to the new account.
Yours faithfully,
We agree (Personal signatures of the existing partners)
(Personal Signatures of the New Partners).
LDOC 40
LETTER OF REQUEST
(WHERE H.U.F. IS A PARTNER IN PARTNERSHIP FIRM.)
SC BANK ________________ branch Date: _____________

Dear Sir,
I hereby declare that I am the Karta and Manager of the Joint Hindu family of _________________________
(composed of myself and my brothers / sons) and that all dealings and transactions entred into by me as Karta and
Manager of the Joint Hindu Family composed of the persons mentioned below and that I have the authority and
consent from all the other members mentioned below to enter into partnership on behalf of the H.U.F. with M/s.
______________ and that although I am fully entitled as such to enter into the said partnership as the profits of the
said firm accruing to me as karta and Manger of the H.U.F will go for the benefit of the joint H.U.F I Have for your
satisfaction got this letter duly signed by other adult members of the family.
Yours faithfully,
(Karta & manager)
Signatures of other adult members of the family.
874 - III
LDOC 48
LETTER OF APPROPRIATION RECURRING DEPOSITS.
Not to be
stamped
SC BANK ______________ Branch Date: _____________

Dear Sirs,
In consideration of the advances already made and of those which you may, at your discretion, make to me / us from
time, I / we hereby give you a lien on my / our Recurring Deposit Account No.__________ with your Bank for
Rs.________ (Rupees _______) and I / we hand over to you Recurring Deposit, Pass-book to be held by you on
my/our account for the outstanding balance of my / our loan with you irrevocable power to appropriate the amount
standing to the credit of my / our said account with you without reference to me/us. I / we further agree that in respect
of advance granted or that may be granted to me / us by you from time to time you shall be entitled to charge interest at
the rate of ____________*per cent or such other rate may be fixed by you from time to time more than the rate of
interest that you would allow me / us, in my / our Recurring Deposit Account, and additional penal interest, if any, at
the rate of _________% per annum that may be fixed by you from time to time. I / we hereby declare that I / we have
not encumbered, assigned or otherwise dealt with the said Recurring Deposit Account in any way and that it is free
from all encumbrances.
Yours faithfully,
(Signature of the Depositor/s)
This may vary from time to time as per Bank's instructions
LDOC 50
LETTER OF “RECORDING”
(To be obtained from parties who enjoy the facility of
“Temporary clean Overdraft”)
Not to be
SC BANK _______________ Branch Date: _____________ stamped
Dear Sirs,
Ref: Our Temporary over draft with you
We confirm having requested you to allow temporary overdraft to M/s. ________ to the extent of Rs.____ (Rupees
____) against joint and several demand Promissory Note signed by us to-day. We further confirm that in the event the
advance remaining outstanding for a longer period than ________________ at a time, we in view of our joint and
several liability would be prepared to adjust the said over draft account in such situation immediately with interest
and additional interest / penal interest, if any, fixed by you from time to time.
We further confirm that this facility allowed to us as per our request by you under your absolute discretion and so may
be discontinued by you at any time without any previous intimation to us.
Yours faithfully,
(Borrower)
875 - III
LDOC 53
LETTER OF ATTESTATION
Not to be
stamped
------SC Bank _______________ Branch Date: ___________
Dear Sirs,
I hereby declare that the signatures / left / right hand thumb impression of ____________placed on the following
documents dated ______ is are that / those of _____ and is / are placed in my presence in witness whereof I subscribe
my name.
1. D.P. note for Rs.___________________
2. Instrument of pledge * / hypothecation of _________________
4. General form of guarantee signed by Shri _______________________ and ___________
5.
6. .
The contents of the aforesaid documents are translated into vernacular and explained to the said
_____________________________ who understood and admits the same.
Yours faithfully,
*(Signature of the person in
whose presence the documents were executed)
LETTER OF INSTALMENT WITH

ACCELERATION CLAUSE
LDOC 57
SC BANK______________ Branch Date:
Dear Sirs,
Ref: My / Our Demand Loan Account up to a limit of Rs.
With reference to the above, I / we hereby agree and undertake to repay the sum in monthly / quarterly / half yearly /
yearly instalments of Rs. _____each commencing from _____. I / We also agree that in the event of default in payment
of any instalments and / or interest, I / we shall pay an additional interest at the rate of ______________% per annum
on the amount of instalment and/ or interest in default for the period from the due date of instalment and / or interest in
default for the period from the due date on which instalment and / or interest is actually paid. I / we, the undersigned,
further agree that the Bank is entitled to recall the entire loan at any time at its pleasure and without assigning any
reason.
Yours faithfully,
(Borrower)
876 - III
LDOC 60
TAKE DELIVERY LETTER
------SC BANK______________ Branch Date: ________________

Dear Sirs,
Please take delivery of and continue to hold the under mentioned Securities as security for the advances
granted or to be granted to me / us from time to time.
1. I / We agree to maintain in Bank's favour stipulated margin on the current market values of the securities
at all times and confirm that the balance at debit of my / our account is repayable on demand and will
bear interest at _____% over the Base rate of the Bank with minimum of _____% per annum subject to
a minimum interest of Rs._____ every quarter, and additional / penal interest at the rate of ______% p.a
or such other rates of interest and additional / penal interest as may be stipulated by the Bank . from
time to time.
2. The Securities lodged or that may be lodged from time to time are to be treated as a continuing security
even if the account runs into credit, is reduced or extinguished at any time or from time to time.
3. The Securities are deliverable to _____________________
4. The securities are deliverable to _________and the indebtedness caused by such drawings from time to
time will be binding on me / us jointly and severally.
Yours faithfully,
LDOC 63 LETTER OF COST
(FOR TITLE OPINION)
SC BANK_____________ Branch Date: _________________
Not to be
stamped
Dear Sirs,
Ref: My/ Our ___________________________ advance facility Up to a limit of Rs._______________ inter alia
against Equitable Mortgage.
In consideration of your entertaining my / our application for an advance, I / we hereby undertake to pay you all cost,
charges and expenses between attorney and client incidental to the valuation of the property offered as security, the
investigation of my/our title thereto and preparation, execution and stamping of the mortgage thereof and all other
documents required to complete the security including all our of pocket expenses or surveyor's fees and the like.
This undertaking will hold good notwithstanding that the negotiations may fall through for any reason whatsoever.
Yours faithfully.
(Borrower)
877 - III
LDOC 64
AN UNDERTAKING NOT TO WITHDRAW DEPOSITS
BY THE PARTNERS/DIRECTORS
TILL THE ADVANCE IS LIQUIDATED
Stamp as on
agreement
SC BANK_________ Branch Date: ____________
Dear Sirs,
Ref: Our Cash Credit / other facility up to a limit of Rs._________
In consideration of your having agreed at our request to grant/granting us a Cash-
Credit/___________ facility up to a limit of Rs.__________ (Rupees ___________ only) inter alia against our
undertaking not to allow to withdraw amounts already deposited with us by all partners / directors and their family
members without prior written consent of Bank, We M/s. _________do hereby agree and undertake not to allow to
withdraw the amounts already deposited with us by all the Partners / Directors and their family members without the
written consent of the Bank.
We understand that it is on the faith of this undertaking that you have agreed to grant us the facility as aforesaid.
Yours faithfully
Personal Signatures of all the Partners ……………………….
Firm's Signature Partners.
*In case of limited companies, this undertaking letter should be executed as per the resolution passed by the
Company.
LDOC 72
LETTER OF AUTHORITY TO MAKE PAYMENT DIRECTLY TO THE DEALERS.
(Personal Loan Scheme)
SC Bank_________ Branch Date : _______________

Dear Sir,
I/We refer to the loan amount of Rs. ______ sanctioned to me/us by you being the ____ % of the cost price for the
purchase of _______(description of article) and hereby irrevocably authorize you to make payment of Rs. _____ to
the dealer of the article on my/our depositing an amount of Rs. _____ being the ______ % margin to ____ on
production of an invoice bearing my/our signature/s as token of my/our having received the _______as mentioned in
the invoice.
(Description of article)
Yours faithfully,
(Borrower)
878 - III
LDOC 81
DRAFT RESOLUTION REQUIRED TO BE PASSED BY A SOCIETY/CLUB, ETC.
(When it obtains an advance from the bank by way of a Loan, Cash Credit or an Overdraft / Other
Credit facilities)
Not to be
Stamped
Certified true copy of the Resolution passed by the Managing Committee of ___________ (name of
Society/Club etc.) at their meeting held on ____________________________________ . The Managing Committee
of the Society/Club was informed ____________ (Details of sanction). RESOLVED that sanction be and is hereby
given for _____________ (name of Society/Club etc.) to borrow from SC BANK by way of Cash Credit / Overdraft
up to Rs. _____________ (Rupees _______________________________________) against hypothecation/pledge
of and against Demand Promissory Note signed by the Society/Club etc. and that _______________ (name of
Society/Club) do execute the relevant documents in this connection.
RESOLVED FURTHER that the documents now placed before the Committee be and are hereby approved and the
Demand Promissory Note , Instrument for Hypothecation/Pledge of goods or movable machinery or Letter of Pledge
of shares or Government Securities, Letter of Continuing Security, etc., be executed by Shri.
_________________________ Chairman/President _________ name of the Society/Club as the case may be)
RESOLVED FURTHER that Cash Credit/Overdraft account with SC Bank be operated by any one/two of the
following office-bearers jointly (or severally): -
1. Shri. ___________________________
2. Shri. ___________________________
3. Shri. ___________________________
RESOLVED FURTHER that the said SC Bank be and is hereby authorized to honour all Cheques, Bills of
Exchange, Promissory Notes drawn, endorsed, accepted or made on behalf of the Society by the above named office-
bearers as aforesaid and to act on any instructions so given by them relating to the account whether the same be
overdrawn or not relating to the transactions of the Society.
Certified to be true,
Chairman of the Meeting
1. Name of the Branch.

