Advances-Core Business of Banks Part-1
Hello and welcome…!
Today we are going to discuss about banking advances/loans which is a core business of banks across the globe. In India loan advancement is categorized mainly in two types i.e
1)Priority sector advances
2)Non priority advances
Priority sector advances further classified into,
- Indirect agriculture- Loans to agri allied activities.
- Other indirect agriculture loans- Loans to Agriclinics and Agribusiness Centres.
- Bank loans to MFIs/micro small lending- Micro credit loans to NGO/SHG/JLG.
- Housing loans
- Education loans
Non-priority sector advances advances further classified into,
- shares and debentures
- mutual fund investment
- business activity
- insurance policies
- Bank Guarantee etc.
so we done with broad classification of advances/loans. Now we are going to give you details of each category.
First category we are going to see in this post is agricultural advances(priority sector)
AGRICULTURE ADVANCES(direct and indirect)
Indian economy is agro economy. About 60% people dependent on this sector. Institutional credit plays an important role in increasing capital formation in the rural area. At present in terms of Government/ RBI guidelines, commercial banks are required to lend 18% of net credit to agriculture.
Agriculture advance is classified in to two categories
(a) Direct Agriculture
1) Finance to Individuals
- Short term loansfor raising crops
- Advances up to Rs.10 lakh against pledge, hyp.of agri. Produce for a period of not exceeding 12 months.
- Working capital & term loan for production & investment
- Loans to SF/MF for purchase of land for agriculture purpose
- Credit to distressed farmers indebted to non institutional lenders against appropriate collateral / group security
- Advances granted for pre harvest and post harvest activities such as spraying, weeding, harvesting, grading, sorting, processing and transporting undertaken by individuals, SHGs and cooperatives in rural India.
2) Finance to agri institutes/partnerships/mandals
- Loans granted for pre harvest and post harvest activities such as spraying, weeding, harvesting, grading, sorting, processing and transporting.
- Financing up to an aggregate amount of Rs. One crore in aggregate per borrower for agriculture & allied activities.One third of loans in excess of Rs.1 Crore in aggregate per borrower for agriculture & allied activities.
(b) Indirect Agriculture
- Agri well/tube/pipe
- Oil engine/Ele. Motor
- Purchase of bullocks
- Purchase of cows / milch animals
- Improvement of land,leveling,bunding etc.
- Purchasae of Tractor / Power Tiller, other farm machinery.
- Installation of Gobar gas plant.
- Horticulture/ plantation.
- Two third of loans to entities covered above in excess of Rs.1.0crore in aggregate per borrower for agriculture and allied activities.
- Loans to food and agro based units with investment in plant & machinery up to Rs. 10 crore.
- Credit for purchase & distribution of fertilizer,pesticides,seeds.
- Loans up to Rs.40 lacs granted for purchase & distribution of inputs for allied activities.
- Setting up of Agriclinic and agri business centres
- Financing for hire-purchase schemes fdor distribution of agricultural machinery & implements
- Loans to farmers through PACS,FSS,LAMPS
- Loans to cooperative societies of farmers for disposing of the produce of members.
- Existing investments in NABARD bonds.
- Loans for construction and running of storage facilities
- Advances to custom service units
- Finance extended to dealers in drip sprinkler irrigation system / agri machinery with ceiling of Rs.30 lakh per dealer.
- Loans to arhthias for extending credits to farmers for supply of inputs as also for buying the output from individual farmers/ SHGs /JLGs
- Cent percent of the credit outstanding under loans to general purpose under General Credit Cards(GCC)DocumentationAll Extract entire land,survey number/Gut numbers ( e.g 8 A/7/12 extract in Maharashtra).It may vary from state to state.
- Cropping pattern for last two years and current season registered from village level Govt. revenue authority (Talathi) and Gramsewak.
- Mutation certificates ( 6 D extracts in Maharashtra)
- Dues/ No dues certificate from primary agricultural co-op credit society, Land Development Bank (LDB), nationalized banks functioning in near by area.
- When the purpose is crop loan for sugarcane, Plantation certificate and undertaking from sugar factory for deduction and remittance of dues directly to Bank.KYC documents such as aadhar card, pancard etc
- If loan proposal is for milch animals then obtain certificate from village dairy society mentioning that applicant is a member of the society and society undertakes to deduct and remit loan repayment installment to the bank.