2. Stocks to be specified
3. Execution of documents should be in terms of the Resolutions
Note: i) In respect of loan account, paragraphs 1 and 2 should be amended by substituting the word “Loan” in
place of “Cash Credit/Overdraft” and omitting words “Letter of Continuing Security” respectively.
The entire paragraphs 3 and 4 are not applicable.
ii) For clean facilities, security portion should be excluded from the resolution to be passed by the Society
/ Club etc.
879 - III
LDOC 84
SPECIMEN OF ASSIGNMENT OF LIFE INSURANCE POLICY

Not to be
stamped
I, ___________________ do hereby absolutely assign for valuable consideration, all my rights, title and interests
in the Policy No. ______________ issued by the Life Insurance Corporation of India ____________________ of my
life assuring the sum of Rs. ________ in favour of SC Bank, its successors and assigns, whose receipt will discharge
the Life Insurance Corporation from all liabilities in respect of this policy for all intents and purposes as effectually as
if such receipt was signed by myself, my executors or administrators.
Signed and witnessed at _____ this ______ day of _________ and ____________________
Witness _______________
Signature ______________
Designation ____________ _______________
Signature of Assured
Address:
LDOC 85
NOTICE OF ASSIGNMENT TO
LIFE INSURANCE CORPORATION OF INDIA
Not to be
stamped
Place :
Date :
To:
LIC
Office :
Dear Sir,
Re : Policy No. ___________________
for Rs. ______________________
I hereby give you notice that I have assigned absolutely the above policy/policies to the SC Bank, __________ on
__________. Please acknowledge receipt of this notice and forward the policy/policies SC BANK,
____________________ under advice to me/us after registering the absolute assignment thereon in your books.
Yours faithfully,
Signature of Assignor.
880 - III
LDOC 90
FORM OF MEMORANDUM OF DEPOSIT OF TITLE DEEDS TO BE RECORDED IN
RESPECT OF ADVANCE SECURED BY
EQUITABLE MORTGAGE OF IMMOVABLE PROPERTY
Mr./Mrs./Ms _________ (borrower/guarantor/ authorized person) attended at the Bank's office at ____on
________ the day of ________at _______ a.m./p.m. and deposited the documents set out below in schedule
I relating to the land & building, immovable plant & machinery belonging to the said Mr. /Mrs./Ms
___________ shortly described as follows in schedule II ________ with Mr. /Mrs./Ms _______ (manager's
name) the Manager of the Bank's said ___________ office in the presence of Mr. ________of the Bank's
said _______office as security for and with intent to create an equitable mortgage on the said land &
buildings, immovable plant & machinery now or hereafter standing thereon to secure the balance due under
the Loan/ Cash Credit account for Rs. ________ in the name of _______at SC Bank _____ and interest
thereon and all costs, charges expenses incurred by and/or payable to the BANK.
SCHEDULE I
(List of documents)
1.
2.
SCHEDULE II
(Description of the Land)
Dated this _______________ day of ___________________ ______________
Sd/ ……………………..
____________________
Officer Manager of the branch.
Place & Date.
Note :
(1) The borrower depositing title deeds with the Bank, should not sign the memorandum.
(2) To be stamped, if so required under local stamp Act.
881 - III
LDOC 90(A)
MEMORANDUM OF ENTRY
(IN CASE OF MORTAGE OF INDIVIDUAL'S PROPERTY)
1. On the ___ of ____ Shri/Smt./Kum. ______ son/daughter of Shri_________Indian inhabitant residing

at __________ (hereinafter called “MORTGAGOR”) attended the branch office of SCBANK, at
____________(hereinafter called “BANK”) and delivered to and deposited with Shri _________of
BANK, acting for BANK the documents of title, evidences, deeds and writings more particularly
described in the First Schedule hereunder written (hereinafter called “the said title deeds”) in respect of
immovable properties belonging to him and , situated at _________ and more particularly described in
the Second Schedule hereunder written both present & future (hereinafter referred to as “the said
immovable properties “) to secure on a first charge basis the due repayment and discharge to Bank for
their below mentioned financial assistance to
Nature of facility LIMIT
(Rs.in lacs)
i)
ii)
iii)
TOTAL
Together with interest, additional interest, compound interest, further interest by way of liquidated
damages, commitment charges, premia on prepayment or on redemption, costs , charges, expense and
other monies payable under their Heads of Agreement/ Loan Agreements/Letter of Sanction/
Memorandum of Terms and Conditions amended from time to time.
2. THE MORTGAGOR further stated that the said title deeds so deposited were the only documents of
title relating to the said immovable properties in his possession, power and control and that he had a
clear and that he had a clear and marketable title to the said immovable properties.
3. The aforesaid deposit of title deeds was made by Shri/Smt./Kum. _____________ the Mortgagor in the
presence of Shri/Smt./Kum. ______________________ of Bank.
FIRST SCHEDULE
(list of documents of title, evidence, deeds and writings)
SECOND SCHEDULE
(Description of the entire immovable properties)
Dated this _____________________day of ______________________
(Signature)
Note: To be stamped, if so required under the local stamp Act.
882 - III
LDOC 90(C )
IN THE MATTER OF MORTGAGE BY DEPOSIT OF TITLE DEEDS
IN RESPECT OF INDIVIDUAL'S IMMOVABLE PROPERTY
Not to be
stamped
DECLARATION
I,__________________ Son of Shri ________________, Indian inhabitant, at present residing at
__________________ do hereby declare and say as follows:
1. I say that I am seized and possessed of or otherwise well and sufficiently entitled to the lands and other
immovable properties, more particularly described in the schedule hereunder written, together with all
buildings and structures thereon, both present and future (hereinafter referred to as the “said immovable
properties”).
2. I say that the said immovable properties are at present not mortgaged or charged to any one.
3. I further say that the said immovable properties, both present and future are now proposed to be
mortgaged and charged to …….. SC Bank to secure the outstanding balances of Rs. _________ as of
__________ in the Cash Credit Limit of Rs.________ availed by M/s ____________ together with
interest, additional interest, further interest by way of liquidated damages, compound interest,
commitment charge, premia on prepayment or on redemption, guarantee commission, commission for
Letters of Credit, cost charge, expenses and other monies payable M/s ___________________ to SC
Bank under their Heads of agreement /Loan agreements/Letters and sanction /Memorandum of terms
and conditions, amended from time to time. The said SC Bank is hereinafter referred to as the
“Lenders”.
4. I say that the Provisions of the Urban Land(Ceiling & Regulation) Act,1976 are not applicable to the
said property or I say that I have obtained necessary permission from the Competent Authority for
mortgaging the said immovable properties.
5. I say that the said immovable properties are fee from all encumbrances or charge (statutory or
otherwise), claims and demands and that the same or any of them or any part thereof are/is not subject to
any Lien/ Lispendens, attachment or any other process issued by any Court or Authority and that I have
not created any Trust in respect thereof and that the said immovable properties are in my exclusive
uninterrupted and undisturbed possession and enjoyment since the date of purchase/ acquisition thereof
and no adverse claims have been made against me in respect of the said immovable properties or any of
them or any part thereof and the same are not affected by any notices of acquisition or requisition, and
that no proceedings are pending or initiated against me under the Income-Tax Act,1961, Public Debts/
Money Recovery Act, or under any other law in force in India for the time being and that no notice has
been received by or served on me under Rules 2, 16,21 and 51 of the Second Schedule to the Income-
Tax Act, 1961 and/or under any other law and there is no pending attachment whatsoever issued or
initiated against the said immovable properties or any of them or any part thereof.
6. I say I have duly paid all rents, royalties and all public demands including Income-Tax, Corporation Tax
883 - III
and all other taxes and revenue payable to the Government of India or to the Government of any state or
to any local authority and that at present there are no arrears of such dues, rents, royalties, takes, and
revenue dues and outstanding and that no attachments or warrants have been served on me of Income
Tax Government revenue and other taxes.
7. I also agree and undertake to give such declarations, undertakings and other writings as may be required
by the Lenders or their Solicitors and satisfactorily comply with all other requirements and requisitions
submitted by or on behalf of the Lenders.
8. I say that I have obtained the requisite consent from the Income-Tax authorities pursuant to the
provisions contained in Section 281 of the Income-Tax Act,1961 for the alienation of my properties in
favour of the Lenders.
9. I assure, agree and declare that the security to be created in favour of the Lenders shall ensure in respect
of my immovable properties, both present and future and that the documents of title, evidences, deeds,
and writing in relation to the said immovable properties which are to be deposited with the Lenders for
creating a mortgage by deposit of title deeds in their favour are the only documents of title relating to the
said immovable properties.
10. I hereby agree and undertake that I will within a period of three months from the date hereof or such
extended date as may be permitted by the Lenders in writing-
a) Perfectly assure the title to the properties comprised in the mortgage security and to comply with all
requisition, that may be made from time to time by on behalf of the Lenders in that behalf.
b) Give such declarations, undertakings and other writings as may be required by the Lenders and
satisfactorily comply with all other requirements and requisitions submitted by or on behalf of the
Lenders;
c) Pay all rents, rates, taxes, cesses, fees, revenues, assessments, duties and other outgoings and pay
other amounts due in respect of the said immovable properties and shall observe and perform all the
rules and regulations pertaining to the same and will not do or omit to do or suffer to be done
anything whereby the mortgaged security as proposed to be created in favour of the Leaders be
affected or prejudiced in any manner whatsoever.
11. I further undertake that no mortgage, charge, lien or other encumbrance whatsoever will be created on
the properties comprised in the mortgage security save and except with the permission of the lenders.
12. I am not aware of any act, deeds, matter or thing or circumstances, which prevents me from
charging/further charging in favour of the Lenders the said immovable properties.
AND I make the aforesaid declaration solemnly and sincerely believing the same to be true and
knowing fully well that on the faith thereof the Lenders have agreed to complete the said transaction of
mortgage by deposit of title deeds in respect of the said immovable properties as aforesaid.
SCHEDULE
(Description of Immovable Property)
884 - III
LDOC 90(D)
LETTER OF CONFIRMATION OF EQUITABLE MORTGAGE

IN RESPECT OF PERSONAL PROPERTY
Dt._____________
Place ___________
SC Bank,
_____________ Branch
Dear Sirs,
Re: ______________- facility of Rs. _____________lacs
I confirm that as already agreed upon, I have on ___________ called at the Office of ...SC Bank ,______ and
deposited the documents of title, deeds, evidences, papers and writings in respect of my immovable
properties together with buildings and structures thereon and fixtures and fittings both present and future
(more fully described in Schedule hereunder), with an intent to create a security by way of mortgage by
deposit of title deeds on a First Charge Basis over the said immovable properties for the advances granted
and or to be granted and for the due repayment, discharge and redemption by me to ...SC Bank of its ______
facility of Rs. ________ lacs, together with interest, costs, charges, expenses and other monies payable
thereon.
SEHEDULE
(Description of Immovable Properties)
(Signature)
885 - III
LDOC 90(E)
IN THE MATTER OF MORTGAGE BY DEPOSIT OF TITLE DEEDS IN RESPECT OF
IMMOVABLES AND HYPOTHECATION OF MOVABLES
(IN CASE OF PARTNERSHIP FIRM/COMPANY)
(DECLARATION)
1.______________________ son/daughter of ________________________________ Indian inhabitant,
at present residing at _________________________________________________________
_____________________________ do hereby solemnly declare and say as follows :
1. I a m a P a r t n e r / D i r e c t o r o f M / s
__________________________________________________________ __________a partnership
firm/a company having its principal Place of business/Registered office at
_______________________________________________________________________
________________________________ (hereinafter called the “firm”/ “Company”) with
Shri/Smt./Kum. _____________________________________________________ Shri/Smt./Kum.
_____________________________________ Shri/Smt./Kum. __________________________
____________________ ________, Shri/Smt./Kum. _______________________
________________ and Shri/Smt./Kum. _______________________ ______ as partners of the firm
and I am duly authorised by the said firm and the partners of the firm in their capacity as partners and in
their respective individual capacities company to make this declaration. (for and on behalf of the
firm/company).
2. I say that I am/the firm is/the company is seized and possessed of or otherwise well and sufficiently
entitled as absolute owner to the lands and other immovable properties situate at
_________________________________ _________, more particularly described in the schedule
hereunder written together with all buildings and structures thereon and all plant and machinery
attached to the earth, or permanently fastened to anything attached to the earth both present and future
(hereinafter referred to as the “said immovable properties”)
3. I say that the said immovable properties are at present mortgaged and charged to ...SC Bank
__________ branch for securing the following facilities :
a) _________________________________ b) ______________________________
c) _________________________________ d) ______________________________
4. I further say that the said immovable properties, both present and future, are now proposed to be
mortgaged and charged to SC Bank ___________________ branch for securing the following
additional/increase in the following facilities, viz.
Nam of the facility _______________________ ___________ ____ Total
(Limit Rs. in lacs) (in lacs)
a)
b)
c)
886 - III
d)
e) together with interest, additional interest, further interest by way of liquidated damages compound
interest, commitment charges, premia on prepayment or on redemption guarantee commission,
costs, charges, expenses and other monies payable by the firm to the Bank, under their Hands of
agreements / Loan agreements / Letters of sanction / Memorandum of terms and conditions,
amended from time to time.
5. I say that I have/the firm has/company has obtained necessary permission from the Competent
Authority appointed under the Urban Land (ceiling & Regulation) Act 1976 (hereinafter referred to as
“the said Act”) for mortgaging and charging the said immovable properties in favour of the Bank as
aforesaid.
6. I say that the said immovable properties are (save and expect for the mortgages and charges mentioned
herein above) free from all encumbrances or charges (statutory or otherwise), claims and demands and
that the same or any of them or any part thereof are/is not subject to any lein/lispendens, attachment or
any other process issued by any Court or Authority and that the firm/the company has not created any
Trust in respect thereof and that the said immovable properties are in the exclusive uninterrupted and
undisturbed possession and enjoyment of myself/the firm/the company since the date or
purchase/acquisition thereof and no adverse claims has been made against me/the firm/the company in
respect of the said immovable properties or any of them or any part thereof and the same are not affected
by any notice of acquisition or requisition, and that no proceedings are pending or initiated against the
firm under the Income - Tax Act, 1961, Public Demands Recovery Act, or under any other law in force
in India for the time being and that no notices has been received or served on the owner under Rules
2,16, 21 and 51 of the second Schedule to the Income Tax Act, 1961 and/or under any other law and
there is no pending attachment whatsoever issued or initiated against the said immovable properties or
any of them or any part thereof.
7. I say that (save and except for the mortgage and charges mentioned hereinabove) I am/the company is
absolutely entitled to the movable plant and machinery and all the movable assets and the same or any
of them are not (save as aforesaid) hypothecated or charged in favour of any person whatsoever except
such movables over which hypothecation/charge has been created/to be created in favour of his/its
bankers as security for borrowings for working capital requirements, in the ordinary course of business.
8. I have/the firm has/the company has duly paid all rents, royalties and all public demands including
Provident Fund dues, gratuity dues, Employees State insurance dues, Income Tax, Sales Tax,
Corporation Tax and all other taxes and revenue payable to the Government of India or to the
Government of any state or to any local authority and that at present there are no arrears of such dues,
rents, royalties, taxes and revenue due and outstanding and that no attachments or warrants have been
served on myself/the firm/the company in respect of sales Tax, Income Tax , government revenues and
other taxes.
9. I also agree and undertake/on behalf of the firm/on behalf of the company to give such declarations,
undertakings and other writings as may be required by the Lender or their solicitors and satisfactorily
comply with all other requirements and requisitions submitted by or on behalf of the Lender.
10. I say that have/the firm has/the company has obtained the requisite consent from the Income-Tax
authorities pursuant to the provision contained in section 281 of the Income-Tax Act, 1961 for the
887 - III
mortgage of the said immovable properties in favour of the mortgages.
11. I/we on behalf of the firm and its partners/on behalf of the company assure, agree and declare that the
security to be created in favour of the Lender shall enure in respect of the said immovable properties
both present and future and that the documents of title, evidences, deeds and writings in relation to the
said immovable properties which are to be deposited with the Lender for creating a mortgage by deposit
of title deeds in their favour are the only documents of title relating to the said immovable properties.
12. I/on behalf of the firm/on behalf of the company hereby agree and undertake that I/the firm/the
company will within a period of three months from the date hereof or such extended date as may be
permitted by the Lender in writing:
a) Perfectly assure the title to the properties comprised in the mortgage security and to comply with all
requisition that may be made from time to time by or on behalf of the Lender in that behalf.
b) give such declarations, undertakings and other writings as may be required by the Lender and
satisfactorily comply with all other requirements and requisitions submitted by or on behalf of the
Lender;
c) pay all rents, rates, taxes, cesses, fees, revenues, assessments, duties and other outgoings and pay
other amounts due in respect of the said immovable properties and shall observe and perform all the
rules and regulations pertaining to the same and will not do or omit to do or suffer to be done
anything whereby the mortgaged security as proposed to be created in favour of the Lender be
affected or prejudiced in any manner whatsoever.
d) obtain necessary letters of consent/modified letters of consent from its bankers for the creation of
charge on the current assets belonging to me/the firm/the company in favour of the Lender subject
to the prior charges/created/to be created by me/the firm/the company in favour of the banker on
specified movables for securing borrowings for working capital requirements in the ordinary
course of business in such form as may be required by the Lender;
13. I further undertake on my behalf/on behalf of the firm/on behalf of the company that no mortgage,
charge, lien or other encumbrance whatsoever will be created on the properties comprised in the
mortgages security save and except with the permission of the Lender.
14. I am not aware of any act, deed, matter or thing or circumstance which prevents me/the firm/the
company from charging/further charging in favour of the Lender the said immovable properties and the
unfixed plant and machinery and all other movable assets as aforesaid.
AND I make the aforesaid declaration for and on behalf of myself/the firm/the company and its partners
solemnly and sincerely believing the same to be true and knowing full well that on the faith thereof the
Lender has agreed to complete the said transaction of mortgage by deposit of title deeds in respect of the
said immovable properties as aforesaid.
SCHEDULE
Solemnly declared at ____________________
as aforesaid this ____________________day
of _________________________________
BEFORE ME
888 - III
LDOC 90(F)
MEMORANDUM OF ENTRY
WHERE COMPANY'S PROPERTY IS EQUITABLY MORTGAGED
On the…….. day of…………….