- Quotation for two qualified dealers, if loan proposal is for purchase of electric motor, oil engine, pump set, pipeline, tractor, trailer, power tiller, sprayers, dusters or any other equipment /machinery,
- Certificate from the Authorised Civil Engineer if proposal is for dug well/ well deepening and if estimated cost is more than the approved unit cost as given by NABARD / Central office of the bank.
- For new well, obtain certificate from Ground water Survey and Development Agency(GSDA) clearly mentioning the water availability, if proposed well is located in Grey watershed.
- If the loan proposal is for lift irrigation then obtain plan and estimates from professional consulting engineer.
- Electricity board deposits receipt, wherever applicable.
- All loan applications up to a credit limit of Rs.25000/- should be disposed off within a fortnight.
- Those over Rs.25000/- within 8 to 9 weeks, from the date of the receipt of application and the relevant paper, extracts etc.
- In case of illiterate applicants, thumb impression should be obtained properly. Thumb impression should be witnessed by another person (our account holder) and his name, address should be noted.
- Wherever two guarantors are required to be taken.
- The application form should also accompany the personal information of guarantors in the prescribed standard form along with the following records in support of information furnished.
Scrutiny of application:
The following aspects need to be looked into:-
- Particulars of land, nature of rights, land ceiling provision, cultivable area etc. are to be ascertained from the land records enclosed with the application.
- Outside liabilities, charge/encumbrance on the land by other credit institutions.
- Suitability of the activity proposed.
- Cropping pattern existing & proposed.
- Approximate market value of security available.
Pre sanction visit :
Pre sanction visit to the applicant ‘s farm for scrutiny of the application is an important step and is to be conducted to ascertain following :
- Whether the particulars given the application are correct.
- Progressiveness, Capability, Credit worthiness, Integrity of applicant
- Credit worthiness of guarantors.
- Financial viability / economics of the activity proposed.
- On ascertaining the feasibility and viability of the proposal / activity in all aspects i.e. commercial, financial managerial, organizational ,technical, economical and legal ( CFMOTEL)
|MARGIN AND SECURITY NORMS FOR AGRICULTURAL ADVANCES|
|Credit facility||Amount of loan||Margin||Security|
|Crop loans &||i) Up to Rs.50,000||No margin||Hyp. Of crops|
|other short term loans||ii) Over Rs. 50,000||15 to 20%||a) Hyp of crops and|
|(depending upon purpose||b) Mortgage of land or third party|
|& quantum of finance||guarantee|
|Term loans||i) Up to Rs.50,000||No margin||Hyp. of assets|
|ii) Over Rs. 50,000||15 to 20%||Hyp of assets and mortgage of|
|(depending upon purpose||land* or third party guarantee|
|& quantum of finance)|
|Agri clinic & Agri.Business||Up to Rs.5.0 lakhs||No margin||Only Hyp of assets|
|*In case of term loans over Rs.50,000/- where movable assets are not created,mortgage of land should be taken as primary security.|
|Note: In states where legislation on the lines suggested by Talwar committee has been passed a simple declaration creating a charge on land offered as security will be sufficient.In such cases mortgage of land may not be necessary.|
- Applicant shall bring margin in the form of cash or in kind in the form of investment or own human labour.
- When margin is in form of cash for, it be kept in SB a/c prior to sanction cash.
- Technical Committee at district level decides the scale of finance for crop loan.
- Wherever subsidy is available , the subsidy should be treated as margin and no further margin should be insisted.
The dates of repayment of crop loans and instalments of term loans should coincide with the time of harvesting and marketing of crops.
Depending on the period required for marketing of crops, the following dates can be fixed as maximum period of repayment.
a-Kharif crops- 31st March,
b-Rabi Crops -30th June,
C-Summer & perennial crops-Two months from harvest of crops matching nearest quarter end.
In case of Kharif, Rabi, Summer and perennial crops, the annual repayment is fixed on or before 30th june.
Monthly, quarterly, half yearly repay is in case of loans for allied activities like Dairy, Poultry.