Shri/Smt./Kum
a Director of ________a company within the meaning of the companies Act, 1956 (I of 1956) and having its
Registered Office at _____ (hereinafter referred to as 'the Company') attended the office of SC Bank at its
______ Branch ______ (hereinafter called 'the Bank') and delivered to and deposited with Shri/Smt./Kum.
_______acting for the Bank, the documents of title, evidences deeds and writings more particularly
described in the First Schedule hereunder written (hereinafter called 'the said title deeds') in respect of the
company's immovable properties situated at _____ in the state of ______ and more particularly described in
the Second Schedule hereunder written.
While making the deposit, Shri/Smt./Kum. _____________ stated that he/she was doing so on behalf of the
Company and in his/her capacity as a director of the company with intent to create a security by way of
mortgage by deposit of title deeds, on the Company's immovable properties together with all buildings and
structures thereon more particularly described in the Second Schedule hereunder written and all plant and
machinery attached to the earth or permanently fastened to anything attached to the earth (hereinafter
collectively referred to as the said immovable properties) to secure due repayment discharge and
redemption by the Company to the Bank of its :
NATURE OF FACILITY LIMIT
1.
2.
3.
in all aggregating Rs. ___________ (Rupees __________________________) together with interest,
additional interest, further interest by way of liquidated damages, interest tax, commitment charges, premia
on prepayment or on redemption, guarantee commission, costs, charges and expenses and other moneys
payable under their respective Loan Agreement / Letters of Sanction / Memorandum of Terms and
Conditions, amended from time to time.
Shri/Smt./Kum._____further stated that he/she was authorised to create a mortgage by deposit of the deeds
as aforesaid pursuant to the Resolutions passed by the Board of Directors of the Company at their meeting
held on _______and he/she furnished a certified copy of the said resolution to Shri/Smt./Kum. _____ and
further stated that the said resolutions were in full force and effect.
Shri.________ stated that the said title deeds so deposited were the only documents of title relating to the
said immovable properties in the possession. Power and control of the Company and that the Company has a
clear and marketable title to the said properties.
The aforesaid deposit of title deeds was made by Shri. __________________ on behalf of the Company in
the presence of Shri. ________________________ an Officer of the Bank.
889 - III
FIRST SCHEDULE
(List of documents of the evidences, deeds and writing)
SECOND SCHEDULE
(Description of the immovable property)
All that piece and parcel of Non Agricultural Land bearing at No._________________________ situated
within the Village limits of _______________ Taluka ___________________ District and Registration
Sub-District _____________ in the state of ___________________ containing by admeasurements
_____________ square meters or there about and bounded as follows, that is to say On or towards the North
by On or towards the South by
On or towards the East by On or towards the West by Together with all buildings and structures now
standing thereon or to be erected hereafter and the plant and machinery attached to the earth or permanently
fastened to anything attached to the earth, both present and future.
Dated at this ___________ day of ________________
For ……..SC Bank
CHIEF OFFICER / SR.BRANCH/BRANCH
MANAGER
Note : To be stamped, if so required under the local stamp Act.
890 - III
LDOC 90(G)
SUPPLEMENTAL MEMORANDUM OF ENTRY
(COMPANY'S PROPERTY)
Creation of equitable mortgage by deposit of title deeds by constructive delivery, to secure various loans and
working capital facilities granted by Bank of …SC Bank -_________Branch to M/s.
__________________On ___________ day of _____________ at ______________ a.m. / p.m./
Mr._______________ of M/s._______________________ a company incorporated and registered under
the Indian Companies Act, 1956 and having its registered Office a
___________________________________(hereinafter called “the company”) attended the Office of
……..SC Bank ____________________ Branch at _______________________________________
____________________ (hereinafter called “the Bank”) and Shri/Smt./Kum. ____________________
______ Manager of the said Bank and orally confirmed to him that the documents of Title, evidences and
deeds, more particularly described in the Second Schedule hereunder written (hereinafter referred to as “the
said title Deeds”) in respect of the Company's immovable properties situated at
_______________________ in the State of _________________ more particularly described in the first
Schedule hereunder written, were deposited with the Bank on _________________________ by way of
mortgage by deposit of title deeds with an intent to create a security in favour of the Bank on the company's
immovable properties together with buildings and structures thereon (hereinafter collectively referred to as
“the said immovable properties”) in order to secure due repayment, discharge and redemption by the
Company to the Bank of its.
(Rs. in lacs)
NATURE OF FACILITY LIMIT
1.
2.
3.
4.
aggregating Rs.____________ together with interest, compound interest and/or additional/interest in case
of default, penal interest, liquidated damages, commitment charges, premia on prepayment or on
redemption, costs, charges, expenses and other monies payable by the Company to the Bank under its Heads
of Agreements / Loan Agreements, sanctions and terms and conditions as amended from time to time.
Mr __________________________ on the same day, further orally confirmed to the said
Shri/Smt./Kum. ______________________ Manager of the Bank, that the equitable mortgage created by
the Company on __________________ by deposit of title deeds in respect of the said immovable properties
shall be extended as and by way of further equitable mortgage by deposit of title deeds by constructive
delivery so as to be a continuing security for the due repayment of the increase in Cash Credit
(Hypothecation of stocks) limit of Rs.________________________ (limit increased from Rs. ________ to
Rs. ______________________ ) Cash Credit (Hypothecation of Book Debts) limit of Rs.
_________________ ) Bill Discounting (Company as a drawee) limit of Rs. _________________ (limit
increased from Rs. ______________ to Rs. _________ ) and _____________________________
_______________ aggregating Rs. __________ together with interest, compound interest and / or
additional interest, costs, charges and expenses and the original equitable mortgage and the present charge
created hereunder shall henceforth be a continuing security to the Bank for due repayment, discharge and
redemption by the Company to the Bank for its :
891 - III
(STATE ALL THE REVISED LIMITS) (RS. IN LACS)
1.
2.
3.
4.
aggregating Rs. ______________ lacs together with interest, compound interest and or additional interest in
case of default, penal interest, liquidated damages, commitment charges, premia on prepayment or on
redemption, guarantee commission, costs, charges, expenses and other monies including any increase as a
result of devaluation / revaluation / fluctuation in the rates of exchange of foreign currencies involved,
payable by the Company to the Bank under its Heads of Agreements/ Loan Agreements, sanctions and terms
and conditions as amended from time to time.
On the same day, Shri/Smt./Kum. ________________________ further deposited with
Shri/Smt./Kum. __________________ Manager of the Bank, acting for the Bank, further documents,
evidences, consents and permissions, more particularly described in the Third Schedule hereunder written
in respect of the said immovable properties. Shri/Smt./Kum. ___________________________ stated that
he/she was authorized to create further equitable mortgages by deposit of title deeds by constructive
delivery and to deposit the further documents, evidences, consent and permission with the Bank as security
in favour of the Bank as aforesaid pursuant to the Resolutions passed by Board of Directors of the Company
in their meeting held on _________________ and he handed over certified true copies of the said Resolution
to Shri/Smt./Kum. _________________ of the Bank and further stated that the said Resolutions are still
valid and have not been modified or rescinded and that the same are in full force and effect. Shri/Smt./Kum.
______________________ Manager of the Bank, acting for the Bank , accepted the deposit of the said title
deeds, when Shri/Smt./Kum. _______________________ an Officer of the Bank, was also present.
THE FIRST SCHEDULE ABOVE REFERRED TO
(Description of the immovable property)
SECOND SCHEDULE ABOVE REFERRED TO

(List of documents of title, evidences and deeds lying deposited with the Bank)
THIRD SCHEDULE ABOVE REFERRED TO

(List of documents, evidences, consents, and permissions now deposited with the Bank)
1. Certified true copy of the Resolution passed by the Board of Directors at their meeting held
on____________ ____________
2. Certificate bearing No. ___________ issued u/s. 281 (1) (ii) of Income Tax Act. 1961.\
3. Declaration dt. ________ of ________Directors of M/s. ________________________ Date this
___________ day of _________________
OFFICER MANAGER
...SC BANK
Note : To be stamped, If so required under the local stamp Act.
892 - III
LDO 90(H)
CONFIRMATION OF CREATION OF EQUITABLE MORTGAGE
RELATING TO COMPANY`S PROPERTY
(IN CONSORTIUM ACCOUNTS)
SC Bank_____________Branch. Not to be
stamped
Dear Sirs,
Re: Various credit facilities aggregating Rs. ______availed M/s. ______
We confirm that as already agreed upon, We have on ___________called at the office of __________SC
Bank _________Branch and deposited the documents of title, deeds, evidences, paper and writings in
respect of company`s immovable properties together with buildings and structures thereon and plant and
machinery, fixtures and fittings both present and future (more fully described in the Schedule hereunder),
with an intent to create a security by way of mortgage by deposit of title deeds on a First Charge Basis over
the said immovable properties for the due repayment, discharge and redemption by the company to ...SC
Bank Consortium of its various credit facilities aggregating Rs.___________ ,together with interest, cost,
charges, expenses and other moneys payable thereon.
SCHEDULE
(Description of Immovable Properties)
For _________________________ Ltd
Managing Director / Director
LDOC 90(J)
CONFIRMATION OF EXTENSION OF MORTGAGE BY JOINT OWNERS

SC Bank, ………………. Branch
Dear Sirs,
Re: Various credit facilities aggregating to Rs. _________________ availed by We Mr./Mrs./Ms. __ Mr.
/Mrs./Ms. ______ and Mr. /Mrs./Ms.___Joint Owners of the Schedule mentioned properties confirm that as
already agreed upon, we have on ______extended the mortgage created by us on ________ by deposit of
title deeds as and by way of constructive delivery by giving an oral consent / assent to the bank to continue to
hold the said title deeds, evidences, papers and writings in respect of our immovable properties together with
buildings and structures thereon and fixtures and fittings both present and future (more fully described in the
Schedule hereunder) with an intent to create a security by way of mortgage by deposit of title deeds on a First
Charge Basis over the said immovable properties for the due repayment, redemption and discharge by us
___________ to …… SC Bank of its various credit facilities aggregating to Rs. ____________ together
with interest cost charges, expenses and other moneys payable thereon.
SCHEDULE
(Description of immovable properties)
(To be signed by all the joint Owners)
893 - III
LDOC 90(K)
CONFIRMATION OF EXTENSION OF MORTGAGE BY COMPANY
(To be obtained on Company's Letterhead)
Not
to be
SC Bank, Stamped
………………. Branch
Dear Sirs,
Re: Various credit facilities aggregating to Rs._____________________ availed by M/s.
_________________________
We confirm that as already agreed upon, we have on ___________ extended the mortgage created by the
company on _____ by deposit of title deeds as and by way of constructive delivery by giving an oral consent
/ assent to the bank to continue to hold the said title deeds, evidences, papers and writings in respect of the
company's immovable properties together with buildings and structures thereon and plant machinery,
fixtures and fittings both present and future (more fully described in the Schedule hereunder) with an intent
to create a security by way of mortgage by deposit of title deeds on a First Charge Basis over the said
immovable properties for the due repayment, redemption and discharge by the company to ...SC Bank of its
various credit facilities aggregating to Rs. ____________________ together with interest cost, charges,
expenses and other monies payable thereto by the company to the Bank
SCHEDULE
(Description of immovable properties)
for ____________ Ltd.
Managing Director / Directors
894 - III
LDOC 90(L)
SECOND EXTENSION OF MORTGAGE BY DEPOSIT OF TITLE DEEDS
(Individual's property for advances to company)
1. On the _________ day of _________________ Shri/Smt./Ms. ________________________. Indian
inhabitant residing at __________________________ (hereinafter called “the Mortgagor”) attended
the branch office of ……. SC Bank at ____________ (hereinafter called “Bank”) and Shri/Smt./Ms.
_____________ of Bank
2. The said Shri/Smt./Ms. _______________ stated that the documents of title, evidences, deeds and
writings more particularly described in the First Schedule hereunder written (hereinafter called the
“said title deeds”) in respect of his immovable properties situated at
_____________________________ more particularly described in the Second Schedule hereunder
written together with all buildings and structures thereon both present and future (hereinafter
collectively referred to as the “said immovable properties”) were deposited on _____ day of ________
and further deposited by constructive delivery on ______________ by the Mortgagor with SC Bank
with an intent to create a security by way of mortgage by deposit of title deeds on his said immovable
properties more particularly described in the Second Schedule hereunder written for securing the due
repayment, discharge and redemption by M/s. ________________ Limited, a company within the
meaning of the Companies Act, 1956 and having its Registered Office at _______________ to ……..
Bank for their below mentioned financial assistance to the said company.
Nature of facility Limit /Rs.
i)
ii)
iii)
together with interest, additional interest, compound interest, further interest by way of liquidated
damages, commitment charges, premia on prepayment or on redemption, guarantee commission,
commission for Letter of Credit, costs, charges, expenses and other monies payable under their heads of
Agreement / Loan Agreements / Letters of Sanction / Memorandum or Terms and Conditions amended
from time to time.
3. The said Shri/Smt./Ms. _________ on the same day accorded and gave oral consent to Shri/Smt./Ms.
__________ acting for SC Bank to hold and retain the said title deeds as and by way of mortgage by
deposit of title deeds by constructive delivery on his said immovable properties as security on a first
charge basis also for the due repayment and discharge by the company to SC Bank for the following
increase in the limits of the credit aggregating to Rs. ________ lacs granted/to be granted by SC Bank to
the company being:
NATURE OF FACILITY LIMIT / Rs. (in lacks)
i)
ii)
895 - III
iii)
together with interest, additional interest, compound interest, further interest by way of liquidated
damages, commitment charges premia on prepayment or on redemption, guarantee commission,
commission for Letter of Credit. Costs, charges, expenses and other monies payable under their heads
of Agreement / Loan Agreements / Letters of Sanction / Memorandum of Terms and Conditions
amended from time to time.
4. Whilst giving such oral consent Shri/Smt./Ms. _________ stated that he was doing so in his capacity as
owner / guarantor with intent to create security on the immovable properties as aforesaid. 670 - III5.
Shri/Smt./Ms. ____________________________ further stated that the said title deeds so deposited
were the only documents of title relating to the said immovable properties in his possession, power and
control and that he/she continue to have a clear and marketable title to the said immovable properties.
6. Shri/Smt./Ms. ________________________further stated that the aggregate amount secured by the
mortgage was Rs. ____________ lacs plus interest, costs, charges and expenses.
7. The aforesaid oral consent was given by Shri/Smt./Ms. _________________________ in the presence
of Shri/Smt./Ms. ___________________________ of Bank.
FIRST SCHEDULE
(List of documents of title, evidences, deeds and writings)
SECOND SCHEDULE
Dated this _________________________ day of ____________________

(Signature ) (Signature)
Sr. Manager / Manager Chief Manager / Sr. Manager
Note : To be stamped, If so required under the local stamp Act.
896 - III
LDOC 90 (P)
LETTER OF CONFIRMATION OF MORTGAGE CREATION / EXTENSION
Not to be stamped
I / We Mr./Mrs./Ms. …Mr./Mrs./Ms.………..and Mr./Mrs./Ms. ……… On my/our behalf or on behalf of

……… as partner for and on behalf of M/s. …………A partnership Firm/a Director for an on behalf of M/s.
………… hereby confirm and declare that I/We had called at you …… branch at … AM / PM on ………and
extended the mortgage by constructive delivery/ deposited the title deeds, documents, evidences and
writings / extended the mortgage by constructive delivery in relation to the immovable properties situated at
… together with buildings and structures, immovable plant and machinery fixtures and fittings more
particularly described in the schedule hereunder written with an intention to create security thereon as and
by the way of equitable mortgage / mortgage by deposit of title deeds as and by way of first / second charge in
your favour for the due repayment / discharge or redemption by me/us/by/M/s……… / by M/s………to SC
Bank of its various credit facilities/increased / additional facilities aggregating to Rs ________ together
with interest, penal interest, Trustee's Remuneration, Costs, charges and expenses payable thereon.
I/We hereby further declare that I/We/am/are entitled to create/extend the aforesaid equitable mortgage in
my personal capacity / jointly / as attorney of Mr…… / as partner of M/……/ as Director of M/s……
Date :
SCHEDULE
Signature
LETTER OF AUTHORITY FOR CREATION OF

EQUITABLE MORTGAGE / EXTENSION OF MORTGAGE
Not to be stamped
Ref: Credit facilities sanctioned to __________________________________
We, Mr. /Mrs./Ms. ________ and Mr. /Mrs./Ms. ____________________ joint borrower/s/partners of
Messer's _________________________ (Firms' Name) do hereby jointly and severally authorise
Mr./Mrs./Ms.________________________________ to call at the ___________________________
branch of ………….SC Bank, and deliver and deposit the title deeds / extend the equitable mortgage by
deposit of title deeds by constructive delivery in respect of immovable properties belonging to us jointly/the
firm and situated at _____________________ as security for the facilities/additional facilities aggregating
to Rs. ______________ sanctioned to ____________________ repayable together with interest, costs,
charges and expenses payable thereon.
Managing Director / Director
897 - III
LDOC 96
POWER OF ATTORNEY FOR CONVERTING EQUITABLE
MORTGAGE INTO A LEGAL MORTGAGE
Stamp
appropriately
Place :
TO ALL TO WHOM THESE PRESENTS SHALL COME, WE ______________ a Company incorporated in India/a
partnership/proprietorship firm and having its registered/business office at ________________ (hereinafter called
'the Company/firm') SEND GREETINGS:
WHEREAS SC BANK ____________ has agreed to grant to the borrower Acceptance/Guarantee bills/promotes
facility up to a limit of Rs. ____________ (Rupees ______________________ ) plus interest inter alia against the
extension of equitable mortgage already created by the Company in respect of its Term Loan Account of Rs.
_______________ of the Borrowers' land, building, plant and machinery situated at _____ are hereinafter
collectively called as 'the said premises' and against the Borrower at the same time agreeing to execute at Company's
own costs whenever called upon a proper English Mortgage of the said premises to secure the said
Acceptance/Guarantee bills/Promissory note facility up to a limit of Rs. ____________________ plus interest and at
the same time also agreeing to execute an irrevocable Power of Attorney in favour of SC Bank,
________________________ for executing the said English Mortgage in favour of SC Bank,
______________________________.
NOW KNOW YE AND THESE PRESENTS WITNESS that the Borrower doth hereby nominate, constitute and
appoint SC Bank, _______________ (hereinafter called 'the Attorney') to be the true and lawful attorney in fact and at
law of the Borrower, for the Borrower, in the name and on behalf of the Company, and as the act and deed of the
Borrower to sign, seal, execute deliver, complete perfect and record and Indenture of Mortgage expressed to be made
between the Borrower of the One part and SC Bank of the other part in respect of the said premises in such form and
containing such covenants and conditions as the Attorney may deem fit including the power to sell and the power to
appoint receiver of the said premises and all other powers, provisions, and conditions as are usual in an English
Mortgage for securing payment of the said Acceptance/Guarantee bills/Promissory notes facility up to a limit of Rs.
_____________ (plus interest) to SC Bank, _______________ or of the moneys which shall then be due and owing to
SC Bank, in respect of the said Acceptance/Guarantee Bills facility. The Bank being an incorporated body through its
person or persons authorized by the Bank may exercise all or any of the powers, authorities and discretions conferred
hereby upon the Bank and may delegate all or any of such powers authorities and discretion's to such of the officers or
other persons and on such terms and conditions, as the said Bank or any constituted attorney or any other person
appointed by it with power to delegate as it may see fit and accordingly all deeds and documents executed and acts
performed by any such person shall be binding on the company.
AND GENERALLY to execute, do and perform all such deeds, instruments, acts, matters and things in relation to the
premises as the said Attorney shall think necessary or expedient as fully and effectively in all respects as the Borrower
could have done if personally present AND the Borrower doth hereby agree to ratify and confirm and covenant for
itself its successors and assigns to ratify and confirm all and whatsoever the said Attorney shall lawfully do or cause to
be done in or about premises by virtue of these presents.
AND the borrower doth declare that this Power of Attorney shall be irrevocable so long as the said equitable mortgage
to be extended by the Borrower as aforesaid in favour of SC Bank, _______________ subsists and until the said
Acceptance / Guarantee bills / Pronotes facility up to a limit of Rs.___________ (plus interest) shall be repaid to SC
Bank, _____________________.
In witness hereof the company hath here unto affixed its Common seal this __ day of __20….. .
898 - III
LDOC 101
IRREVOCABLE POWER OF ATTORNEY
(For financing Road Transport Operators;
Purchase of tractors, trailers etc.)
Stamp
appropriately
KNOW ALL MEN BY THESE PRESENTS THAT, I Mr. /Mrs./Ms. ________________________ of

_________________ inhabitant residing at _________________________ hereinafter called “the
Principal” (which expression shall include my heirs, executors administrators and assigns) do hereby
irrevocably constitute, nominate and appoint SC BANK having its Head Office at and Branch Office at
______________________________________________________ (hereinafter called “the Bank”) to be
my true and lawful Attorney for me, in my name and on my behalf to do and execute all or any of the
following acts and things namely:-
1. To sell, mortgage, transfer in its name or otherwise dispose of the vehicle manufactured by
________________________________ make / model ___________________________________
bearing chassis No. ____________ and Engine No._____________________ (hereinafter called “the
said vehicle”) which is hypothecated by me in favour of the Bank.
2 To execute any deed of transfer in favour of the purchaser or mortgagee.
3 To sign all papers concerning the registration, transfer, sale or mortgage of the above vehicle and
conduct all necessary correspondence with the Transport Department or other authorities and to sign
the transfer form needed to transfer the vehicle in the record of the Transport Department or other
authorities.
4 To ply the said vehicle and take all necessary actions for plying the same and to recover any moneys due
as hire charges or fare due regarding the said vehicle.
5 To appoint and / or to remove any driver, cleaner agent or any other employee working on the said
vehicle.
6 Until the said vehicle is sold and / or transferred as herein before provided, to insure and keep insured
with any general insurance company, the said vehicle against all party risk and to pay the premia
therefor and further to incur the required expenses over the repairs and maintenance of the said vehicle
so as to keep the said vehicle in good and serviceable condition.
7 The Borrower hereby appoints and constitutes the Bank as its Agents to act, through any office or
offices for the purpose of safeguarding, furthering, bettering its security including doing all requisite
acts, deeds and things and executing all deeds and documents as may be necessary including documents
for filing / registering particulars of charge / s with the concerned Registrar of Company's and obtaining
certificate / s of Registration of charge / s, issuing advertisements, declarations of sale etc in relation to
the security created here under.
899 - III
8 The Bank / its attorney may at its discretion exercise any or all of the power hereby vested in it and it is
hereby empowered generally to do all such acts and things as the Bank / its attorney things expedient for
the purposes aforesaid as fully and effectually in all respects as I would do my self.
9 This power attorney shall be irrevocable until cancelled in writing by the Bank / its attorney and / here
by confirm and ratify all that the Bank / its attorney does or causes to be done an my behalf by virtue of
these presents.
In witness whereof ______________________ have set my hand to this power of attorney in the
presents of witness at ___________________ this ________________ day of ______________.
Witnesses
1)
2)
NB to be executed before a Presidency Magistrate or Notary Public.
900 - III
LDOC 104
LETTER OF INSTALMENTS AGAINST PROVIDENT FUND
Stamp as on
agreement
SC BANK_______________ Branch Date :___________

Ref: Loan against Provident Fund
I have been granted a Loan of Rs.________(Rupees _______________) against the amount of Provident
Fund in the hands of the Trustees of the fund. Please deduct from my salary each month a sum of
Rs.__________(and last instalment of Rs.____________) for _________ months and pay the amount in
reduction of the Loan until the Loan and interest are fully paid off.
Yours faithfully,
(Signature)
LDOC 105
Stamp as on
agreement
Date :
The Trustees
…………. SC Bank ,Provident Fund
Ref: Staff Loan due to the Bank Adjustment out of P.F
I have taken a Loan of Rs _______________ from the ………… SC Bank. In the event my death or ceasing
to be in the service of SC Bank, whatever amount is due under the loan may be adjusted from the balance
standing to my credit Provident Fund Account.
This authority supersedes any nomination I have made in respect of my Provident Fund balance to the extent
of indebtedness to ……. SC Bank
Yours faithfully,
(Signature)
901 - III
LDOC 106
LETTER OF AUTHORITY CUM INTENT TO GUARANTEE ANOTHER STAFF
MEMBER'S LOAN (IF STIPULATED) ADDRESSED TO TRUSTEES OF PROVIDENT FUND
Date:
The Trustees,
SC Bank, Provident Fund.
Dear sir,
In consideration of SC Bank, granting a loan of Rs.__________only to Mr./Mrs./Ms.___________ against
the accumulation of his/her Provident Fund balance, I stand as a guarantor to the advance up to
Rs._________.
For this purpose I authorise SC Bank to earmark the sum of Rs.________ against the balance of Provident
Fund standing at my credit and to appropriate the sum in default of the loan by Mr/Mrs./Ms. _________.
In the event of my death or ceasing to be in the service of SC Bank before the loan together with interest is
repaid. I authorise you to pay SC Bank whatever amount is due under the loan to Mr. /Mrs./Ms.
_____________________ from the balance standing to my credit in the Provident Fund.
This authority supersedes any nomination I have made in respect of my provident fund balance to the extent
of my indebtedness to SC Bank.
Yours faithfully,
(Specimen signature of the guarantor who guarantees the loan.)
Note:- A separate Guarantee Letter should also be obtained from the Guarantor on a stamped paper.
LDOC 107
UNDERTAKING TO MAINTAIN VEHICLE FOR FIVE YEARS
SC Bank, ______________ branch. Stamp as on
Dear Sir, agreement
Ref: Loan granted to me for purchase of scooter / car

I thank you for granting me a loan of Rs._____________ for purchase of scooter / car I have the vehicle of
the year _____________________ the cost price of which is Rs.________________. I undertake to
maintain this vehicle at least for a period of five years and will not dispose of my vehicle during this period.
After a period of five years, if my loan for vehicle remains outstanding I will seek bank's prior written
permission before disposing it of.
I will not also apply for a fresh loan for vehicle for a period of five years or till such time the out standing loan
is fully settled, whichever is later.
Yours faithfully,
(Signature)
902 - III
LDOC 108
IRREVOCABLE POWER OF ATTORNEY EMPOWERING THE BANK TO EXECUTE IN
ITS FAVOUR A LEGAL MORTGAGE OF THE RIGHT, TITLE AND INTEREST IN THE
FLAT / PLOT
Stamp
Appropriately
Date:
TO A L L TO W H O M T H E S E P R E S E N T S S H A L L C O M E I , _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
_______________________ (hereinafter called “the Borrower”) SEND GREETINGS:-
WHEREAS SC Bank has agreed to advance to the Borrower a Demand Loan of

Rs._______________________ inter alia against mortgage of the right, title and interest of the Borrower in
the plot of land / flat in a building belonging to the ______________ _____________________________
_____________ Housing Society Limited, and more particularly described in the schedule hereunder
written which said plot of land / flat in buildings are hereinafter called as the said premises and against the
Borrower at the same time agreeing to undertake to execute at Borrower's own costs whenever called upon a
proper _______________________________ Mortgage of the right, tittle and interest in the said plot of
land / flat of the Borrower, to secure the demand loan with interest at the rate of _______________ % p.a and
at the same time also agreeing to execute an irrevocable power of Attorney in favour of the SC Bank for
executing the said ___ _______________Mortgage in favour of SC Bank.
NOW KNOW YE AND THESE PRESENTS WITNESS that the Borrower doth hereby nominate constitute
and appoint SC Bank (hereinafter called 'the Attorney') to the true and lawful attorney in fact and at law of the
Borrower in the name and on behalf of the Borrower and as the act and deed of the Borrower: -
1. To sign, seal, execute. Deliver. Complete, perfect and record any entry relating to creation of Equitable
Mortgage an indenture of Mortgage to be made between the Borrower of the One part and SC Bank of the
Other part in respect of the said premises in such form and containing such covenants and conditions as the
attorney may deem fit including the power to sell and the power to appoint Receiver of the said premises and
all other powers, provisions and conditions as are usual in a mortgage for securing payment of the said
Demand Loan at SC Bank with interest at the rate of __________% per annum or of the money which shall
when due and owing to SC Bank in respect of the said demand loan and lodge such deeds, documents and
writings for registration with the Sub-Registrar of Assurance and admit execution thereof and deposit title
deeds with the Bank.
2. To apply for registration of the said flat / plot under the provisions of any applicable act for the time
being in force in the state Ownership and for the purpose to sign all letters, applications and documents as
may be necessary.
3 To apply to the Co-operative Housing Society where the aforesaid flat No._________ is situated and of
which the Borrower is the member for its consent to mortgage the said flat in favour of the Bank and for the
purpose to sign all letters, applications, communications and documents necessary to obtain such consent.
903 - III
4 To incur and reimburse all costs charges and expenses that may have been spent to give effect to the
provisions of this Power of Attorney. The Bank being a Body Corporate any person or 677 - IIIpersons
authorised by the Bank may exercise all or any of the powers, authorities and discretion's conferred hereby
upon the Bank and may delegate all or any of such powers, authorities and discretion's to such of the Officers
or other persons and on such terms and conditions as the said Bank or such executives / officers or any
constituted attorney or other person appointed by it with power to delegates as it may see fit and accordingly
all deeds and documents executed and acts performed by any such persons shall be binding on the Borrower/
Guarantor AND GENERRALLY to execute, do and perform all such deeds, instruments, acts, matters and
things in relation to the premises as the said attorney shall think necessary or expedient as fully, and
effectually in all respects as the Borrower / guarantor would have done if personally present AND the
Borrower/guarantor doth hereby agree to ratify and confirm and covenant for himself his heirs, executors,
administrators and assigns to ratify and confirm all and whatsoever the said attorney shall lawfully do or
cause to be done in or about the premises by virtue of these presents.
AND THE BORROWER / GUARANTOR doth declare that this Power of Attorney shall be irrevocable
until the said loan of Rs. ______________ with interest / cost, charges and expenses thereon shall be repaid
in full to SC Bank.
IN WITNESS WHEREOF the Borrower / Guarantor has hereunto set and subscribed his hand at
______________ this ___________ day of _______________.
THE SCHEDULE ABOVEREFERRED TO
SIGNED AND DELIVERED BY the
Withinnamed borrower / Guarantor ________________
________________________________ in the presence
of ___________________________________________
904 - III
LDOC 109
LETTER OF AUTHORITY TO DEDUCT INSTALMENT
FROM THE SALARY EVERY MONTH
Stamp as on
Place: agreement
Date:
SC Bank
____________________
1. ____________________________ am an employee of SC Bank, at present stationed at
________________________ branch.
2. You have, at my request granted me a loan payable on demand of Rs. __________ (Rupees
________________________________) for specific purposes of purchase and acquistion of a flat /
h o u s e f o r m y r e s i d e n c e s i t u a t e d a t
__________________________________________________________ the said loan shall bear
interest at the rate of _________________ per cent per annum.
3. The said loan together with interest at the aforesaid rate is repayable by me on demand by you,
However, you have, for my convenience and without prejudice to the demand payment nature of the
advance, granted me a facility to repay the said loan by monthly instalment of Rs._________________
each.
4. In consideration of the grant of the said loan to me and the continuance of the said facility for such time
as you may, in your absolute discretion deem fit, I do hereby irrevocably agree, authorise and undertake
so as to bind myself, my heirs, executors, administrators, estate and effect as follows:
a) You shall be entitled to deduct every month from the salary, allowances and other remuneration
payable to me the said instalments of Rs._______ and the interest at the above mentioned rate and
to appropriate the same in repayment of the said loan and I shall not raise any objection of any kind
whatsoever in that behalf.
b) To deduct the said monthly instalment of Rs.______________ or any one or more of them or any
part thereof which may be in arrears and also the amount of interest payable by me on the said loan
or any part thereof which may be in arrears from bonus or any other payment whether ex-gratia or
otherwise may be payable or become payable to me by you and I shall not raise objection of any
kind whatsoever in that behalf.
c) In the event of my ceasing to be in your service whether by retirement, death or operation of law or
for any other reason or cause whatsoever, you shall be entitled to appropriate and set off the amount
or part of amounts due to me from the gratuity which may be payable to me or to my heirs or legal
representatives as also the amount that may be standing to my credit in the Provident Fund (self and
bank's contributions) irrespective of any nomination made by me or that may be made by me
hereinafter, towards the repayment of the entire balance of the said loan and the interest then
remaining due and payable by me and the surplus, if any, shall alone be payable to me or to my heirs
905 - III
or to my legal representative, as the case may be and I shall not raise objection of any kind
whatsoever in that behalf. Further such appropriation made by you shall be valid and binding on
me, my heirs and my legal representatives and my nominees of the Provident Fund in respect of my
account.
d) During the pendency of this loan and until its full repayment together with interest thereon, I shall
not create any kind whatsoever on the salary, gratuity, bonus or other allowances, nor shall I allow
the same to be attached by any creditor of mine.
e) During the pendency of this loan and until its full repayment together with interest thereon, you
shall have first lien on my salary, allowances and other remuneration including bonus, gratuity, or
any ex-gratia payment or otherwise whatsoever that may be payable to me in respect of the said
loan or the balance thereof for the time being due together with interest thereon as aforesaid.
f) During the pendency of this loan and until its full repayment together with interest thereon, I shall
not, without previous permission in writing of the Bank, sell, assign, mortgage, charge or in any
way encumber or alienate the said flat / house or any part thereof to any one.
g) During the pendency of this loan and until its full repayment together with interest thereon, I shall
utilise the said flat/house only for the bonafide residential use and occupation of myself and my
family members i.e. my wife / husband and dependant children and / or parents.
h) During the pendency of this loan and until its full repayment to you together with interest thereon, I
will not let or sub-let, sub-lease the said flat / house or any part thereof or give it or any part thereof
on leave and license basis or otherwise part with the possession thereof or any part thereof to any
other person except in the circumstance hereinafter mentioned.
i) During the pendency of this loan and until its full repayment together with interest thereon, in the
event of my being transferred to any other branch, or office, you will permit me to give the said flat/
house or any part thereof on leave and license basis on reasonable terms subject however to your
prior approval in writing being obtained by me.
j) During the pendency of this loan and until its full repayment together with interest thereon, I shall
nominate you in respect of the said flat / house in the register maintained by the Society.
k) During the pendency of this loan and until its full repayment together with interest thereon I shall
not allow the instalments or interest thereon to fall in arrears and I shall punctually pay the
Municipal taxes assessments, outgoings etc, to the said Society and also shall not allow the same to
fall in arrears. I further undertake that I shall abide by all the rules and bye-laws of the said society
and shall not do anything by which my membership in this said society shall be jeopardised or
removed.
5. The undertaking the authority and the agreement herein contained shall be irrevocable.
Yours faithfully,
(Signature)
906 - III
LDOC 112
UNDERTAKING TO CREATE A LEGAL MORTGATE

IN BANK'S FAVOUR (WHERE SOCIETY IS FORMED)
Stamp as on
agreement
Date:
SC BANK
____________________
Dear Sirs,
In consideration of SC Bank at my request agreeing to grant and / or granting me a Demand Loan of
Rs._________to enable me to purchase the flat No.____. In hereby undertake to create a legal mortgage in
favour of the Bank of right, title and interest in the said flat when called upon to do so, and to deposit the
Share Certificate and / or loan bonds or stocks when issued to me by the said Society, together with the blank
transfer form duly signed by me and also the letter of consent from the said Society authorising me to
mortgage my right, title and interest as herein above stated.
Yours faithfully,
(Signature)
LDOC 115
UNDERTAKING TO REPAY LOAN IN STIPULATED INSTALMENTS
(Under Personal Loan Scheme)
SC BANK Not to be
stamped
______________ Branch.
Dear Sir,
Ref: My personal loan Account up to a limit of Rs.____ for purchase of car etc.
With reference to the above, I hereby agree and undertake to repay the sum in ____ monthly
instalments of Rs.____ last instalments of Rs. _____ only commencing from _______. I hereby authorise
the Bank to deduct from my salary each month a sum of Rs. ___ for _____ months and pay the amount in
reduction of the loan until the loan together with interest is paid off.
I however, understand and agree that the Bank is entitled to recall the entire loan at any time at its pleasure
and without assigning any reason.
Yours faithfully,
(Signature)
907 - III
LDOC 136
GENERAL UNDERTAKING
Stamp as on
agreement
Place:
SC BANK Date:
______________________ Branch
Dear Sirs,
Ref:Various Credit facilities, Viz.
1. Cash Credit (Hypn./ of stocks & book debts facility with a limit of Rs._____)
2. Team Loan of Rs.___________ lacs.
3. Guarantee limit up to Rs.________ lacs.
4. Documentary letter of Credit up to the limit of Rs._________ lacs
5. ___________________________________
WHEREAS SC BANK ___________ Branch ________________ (hereinafter referred to as “the Bank”
has at our request granted to us the above mentioned Credit facilities secured inter alia by hypothecation of
stocks, book debts, machinery etc.
NOW IN CONSIDERATION of the Bank at our request continuing and having continued above mentioned
facilities we __________ Limited, agree confirm and undertake.
1. To deal exclusively with your bank.
2. Not to incur capital expenditure for major expansion / diversification / modernisation without Bank's
prior written consent.
3. To appoint you as the Manager to the issue in case the Company enters the capital market for issue of
shares / debentures / bonds
4. To submit stock statements / quarterly statements within the stipulated time and in the prescribed
manner and in case of delay or default in submission to pay penal rate of interest as per Reserve Bank of
India / Bank's guidelines.
5. Not to allow promoters to disinvest / transfer their shareholdings without the prior written consent of
the Bank.
6. To execute proper documents for each type of facility as detailed in the sanction and registration of
charges with the Registrar of Companies, wherever necessary within the stipulated time, before
disbursement / release of the sanctioned facilities.
908 - III
7. To keep hypothecated security fully insured against fire and such other risks as may be required by the
Bank and to submit the respective insurance policies to the Bank.
8. To allow Bank to carry out inspection of the hypothecated securities at periodical intervals and to bear
the inspection charges and other incidental charges incurred by the Bank in connection therewith.
9. To allow Bank to charge penal interest @ ______ % above the rate applicable to Cash Credit Account on
the entire outstandings in working capital facilities under the following circumstances:-
a) Default in repayment of loan instalments
b) Non/delayed submission of quarterly operative statement and / or half yearly fund flow statement
c) Non/delayed submission of monthly stock / book debts statements and other financial data
d) Excess borrowing in the Cash Credit Account. e)Default in borrowing covenants.
10. To obtain the Bank's prior written consent in respect of the following matters:-
a) Entering into any borrowing arrangements with other banks, Financial Institutions and/or any
other parties.
b) Taking up a new project on large scale expansion
c) Making investment in or giving loans to subsidiaries, associate concerns individuals or other

parties.
d) Effecting merges and acquisitions.
e) Paying dividend other than out of current year's earnings after making due provisions.
f) Giving guarantee on behalf of third parties.
g) Premature repayment of loans and discharge of other liabilities.
11. Not to create without Bank's prior written consent, charges on all or any of the assets and / or properties
of the Company, other than the existing / proposed charges in favour of other Financial Institutions /
Banks.
12. That all the monies advanced or to be advanced by the Bank under the facilities mentioned hereinabove
shall be utilised exclusively for the purpose set forth in our proposal and for no other purpose and if the
said loan / advance is utilised or attempted to be utilised for any other purpose or if the Bank apprehends
or has reasons to believe that the said loan / advance is being utilised for any other purpose, the Bank
shall have the right to forthwith recall the entire or any part of the loan / advance without assigning any
reason therefor.
909 - III
13. That notwithstanding anything to the contrary contained in any of the documents/agreements
executed/to be executed by us as also in the Letter of Sanction by the Bank, the Bank shall be entitled to
charge the contractual rate of interest at its own discretion without any intimation to us to bring it in
conformity with the rate of interest prescribed by the Reserve Bank of India or any other eventuality
such as re introduction of interest Tax. etc. from time to time and the same shall be binding on us as if
such change were already incorporated in the documents executed by us.
14. That in the event of any irregularity, the Bank at its discretion shall be entitled to charge on the entire
outstandings or any portion thereof interest at such enhanced rates as it may fix during the continuance
of such irregularity.
We understand that it is on the faith of the aforesaid representations and express undertakings that the
Bank has consented to entertain our proposal for the said facilities.
Yours faithfully,
(Signature)
910 - III
“SC” BANK
Project Finance Advances / Borrowings
CCB Ledger Sheet
Separately maintained for Advances & Borrowings
Loan No.
Name of Scheme Code / FCLB - 1
File No. Rate of Interest
Name of CCB
PRINCIPAL
Date PARTICULARS PRODUCTS
DEBIT CREDIT BALANCE
Rs. Rs. Rs.
“SC” BANK
Total Liability Register This Total Liability Register is
maintained separately (i) Interest
rate wise (ii) Scheme wise
Date CENTRAL Dr. Cr. BALANCE No. of

INITIALS PRODUCTS
CO-OP BANK Rs. Rs. Rs. DAYS
REPAYMENT SCHEDULE
“SC” BANK
NAME OF THE SCHEME
Date CENTRAL Dr. Cr. BALANCE No. of

INITIALS PRODUCTS
CO-OP BANK Rs. Rs. Rs. DAYS
911 - III
.NO. /ACS/OPR Date:……..
DRAWAL UNDER CASH CREDIT ACCOUNT NO.I

OF THE TAMILNADU HANDLOOM WEAVERS'
COOPERATIVE SOCIETY LTD. (CO-OPTEX)
DRAWAL SCRUTINY SHEET
Amount of Drawal : Rs.
1. i) Date of drawal application :
ii) Date of receipt of application :
iii) Date of putting up the application :
LIMIT:
2. Limit sanctioned by NABARD for the
year 2011 - 2012 :
Normal :
Festival :
Total :
Limit and outstanding to be reduced to
Rs. Lakhs on
Rs. Lakhs on
Rs. Lakhs on
3. Drawing Power
(valid from ……..to…….) :
4. Borrowings of Co-optex from us as on :
5. Rediscounted with NABARD :
6. Eligibility for drawal
i) With reference to limit (2-4) :
ii) With reference to Drawing Power (3-4) :
iii) Drawal eligibility (6 (i) or 6 (ii)
whichever is lower) :
7. Amount of drawal applied :
a)Primaries payment : Rs.
b) Imprest payment : Rs.
c) Total : Rs.
912 - III
8. Amount of drawal recommended :
9. Certificates and Hundi required to be
enclosed to the drawal application :
i) Stock-in-trade : Furnished / Not furnished
In order / Not in order
ii) Reserve Borrowing Power : Furnished / Not furnished
iii) Hundi and schedule : Furnished / Not furnished
10. Observation & Recommendations :
MANAGER
CHIEF MANAGER:
Observations/ Orders of
ASST. GENERAL MANAGER :
913 - III
ST-SAO
The Tamil Nadu State Apex Cooperative Bank Ltd.,

Drawal Application Scrutiny Sheet
Date: dd/mm/yyyy
C.No. / ACS(OPR)/2010-11 (Rs. in lakh)
SAO NODP
Amount of drawal
Name of the Central Coop. Bank
1 i. Date of Drawal application
2 ii. Date of receipt of application
iii. Date of Putting up the application
3 LIMIT SANCTIONED BY
a. NABARD
b. TNSC BANK
c. Total Credit Limit (a + b)
LIMIT OTHER
4 OIL SEEDS
CROPS
a. Limit
b. Outstanding (Normal)
c. Balance
d. Outstanding (Interim)
e. Unavailed limit
5 NON-OVERDUE COVER 2009-10
NODC as on
Outstanding (Normal)
NODC available for further drawal
6 i. ELIGIBILITY FOR DRAWAL
iii With reference to limit
With reference to NODC
Amount of drawal applied for
7
914 - III
a. Loans issued from
b. Of which loans issued to small farmers
1 c. % of (b) to (a)
2 d. Small farmer condition imposed by NABARD
e. Has the bank complied with the condition
f. Of which loans issued to TENANT farmers
g % of (f) to (a)
8 Whether the CCB has adequate share holdings

for the drawals applied for
9 a) Demand falling due within next 30 days
b) Surplus in NODC
c) Will the CCB be able to maintain
NODC as on last Friday
10 a) Reserve Borrowing Power of CCB
11 Receipts of Returns
Name of the Return For the Received
Due on
month of on
i. Revolving Credit Return
ii. Non-overdue cover Return
iii. Crop Verification Report
12 Cash Reserve and Liquid Assets:
i. Position enclosed as on
ii. Is the position given is not prior to 13 days
from the date of drawal application
iii. Cash Reserve required to be maintained (3%)
vi. Cash reserve actually maintained
a. Excess Cash Reserve over and above ( 6%)
b. Reasons, if any, indicated by the CCB for
excess cash reserve maintained
c. Whether the same is adjusted
840 Liquidity required to be maintained
vi. Liquidity maintained
0 Surplus (+) / (-)
viii. Comments, if any
915 - III
ix. Defects if any, pointed out while allowing
the previous drawal
13 Observations and recommendations
The 0 CCB is eligible for the drawal of Rs. as applied for. For Instructions please, whether
we may Allow the drawal of Rs to the dccb as requested by them, if approved.
CM: MANAGER
AGM:
916 - III
THE TAMIL NADU STATE APEX COOP. BANK LTD., CHENNAI-1.

ST WEAVERS - SCRUTINY SHEET
C.NO 16 /ACS/OPR/2003-2004 DATE:
I (Rs. In lakhs)
Date of the
Name of the DCCB Drawal Received on Handloom Powerloom Addl
Application
II.
Eligibility for Normal Power-loom Addl

drawal applied for
a. Limit sanctioned by NABARD
b. Outstanding
c. Unutilised
NODC AS ON 26/06/04
f. Outstanding
g. Eligibility
Less: Primaries Payment on
ELIGIBILITY
NODC Production Basis
Achi under Spl. Programme
Total
Outstanding
h. ELIGIBILITY
Less: Primaries Payment on
ELIGIBILITY
ELIGIBILITY for Drawal whichever is lower
Amount of drawal applied for
Amount recommended for disbursement
917 - III
Eligibility for Normal Power-loom Addl
drawal applied for
IV CASH RESERVES AND LIQUID ASSETS:
i. (a) Position Enclosed as on
(b) Is the position given not earlier than 13 days from
the date of drawal application
ii. Cash Reserve required to be maintained 3%
iii. Cash Reserve maintained
iv. % of Cash Reserve over and above 6%
(a) Reasons, if any, indicated by the DCCB for excess
cash reserve maintained
(b) Whether the same is justified
vi. Liquidity required to be maintained
vii. Liquidity maintained
viii. Surplus (+) / Deficit (-)
V. IS THE DCCB PROMPT IN SENDING THE RETURNS PRESCRIBED BY US
Name of the Return For the month of Due on Received on
Revolving Credit
Non-overdue cover
VII. RECEIPT OF
DOCUMENTS
(TO BE ENCLOSED)
Revolving Credit
Non-overdue cover
III. Whether the DCCB has
adequate Reserve Borrowing
Power to sustain the drawal
applied for
SUMMARY OF OBSERVATIONS AND RECOMMENDATIONS
The ------ CCB is eligible for the drawal of Rs. applied for.
If approved we may allow the drawal as requested by the CCB
For instructions please.
Manager : Chief Manager:
Asst. General Manager:
918 - III

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OPERATIONAL MANUAL

LOANS AND ADVANCES

LOANS AND ADVANCES

I would like to place on record my personal appreciation to Shri B Subrahmanyam, Managing

Mumbai (DR. BIJENDER SINGH)

Volume I : Manual on Branches and Banking Operations

Chapter Titles Page Nos.

LOANS AND ADVANCES

d. The National Cooperative Policy formulated by the Ministry of Agriculture, Government of

Volume – I : Manual on Branches and Banking Operations

a. Another important principle of good lending is the diversification of advances. An element of

b. Due to liberalization measures initiated by the government, banks have to operate in a

10. Norms on credit exposure:

11. Fair Lending Practices Code (FLPC):

e. On receipt of loan application complete in all respects, branches should give an

12. Bank's Loan Policy:

b. The Policy is based on the following factors:

i. RBI's Monetary and Credit Policy

a. Bank, normally considers the following types of Loans and Advances:

i. Temporary overdrafts / Clean Cash Credits

14. Pricing of Loan Products:

15. Charging of Interest :

16. Service charges on Advances:

17. RBI Regulations and Restrictions on Loans and Advances:

a. The Barron's Banking Dictionary defines a borrower as a 'Person or organization obtaining

b. Limited Company as a Partner:

c. Minor admitted to the benefit of partnership:

d. Implied powers of partners:

l submit a dispute to arbitration,

e. Personal liability of the partners:

i. On adjudication of a partner as insolvent, he ceases to be a partner effective from the date of

i. On death of a partner or adjudication of a partner as insolvent, unless there is a provision to

i. Death certificate/notice of retirement/notice of adjudication of a partner as insolvent

o. Continuing guarantee given for firm's borrowings:

i. restricts the right to transfer its shares

b. Public Limited Company: A Public Company means a Company which

i. is not Private Company;

i. Certificate of Incorporation: This Certificate of Incorporation is issued by the Registrar of

e. Borrowing powers of a Company:

x. Before an application for advance by a Limited Company is entertained, a resolution

l Nature and extent of borrowing;

l Persons authorized to give securities and sign documents; and

l Persons authorized to operate on the account.

f. Advances to banking companies:

g. Guarantee by the company:

i. The Memorandum of Association of the company must specifically and unequivocally

h. Advances to Private Companies becoming Public Companies:

k. Search in the Books of the Registrars of Companies:

iii. A hypothecation accepted from a Company registered in a foreign country must, in

n. Filing of Charge prior to disbursal of advances:

o. Consequences of Non-Registration of Charges:

p. Registration of Modification of Charges:

q. Registration of complete satisfaction of charge:

r. Fraudulent conveyance of property to a company:

i. Board Resolution is necessary for the purpose of execution of renewal

i. Required share capital contribution to the higher financing agency

i. One Junior Supervisor for inspecting Ten PWCS

PROCESSING OF CREDIT PROPOSALS

a. Working Capital Loans:

3. Documents / Documentations: Irrespective of the nature/quantum of credit facility, a

4. Pre-sanction Process:The stages of Pre-sanction are:

l Inclusion of assets not standing in the applicant's name

6. Net Worth: The tangible net worth shall be arrived at as under: