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FY 2024-25 Policy सार Agriculture Motivate Everyone To Aspire Page | 1 Union Learning Academy, Rural & FI - Hyderabad Table of Contents PRIORITY SECTOR GUIDELINES......................................

FY 2024-25 Policy सार Agriculture Motivate Everyone To Aspire Page | 1 Union Learning Academy, Rural & FI - Hyderabad Table of Contents PRIORITY SECTOR GUIDELINES............................................................................................................... 3 POLICY FOR ENGAGEMENT OF COLLATERAL MANAGEMENT AGENCY (CMA)................................... 11 POLICY ON RELIEF MEASURES BY BANKS IN AREAS AFFECTED BY NATURAL CALAMITIES................ 16 POLICY ON LENDING TO MICRO FINANCE INSTITUTIONS (MFI) FOR ON LENDING TO MICRO BORROWERS......................................................................................................................................... 25 GOLD LOAN POLICY.............................................................................................................................. 33 FINANCIAL INCLUSION POLICY............................................................................................................. 44 Disclaimer: This is A voluntary effort for dissemination of knowledge and enabling people to prepare for promotion test. Best efforts have been put to provide the accurate and updated information. However, the users are requested to refer relevant circulars and policies of our Bank & RBI for further clarity. Page | 2 Union Learning Academy, Rural & FI - Hyderabad  PRIORITY SECTOR GUIDELINES CATEGORIES AND TARGETS UNDER PRIORITY SECTOR The Categories under Priority Sector are as follows: ❖ Agriculture ❖ Micro, Small and Medium Enterprises ❖ Export credit ❖ Education ❖ Housing ❖ Social Infrastructure ❖ Renewable Energy ❖ Others Targets/ Sub targets for Priority Sector The targets and sub-targets set under priority sector lending, to be computed onthe basis of the ANBC/ CEOBE as applicable as on the corresponding date of the preceding year, are as under Categories Domestic Foreign banks Regional Rural Small commercial banks with less than Banks Finance (excl. RRBs & SFBs) 20 branches Banks & foreign banks with 20 branches and above Total 40 per cent of ANBC as 40 per cent of 75 per cent of 75 per cent of Priority computed in para 6 ANBC as ANBC as ANBC as Sector below or CEOBE computed in para computed in para 6 computed in whichever is higher 6 below or below or CEOBE para 6 below CEOBE whichever is or CEOBE whichever is higher; However, whichever is higher; out of lending to Medium higher. which up to 32% Enterprises, Social can be in the Infrastructure and form of lending to Renewable Energy Exports and not shall be reckoned less than 8% can for priority sector be to any other achievement only priority sector up to 15 per cent of ANBC. Agriculture 18 per cent of ANBC or Not applicable 18 per cent ANBC 18 per cent of CEOBE, whichever is or CEOBE, ANBC or higher; out of which whichever is CEOBE, a target of 10 percent# higher; out of whichever is is prescribed for Small which a target of higher; out of and Marginal Farmers 10 percent# is which a (SMFs) prescribed for target of 10 SMFs percent# is prescribed for SMFs Page | 3 Union Learning Academy, Rural & FI - Hyderabad  Micro 7.5 per cent of ANBC Not applicable 7.5 per cent of 7.5 per cent Enterprises or CEOBE, whichever ANBC or CEOBE, of ANBC or is higher whichever is higher CEOBE, whichever is higher Advances 12 percent# of ANBC Not applicable 15 per cent of 12 percent# to Weaker or CEOBE, whichever ANBC or CEOBE, of ANBC or Sections is higher whichever is higher CEOBE, whichever is higher # Revised targets for SMFs and Weaker Section will be implemented in a phased manner as indicated in para 5.2 UCBs shall comply with the stipulated targets as under: Categories Primary Urban Co-operative Banks Total 40 per cent of ANBC or CEOBE, whichever is higher, in FY2019-20, Priority which shall stand increased to 75 per cent of ANBC or CEOBE, Sector whichever is higher, with effect from FY2025-26. UCBs shall comply with the stipulated target as per the following milestones: FY2019- FY2020- FY2021- FY2022- FY2023- FY2024- FY2025- IMP 20 21 22 23 24 25 26 40% 45% 50% 60% 60% 65% 75% Micro 7.5 per cent of ANBC or CEOBE, whichever is higher Enterprises Advances 12 per cent of ANBC or CEOBE, whichever is higher. The revised to Weaker targets for weaker sections will be implemented in a phased manner Sections as indicated below: IMP FY2019- FY2020- FY2021- FY2022- FY2023- FY2024- FY2025- 20 21 22 23 24 25 26 10.00% 11.00% 11.50% 11.50% 11.50% 11.75% 12.00% All domestic banks (other than UCBs) and foreign banks with more than 20branches are directed to ensure that the overall lending to Non-Corporate Farmers (NCFs) does not fall below the system-wide average of the last three years’ achievement which will be separately notified every year. The applicable target for lending to the non-corporate farmers for FY 2022-23 will be 13.78% of ANBC or CEOBEwhichever is higher. Computation of Adjusted Net Bank Credit (ANBC) For the purpose of priority sector lending, ANBC denotes the outstanding BankCredit in India [As prescribed in item No.VI of Form ‘A’ under Section 42 (2) ofthe RBI Act, 1934] and computed as follows: Page | 4 Union Learning Academy, Rural & FI - Hyderabad  Bank Credit in India [As prescribed in item No.VI of Form `A’ under I Section 42(2) of the RBI Act, 1934] Bills Rediscounted with RBI and other approved Financial Institutions II Net Bank Credit (NBC)* III(I-II) Outstanding Deposits under RIDF and other eligible funds with NABARD, IV NHB, SIDBI and MUDRA Ltd in lieu of non-achievement of priority sector lending targets/sub-targets + outstanding PSLCs Eligible amount for exemptions on issuance of long-term bonds for V infrastructure and affordable housing Advances extended in India against the incremental FCNR (B)/NREdeposits, VI qualifying for exemption from CRR/SLR requirements. Investments made by public sector banks in the Recapitalization Bonds VII floated by Government of India Other investments eligible to be treated as priority sector (e.g. VIII investments in securitisation notes) Face Value of securities acquired and kept under HTM category under the IX TLTRO 2.0 Bonds/debentures in Non-SLR categories under HTM category X For UCBs: investments made after August 30, 2007 in permitted non SLR XI bonds held under ‘Held to Maturity’ (HTM) category ANBC (Other than UCBs) III + IV- (V+VI+VII) +VIII - IX + X ANBC for UCBs III + IV - VI - IX + XI IMP Adjustment for weights in PSL Achievement To address regional disparities in the flow of priority sector credit at the district level, it has been decided to rank districts on the basis of per capita credit flow to priority sector and build an incentive framework for districts with comparatively lower flow of credit and a dis-incentive framework for districts with comparatively higher flow of priority sector credit. Accordingly, from FY 2021-22 onwards, a higher weight (125%) would be assigned to the incremental priority sector credit in the identified districts where the credit flow is comparatively lower (per capita PSL less than ₹6000), and a lower weight (90%) would be assigned for incremental priority sector credit in the identified districts where the credit flow is comparatively higher (per capita PSL greater than ₹25,000). Agriculture Farm Credit (Individuals) Loans to individual farmers including Self Help Group (SHG) & Joint Liability Group (JLG) directly engaged in Agriculture & Allied activities viz., Dairy, Fishery, Animal husbandry, Poultry, Beekeeping & Sericulture. ❖ Crop loans ❖ Medium and long-term loans for agriculture and allied activities ❖ Loans for pre- and post-harvest activities ❖ Loans to distressed farmers. ❖ Kisan Credit Card Scheme Page | 5 Union Learning Academy, Rural & FI - Hyderabad  ❖ Loans to small and marginal farmers for purchase of land for agricultural purposes. ❖ Loans against pledge/hypothecation of agricultural produce up to 75 lakhs against NWRs and 50 lakhs against warehouse receipts other than NWRs ❖ Loans to farmers for installation of stand-alone Solar Agriculture Pumps and for solarization of grid connected Agriculture Pumps. ❖ Loans to farmers for installation of solar power plants on barren/fallow land or in stilt fashion on agriculture land owned by farmer. Farm Credit (Firm/Corporates) Loans to Corporate farmers, Farmers Producers Organizations / Companies of individual farmers Partnership firms & Co-operatives of farmers engaged in Agriculture & Allied Activities, IMP An aggregate limit of ₹2 crore per borrowing entity ✓ Crop loans ✓ Medium and long-term loans for agriculture and allied activities ✓ Loans for pre and post-harvest activities Loans against pledge/hypothecation of agricultural produce up to 75 lakhs against NWRs and 50 lakhs against warehouse receipts other than NWRs Loans up to ₹5 crore per borrowing entity to FPOs/FPCs undertaking farming with assured marketing of their produce at a pre-determined price. UCBs are not permitted to lend to co-operatives of farmers. Agri Infrastructure An aggregate sanctioned limit of ₹100 crore per borrower from the banking system ❖ Loans for construction of storage facilities ❖ Soil conservation and watershed development. ❖ Plant tissue culture and Agri-biotechnology, seed production, production of bio- pesticides, bio-fertilizer, and vermi composting. ❖ Loans for construction of oil extraction/ processing units for production of bio-fuels, their storage and distribution infrastructure along with loans to entrepreneurs for setting up Compressed Bio Gas (CBG) plants. Ancillary activities IMP Loans up to ₹5 crore to co-operative societies of farmers for purchase of the produce of members (Not applicable to UCBs) IMP Loans up to ₹50 crore to Start-ups, as per definition of Ministry of Commerce and Industry, Govt. of India that are engaged in agriculture and allied services. Loans for Food and Agro-processing up to an aggregate sanctioned limit of ₹100 crore per borrower from the banking system. Outstanding deposits under RIDF and other eligible funds with NABARD on account of priority sector shortfall. Page | 6 Union Learning Academy, Rural & FI - Hyderabad  Loans for setting up of Agri-clinics and Agri-business centres. Loans to Custom Service Units Bank loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-sized Adivasi Multi-Purpose Societies (LAMPS) for on- lending to agriculture. Loans sanctioned by banks to MFIs for on-lending to agriculture sector as per the conditions. Loans sanctioned by banks to registered NBFCs (other than MFIs) i.e. On-lending by NBFCs for ‘Term Lending’ component under Agriculture up to Rs.10 lakh per borrower Lending by Banks to NBFCs and MFIs for on Lending in Agriculture Bank credit to registered NBFCs (other than MFIs) towards on-lending for ‘Term lending’ component under agriculture will be allowed up to ₹ 10 lakh per borrower subject to conditions specified in para 22 and 24 (not applicable to RRBs, UCBs,SFBs and LABs). Micro, Small & Medium Enterprises (MSME) All bank loans to MSMEs Factoring Transactions (not applicable to RRBs and UCBs) ▪ With Recourse’ Factoring transactions by banks which carry out the business of factoring departmentally wherever the ‘assignor’ is a Micro, Small or Medium Enterprise would be eligible for classification under MSMEcategory on the reporting dates. ▪ Factoring transactions pertaining to MSMEs taking place through the Trade Receivables Discounting System (TReDS) shall also be eligible for classification under priority sector. KVI SECTOR: All loans to units in the KVI sector will be eligible for classification under the sub- target of 7.5 percent prescribed for Micro Enterprises under priority sector Other Finance to MSMEs: IMP ▪ Loans up to ₹50 crore to Start-ups, as per definition of Ministry of Commerce and Page | 7 Union Learning Academy, Rural & FI - Hyderabad  Industry, Govt. of India that conform to the definition of MSME as per Para 9. ▪ Loans to entities involved in assisting the decentralized sector in the supply of inputs and marketing of output of artisans, village and cottage industries. In respect of UCBs, the term “entities” shall not include institutions to which UCBs are not permitted to lend under the RBI guidelines / the legal framework governing their functioning. ▪ Loans to co-operatives of producers in the decentralized sector viz. artisans,village and cottage industries (Not applicable for UCBs). ▪ Loans sanctioned by banks to NBFC-MFIs and other MFIs (Societies, Trustsetc.) which are members of RBI recognised SRO for the sector for on-lendingto MSME sector as per the conditions specified in paragraph 21 of these Master Directions (not applicable to RRBs, SFBs and UCBs) ▪ Loans to registered NBFCs (other than MFIs) for on-lending to Micro & Small Enterprises as per conditions specified in para 22 of these Master Directions (not applicable to RRBs, SFBs and UCBs) ▪ Credit outstanding under General Credit Cards (including Artisan Credit Card, Laghu Udyami Card, Swarojgar Credit Card and Weaver’s Card etc. in existence and catering to the non-farm entrepreneurial credit needs of individuals). Outstanding deposits with SIDBI and MUDRA Ltd. on account of prioritysector shortfall Export credit (Not Applicable to RRBs and LABs): Export credit under agriculture and MSME sectors are allowed to be classified as PSL in the respective categories viz. agriculture and MSME. Export Credit (other than in agriculture and MSME) will be allowed to be classified as priority sector as per the following table. Domestic banks / WoS of Foreign banks with 20 Foreign banks with less Foreign banks/ SFBs/ UCBs branches and above than 20 branches Incremental export credit over Incremental export credit Export credit up to 32 per corresponding date of the over corresponding date cent of ANBC or CEOBE preceding year, up to 2 per of the preceding year, up whichever is higher. cent of ANBC or CEOBE to 2 percent of ANBC or whichever is higher, subject to CEOBE whichever is a sanctioned limit of up to ₹ 40 higher. crore per borrower. Page | 8 Union Learning Academy, Rural & FI - Hyderabad  Education: Loans to individuals for educational purposes, including vocational courses, not exceeding ₹ 20 lakh will be considered as eligible for priority sector classification.Loans currently classified as priority sector will continue till maturity. Housing: Bank loans to Housing sector as per limits prescribed below are eligible for priority sector classification. IMP Loans to individuals up to ₹35 lakh in metropolitan centres (with population of ten lakh and above) and up to ₹25 lakh in other centres for purchase/construction of a dwelling unit per family provided the overall cost of the dwelling unit in the metropolitan centre and at other centres does not exceed ₹45 lakh and ₹30 lakh respectively. Existing individual housing loans of UCBs presently classified under PSL will continue as PSL till maturity or repayment. Housing loans to banks’ own employees will not be eligible for classification under the priority sector. Since Housing loans which are backed by long term bonds are exempted from ANBC, banks should not classify such loans under priority sector. Investments made by UCBs in bonds issued by NHB / HUDCO on or after April 1, 2007 shall not be eligible for classification under priority sector. Loans up to ₹10 lakh in metropolitan centres and up to ₹6 lakh in other centres for repairs to damaged dwelling units conforming to the overall costof the dwelling unit. Bank loans to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers subject to dwelling units with carpet area of not more than 60 sq.m. Bank loans for affordable housing projects using at least 50% of FAR/FSI for dwelling units with carpet area of not more than 60 sq.m. Bank loans to HFCs (approved by NHB for their refinance) for on-lending, up to ₹20 lakh for individual borrowers, for purchase/construction/reconstruction of individual dwelling units or for slum clearance and rehabilitation of slum dwellers. Outstanding deposits with NHB on account of priority sector shortfall. Social Infrastructure: Bank loans to social infrastructure sector as per limits prescribed below are eligible for priority sector classification. IMP Bank loans up to a limit of ₹5 crore per borrower for setting up schools, drinking water facilities and sanitation facilities including construction Page | 9 Union Learning Academy, Rural & FI - Hyderabad  refurbishment of household toilets and water improvements at household level, etc. and loans up to a limit of ₹10 crore per borrower for building healthcare facilities including under ‘Ayushman Bharat’ in Tier II to Tier VI centres.In case of UCBs, the above limits are applicable only in centres having a population of less than one lakh. Renewable Energy: Bank loans up to a limit of ₹30 crore to borrowers for purposes like solar based power generators, biomass-based power generators, windmills, micro-hydel plants and for non- conventional energy based public utilities, viz., street lighting systems and remote village electrification etc., will be eligible for Priority Sector classification. For individual households, the loan limit will be ₹10 lakh per borrower. Others: ❖ Loans provided directly by banks to individuals and individual members of SHG/JLG ❖ Loans not exceeding ₹2.00 lakh provided by banks to SHG/JLG for activities other than agriculture or MSME, viz., loans for meeting social needs, construction or repair of house, construction of toilets or any viable common activity started by SHGs. ❖ Loans to distressed persons [other than distressed farmers indebted to non- institutional lenders] not exceeding ₹1.00 lakh per borrower to prepay their debt to non-institutional lenders. ❖ Loans sanctioned to State Sponsored Organizations for Scheduled Castes/ Scheduled Tribes for the specific purpose of purchase and supply of inputs and/or the marketing of the outputs of the beneficiaries of these organizations. ❖ Loans up to ₹50 crore to Start-ups, as per definition of Ministry of Commerceand Industry, Govt. of India that are engaged in activities other than Agriculture or MSME. Page | 10 Union Learning Academy, Rural & FI - Hyderabad  POLICY FOR ENGAGEMENT OF COLLATERAL MANAGEMENT AGENCY (CMA) The Indian agri commodity market, being highly fragmented, is characterized by a large number of participants including farmers, several layers of aggregator, processors and traders. Post-harvest financing is often missing in Indian agriculture value chain. To complete the sequence, financing against warehouse receipts is gaining importance day by day. Finance against warehouse receipts reduces inherent risk in agricultural commodity finance and enables secured credit mobilization. WHR financing offers secured collateral for banks. Warehouse Receipts provide farmers with an instrument that allows them to extend the sales period of farm produce well beyond the harvesting seasons to avoid distress selling. While delivering farm produce to a Warehouse, farmers get a warehouse receipt that can be offered as a security for availing short-term working capital. Thus, the farmer does not need to sell the farm produce immediately to ease liquidity constraints. Finance under the Scheme is in vogue in our Bank. With a view to ensure greater flow of credit to the farmers against pledge/hypothecation of agricultural produce, and to encourage use of NWR/e-NWR issued by regulated warehouses as a preferred instrument for availing bank finance by the farmers, RBI has enhanced the Priority Sector Lending (PSL) limit for loans against NWR/e- NWR from Rs 50.00 lakhs to Rs 75.00 lakhs per borrower since April 2021. However, the PSL limit backed by the warehouse receipts other than NWR/e-NWR will continue to be Rs 50.00 lakh per borrower. With a view to have an overall growth and development of warehousing sector and to promote efficiency in conduct of warehousing business, the Government of India has introduced a Negotiable Warehouse Receipts System in the country. The Government of India had notified the Warehousing (Development and Regulation) Act, 2007 in the Gazette of India. The provisions of the act have also become effective from 25th October 2010. The main objectives of the Warehousing (Development and Regulation) Act, 2007 are to make provisions for the development and regulation of warehouses, to promote professional organizations connected with the warehousing business, negotiability of warehouse receipts, establishment of a Warehousing Development and Regulatory Authority (WDRA) and related matters. The Negotiable Warehouse Receipts (NWRs) issued by the warehouses registered under this Act would help farmers to seek loans from banks against NWR to avoid distress sale of their agricultural produce. It will also be beneficial for a number of other stakeholders such as banks, financial institutions, insurance companies, trade, commodities exchange as well as the consumers. Accredited warehouseman in India can issue Negotiable Warehouse Receipts (NWRs) if they are registered with WDRA. IMP WDRA has setup a portal for online registration of warehouses. It has also setup two repositories - one sponsored by National Commodity and Derivatives Exchange Limited (NCDEX) named National E-Repositories limited(NERL) and the other sponsored by Central Depository Services (India) Limited (CDSL) named CDSL Commodity Repositories Limited (CCRL). These repositories create and manage Electronic Negotiable Warehouse Receipts (e- NWRs) throughout their life cycle. Whenever a depositor intends to pledge the commodity, Page | 11 Union Learning Academy, Rural & FI - Hyderabad he approaches the Bank which already has access to repositories to conform about the deposit of stock in registered warehouse and to mark its lien on the electronic receipts. Bank can also use the e – auction platform provided by the repositories to recover their dues in case of default. These activities are performed online. Over the past several years Collateral Management Services (CMS) have brought about a transformation by allowing banks to focus upon finance against the warehouse receipt issued by the Collateral Management Agency (CMA). The advances against warehouse receipt (WHR) by banks is in contrast to the traditional lending in the form of working capital, with credit facility based on the balance sheet of the borrowing entity and is more secured due to the Collateral Management's Services. These agencies ensure quality and quantity of commodities pledged through process controls at Warehouses/Cold Storages. In association with these CMA, our Bank has been extending pledged loans to several borrowers. CMA shall render the following Basic Collateral Management Services to the Bank: Quantity verification. Valuation of commodity. Quality verification and detailed quality certification on generally accepted parameters applicable to the commodity. Preservation of Quality, Quantity, Weight & Grade, as inherent to the Commodity during storage. Holding of commodities on behalf of the Bank as pledge and noting of lien/charge of Bank on Warehouse Receipts/Storage Receipts. Reports on commodity outlook and prices. Monthly stock statement and Price fluctuation reports duly furnishing the details on method of valuation of produces. Security of all warehouses managed by them. Informing indicative value of commodities pledged at regular interval. Value Added Services: Disposal services as and when requested by the Bank. Detailed reports on commodity outlook at regular intervals. Consultancy and Research in addition to Basic Collateral Management (CM) Services. Wherever possible, setting up of Intelligent Warehouse Management System Portal with access provision to the branch for real time report generation. Any other service requested by the Bank. ❖ CMA shall be responsible for delivering the same quality and quantity of the Commodities to Borrower after he has liquidated the facilities and in the event the Commodities are not of same quality and quantity / not available, the CMA shall be liable to make good the loss to the Borrower. ❖ CMA shall ensure primary inspection of all documents submitted by the Borrower for establishing the ownership of the Borrower over the Commodities as stipulated by Bank. OBJECTIVE OF THE POLICY The main objectives of the policy are. ❖ Lay down the selection criteria for CMA. Page | 12 Union Learning Academy, Rural & FI - Hyderabad  ❖ Define the systems and procedures for Collateral Management Service Provider ELIGIBLE ENTITIES TO BE APPOINTED AS COLLATERAL MANAGEMENT AGENCY The organizations engaged in providing warehouse management services relating to agricultural commodities and inventories which, inter alia, include Collateral Management Services, warehousing arrangements, inspection, valuation, and monitoring services etc. IMP ELIGIBILITY NORMS FOR SELECTION OF COLLATERAL MANAGEMENT AGENCY It shall be a company or Limited Liability Partnership (LLP) registered under Companies Act or LLP Act. The business activities of the company/LLP shall cover the activity of Collateral Management Service provider. Individuals/Joint Individuals/Partnership firms/HUF shall not be considered as CMA. The company/LLP should be a well-known warehousing and commodity management solutions provider in the market with proven track record. Preference shall be given to CMAs whose warehouse/godowns are registered with WDRA. The company/LLP should be financially sound and have a successful track record of running their businesses for at least 3 years. In case of newly created subsidiary of a well-known group, track record of parent company may be taken into consideration. The company/LLP, its promoters and key management team should not have any history of wrongdoing/default and having good reputation in the market. Preference should be given to the company/LLP empanelled with at least two Public Sector Banks or at least one Public Sector Bank and one Private Bank with satisfactory services. The company/LLP should have minimum Tangible Net Worth of Rs.25.00 crores to work as CMA for only one State and minimum Rs.50.00 crores to work as CMA for more than one State/National level. For Northeastern Region namely state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura, minimum Tangible Net Worth of the company/LLP should be Rs.10.00 crores. All States of Northeastern Region to be treated as one State. The company/LLP should have wide reach and possess proper infrastructure, manpower and equipment(s) to render the services. For optimum control, uniform and standard operating procedures across all locations on storage and preservation should be in place. The company/LLP should have in house commodity research and monitoring services, inventory audit services, testing and certification services, procurement services and thereby also providing comprehensive risk management services relating to pledged commodities. The company/LLP should be in a position to offer quality testing, grading and certification services as per the requirement of the Bank. The company/LLP should have well defined client and storage area selection criteria acceptable to the Bank. The company/LLP should have capacity for periodic internal and external inspection/audit of the stocks stored in the Warehouses and the sample inspection/audit report is to be submitted to the Bank. Page | 13 Union Learning Academy, Rural & FI - Hyderabad  Warehouses managed by the company/LLP should be physically and operationally suitable for the proper storage of commodities with adequate physical security and protection of stored or handled commodities from tampering or adulteration. IMP FEE STRUCTURE In consideration for the services provided by CMA, the Bank shall pay fees and charges to the CMA as under. The Collateral Management Charges (Negotiable at reduced level) shall become effective from the date of disbursement of Loan Facility by the Bank or date of actual deployment of the staff at the location by the CMA whichever is later. ❖ Up to 1.00% p.a. (plus GST) on average monthly utilization of loan amount, where business is sourced through CMA. ❖ Up to 0.75% p.a. (plus GST) on average monthly utilization of loan amount, where business is sourced through Bank. Branches/Regional Office should strictly follow the procedure of stock disposal as per Bank’s extant guidelines. Delegated authority for approval of CMA for stock disposal services or any other value added services, if required, is respective Regional Head. General Manager, ABD shall be authorized to fix fees up to 150% of the applicable fee to a particular CMA looking into the business prospect and fees charged to peer Banks. All fees and charges payable to CMA shall be net of all taxes and other mandatory payments deductible at source charged or which may be imposed in future in relation to services offered by CMA. All fees and charges are cost neutral to the Bank and shall be recovered from borrower. DELEGATED AUTHORITY FOR EMPANELMENT OF COLLATERAL MANAGEMENT AGENCY Since the approval of CMAs involves intense negotiation, delegated authority for approval of CMA will rest with Committee of GMs at Central Office (CO). The members of the Committee of GMs would be as under: a) General Manager - ABD b) General Manager - MSME c) General Manager- RMD d) General Manager -CP Presence of minimum two GMs in the committee is compulsory where presence of GM (ABD) is mandatory. In case of absence of any of the GM (CP / MSME /RMD), alternate GMs shall be the member of Committee. The Convener would be Deputy General Manager/Asst. General Manager (ABD). EXPOSURE CAP Maximum exposure cap through a particular CMA should be 10 times of its Tangible Net Worth for our bank. TNW to be computed based on last audited balance sheet, not older than 15 months and shall be computed every year. TENURE OF EMPANELMENT Page | 14 Union Learning Academy, Rural & FI - Hyderabad Initially the period of engagement as a CMA shall be for two years from the date of execution of agreement thereof, subject to renewal for successive terms on satisfactory performance with a clause of termination without assigning any reason at the option of the Bank by giving a 60 day’s advance notice. Performance will be reviewed on a biennial basis. The ineffective CMA should be removed/ replaced. Satisfactorily performing CMA may be allowed to continue operations. The indicators of performance would be business mobilization, satisfactory performance, no audit irregularities, and absence of customer complaints. DEPANELMENT PROCEDURE: If the performance of the CMA is not satisfactory or involved in any unwarranted/ unethical/ illegal practice/frauds, the CMA can be removed from the panel at the discretion of the Bank, which rests with the approving authority. The Collateral Manager shall be entitled to terminate the agreement upon 90 (ninety) days written notice of its intention to do so. In case Bank is unable to designate such person within 90 days of receipt of notice of termination of agreement, the Collateral Manager to continue to hold the goods in accordance with the terms and conditions/fee structure specified thereof in the agreement for another 60 days. (i.e., 90+60=150 days holding of period). Page | 15 Union Learning Academy, Rural & FI - Hyderabad  POLICY ON RELIEF MEASURES BY BANKS IN AREAS AFFECTED BY NATURAL CALAMITIES Periodical but frequent occurrences of natural calamities take a heavy toll on human life and cause widespread damage to economic pursuits of human beings in one area or the other of the country. The devastation caused by such natural calamities calls for massive rehabilitation efforts by all agencies. The Central Govt., State Govt. and local authorities draw-up programmes on economic rehabilitation of the affected people. The developmental role assigned to the commercial Banks and co-operative Banks, warrants their active support in revival of the economic activities. IMP In terms of National Disaster Management Framework, there are two funds constituted for providing relief in the affected areas: ▪ National Disaster Response Fund and ▪ State Disaster Response Fund This framework currently recognizes 12 types of natural calamities vide reference: Reserve Bank of India, Master Direction RBI/FIDD/2018-19/64 Ref FIDD.CO.FSD.BC No. 9/05.10.001 /2018-19 Dated 17th October 2018 on Relief Measures by Banks in Areas Affected by Natural Calamities viz. ▪ Cyclone, ▪ Drought, ▪ Earthquake, ▪ Fire, ▪ Flood, ▪ Tsunami, ▪ Hailstorm, ▪ Landslide, ▪ Avalanche, ▪ Cloud Burst, ▪ Pest Attack And ▪ Cold Wave/Frost. Of these 12 calamities, Ministry of Agriculture is the nodal ministry for 4 calamities i.e. drought, hailstorms, pest attack and cold wave/frost and the remaining 8 calamities are looked after by Ministry of Home Affairs. ROLE OF BANK The Bank's contribution in providing relief relates to rescheduling of existing loans and sanctioning of fresh loans as per the emerging requirements of the borrowers. These directions are issued covering following six aspects: ❖ Institutional Framework, ❖ Restructuring of Existing Loans, ❖ Providing Fresh Loans, ❖ Other Ancillary Relief Measures Page | 16 Union Learning Academy, Rural & FI - Hyderabad  ❖ Riots and Disturbances and applicability of guidelines. ❖ Natural Calamities Portal: Monthly Reporting Meetings of State Level Bankers' Committee/District Consultative Committee ❖ In the event of the calamity covering entire State/larger part of a State, the convener of the State Level Bankers' Committee (SLBC) will convene a meeting immediately after the occurrence of natural calamity to evolve a coordinated action plan for implementation of the relief programme in collaboration with the State Government authorities. ❖ In case the calamity has affected only a small part of the State/few districts, the conveners of the District Consultative Committees (DCC) of the affected districts shall convene a meeting immediately. In these special SLBC/DCC meetings, the position of the affected areas will be assessed to ensure speedy formulation and implementation of suitable relief measures. ❖ Wherever the calamity is very severe, the relief measures initiated and undertaken will be reviewed periodically in the weekly/fortnightly meetings of specially constituted Task Forces or sub-Committees of the SLBC till such time as conditions are normalized. Declaration of Natural Calamity Central/State Governments declare the occurrence of natural calamities. These declarations/certificates are called by different names (i.e., Annewari, Paisewari and Girdawari etc) in different states. The common thread to extend relief measures including reschedulement of loans by Bank is that the crop loss assessed should be 33% or more. For assessing this loss, in some States crop cutting experiments are carried out to determine the loss in crop yield, while some others rely on the eye estimates/visual impressions. The loss shall be assessed at District level by District Administration and same is to be communicated to branches/offices through Lead District Manager (LDM). In case of extreme situations such as wide-spread floods, etc. when it is largely clear that most of the standing crops have been damaged and/or land and other assets have suffered a wide-spread damage, the State Government/District Authorities in the specially convened SLBC/DCC meeting where the concerned Government functionary/District Collector shall explain the reasons for not estimating ‘Annewari’ (percentage of crop loss – by whatever name called) through crop cutting experiments and take decision to provide relief for the affected populace based on the eye estimate/visual impressions. In both the cases, however, DCCs/SLBC have to satisfy themselves fully that the crop loss has been 33% or more before acting on these pronouncements. Page | 17 Union Learning Academy, Rural & FI - Hyderabad  RESTRUCTURING/RESCHEDULING OF EXISTING LOANS As the repaying capacity of the people affected by natural calamities gets severely impaired due to the damage to the economic pursuits and loss of economic assets, relief in repayment of loans becomes necessary in areas affected by natural calamity and hence, restructuring of the existing loans will be required. Agriculture Loans Short-term Production Credit (Crop Loans) Branches to carry out following steps: IMP ❖ All short-term loans, except those which are overdue at the time of occurrence of natural calamity, shall be eligible for restructuring. The principal amount of the short-term loan as well as interest due for repayment in the year of occurrence of natural calamity to be converted into term loan within 3 months from the date of natural calamity. ❖ The repayment period of restructured loans will vary depending on the severity of calamity and its recurrence, the extent of loss of economic assets and distress caused. ❖ A maximum period of repayment of up to 2 years (including the moratorium period of 1 year) is to be allowed if the loss is between 33% and 50%. ❖ If the crop loss is 50% or more, the repayment period for the restructured loan may be extended to a maximum of 5 years (including the moratorium period of one year). ❖ In all cases of restructuring, moratorium period of at least one year to be considered. ❖ Further, no additional collateral security/guarantee should be insisted upon for such restructured loans. Long term (Investment) Credit The existing term loan installments to be rescheduled keeping in view of the repaying capacity of the borrowers and the nature of natural calamity. Natural Calamities where only crop for that year is damaged and productive assets are not damaged. In such cases Bank will reschedule the payment of installment during the year of natural calamity and extend the loan period by one year. Under this arrangement the installments defaulted wilfully in earlier years will not be eligible for rescheduling. Payment of interest by borrowers has to be postponed in such cases by one year. Natural Calamities where the productive assets are partially or totally damaged and borrowers are in need of a new loan. In such cases the rescheduling will be determined on the basis of overall repaying capacity of the borrower vis-a-vis his total liability (old term loan, restructured crop loan, if any and Page | 18 Union Learning Academy, Rural & FI - Hyderabad the fresh crop/term loan being given) less the subsidies received from the Government agencies, compensation available under the insurance schemes, etc. While the total repayment period for the restructured/fresh term loan will differ on case- to-case basis, generally it should not exceed a period of 5 years. Field General Managers are empowered to take action in this regard. Other Loans The decision regarding reschedulement of all other loans (i.e. besides the agriculture loans as indicated above) will be taken by SLBC/DCC depending on the severity of the calamity such as loans granted for allied activities and loans given to rural artisans, traders, micro/small industrial units or in case of extreme situations, medium enterprises also. If such a decision is taken, while recovery of all such loans to be postponed by the specified period, Bank will assess the requirement of the individual borrowers in each such case and depending on the nature of his account, repayment capacity and the need for the fresh loans, appropriate decisions will be taken. The primary consideration in extending credit to any unit for its rehabilitation should be the viability of the venture after the rehabilitation programme is implemented. Field General Managers are empowered to take action in this regard. SANCTIONING OF FRESH LOANS Once the decisions on the rescheduling of loans is taken by SLBC/DCC, pending such conversion of short-term loans, Branches will extend fresh crop loans to the affected farmers based on the scale of finance for the particular crop and the cultivation area, as per the extant guidelines. The bank will also assist in relation to agriculture and allied activities (poultry, fishery, animal husbandry, etc.) for long term loans for a variety of purposes such as repair of existing economic assets or acquisition of new assets. Similarly, rural artisans, self-employed persons, micro and small industrial units, etc. in the areas affected by natural calamities may require the credit to sustain their livelihood. Bank shall assess and decide on the quantum of fresh loans to be granted to the affected borrowers taking into consideration, amongst others, their credit requirements and the due procedure followed for sanctioning of fresh loans. Bank shall also grant consumption loan up to Rs.10,000/- to existing borrowers without any collateral. The limit may, however, be enhanced beyond Rs.10,000/- at the bank’s discretion based on SLBC recommendation. Guarantee, Security and Margin Credit should not be denied for want of personal guarantees. Where the Bank's existing security has been eroded because of damage or destruction by floods, assistance will not be denied merely for want of additional fresh security. Page | 19 Union Learning Academy, Rural & FI - Hyderabad  The fresh loan shall be granted even if the value of security (existing as well as the asset to be acquired from the new loan) is less than the loan amount. Where the crop loan (which has been converted into term loan) was earlier given against personal security/ hypothecation of crop and the borrower is not able to offer charge/mortgage of land as security for the converted loan, he should not be denied conversion facility merely on the ground of his inability to furnish land as security. If the borrower has already taken a term loan against mortgage/charge on land, the bank should be content with a second charge for the converted term loan and should not insist on third party guarantees for providing conversion facilities. Where land is taken as security, in the absence of original title records, a certificate issued by the Revenue Department officials shall be accepted for financing farmers who have lost proof of their titles i.e. in the form of deeds, as also the registration certificates issued to registered share-croppers. In the areas covered by the Sixth Schedule of the Constitution, whereby the land is owned by the community, certificate issued by community authorities may be accepted. Margin requirements to be waived or the grants/subsidy given by the concerned State Government may be considered as margin. Fresh set of Documents & Debit Balance Confirmation (DBC) to be obtained from the borrower/Guarantor at the time of restructuring. Rate of Interest The rates of interest will be in accordance with the directives of the Reserve Bank of India and Bank’s Policy. In respect of current dues in default, no penal interest will be charged. The Bank will defer the compounding of interest charges for the period to be decided by respective SLBC/DCC. IMP Bank will waive penal interest, if any, already charged in regard to the loans converted/rescheduled As notified by the Government of India, from time to time to provide relief to farmers availing short term crop loans and affected by a natural calamity, an interest subvention of 2% per annum will be made available to banks for the first year on the restructured loan amount. Such restructured loans will attract normal rate of interest from the second year onwards. However, to provide relief to the farmers affected due to severe natural calamities, an interest subvention of 2 percent per annum will be made available to banks for the first three years/entire period (subject to a maximum of five years) on the restructured loan amount. Further, in all such cases, the benefit of prompt repayment incentive @ 3% per annum shall also be provided to the affected farmers. The grant of such benefits in cases of severe natural calamities shall, however, be decided by a High Level Committee (HLC) based on the recommendation of Inter-Ministerial Central Team (IMCT) and Sub Committee of National Executive Committee (SC-NEC). Page | 20 Union Learning Academy, Rural & FI - Hyderabad OTHER ANCILLARY RELIEF MEASURES Know Your Customer (KYC) Norms – Relaxations Many persons displaced or adversely affected by a major calamity may not have access to their normal identification and personal records. In such cases a basic saving bank deposit account based on the photograph and signature or thumb impression rendered in front of the bank official shall be opened. The above instructions will be applicable to cases where the balance in the account does not exceed Rs.50,000/- or the amount of relief granted (if higher) and the total credit in the account does not exceed Rs.1,00,000/- or the amount of relief granted, (if higher) in a year. Providing access to Bank Accounts In areas where the bank branches are affected by natural calamity and are unable to function normally, Bank will operate from temporary premises, under advice to RBI. For continuing the temporary premises beyond 30 days, specific approval to be obtained from the concerned Regional Office (RO) of RBI. Bank will ensure rendering of banking services to the affected areas by setting up satellite offices, extension counters or mobile banking facilities under intimation to RBI. To satisfy customer's immediate cash requirements, restoration of the functioning of ATMs at the earliest or making alternate arrangements for providing such facilities to be given due importance. Bank will put in place arrangements for allowing their customers to access other ATM networks, Mobile ATMs, etc. Other measures that Bank may take to alleviate the condition of affected persons will be waiving ATM fees, increasing ATM withdrawal limits; waiving overdraft fees; waiving early withdrawal penalties on time deposits; waiving late fee for credit card/other loan installment payments and giving option to credit card holders to convert their outstanding balance to EMIs repayable in 1 or 2 years. Besides, all charges debited to the farm loan account other than the normal interest to be waived considering the hardship caused to farmers. The above decision will be taken on case-to-case basis after assessing the severity of natural calamity by the respective Field General Manager. APPLICABILITY OF THE GUIDELINES IN THE CASE OF RIOTS AND DISTURBANCES RBI advises the bank from time to time to extend rehabilitation assistance to the riot, disturbance affected persons, and it should be ensured that only genuine persons, duly identified by the State Administration as having been affected by the riots / disturbances, are provided assistance as per the guidelines. With a view to ensure quick relief to the affected persons, the District Collector, on occurrence of the riots/ disturbances, will ask the Lead Bank Manager (LDM) to convene a meeting of the DCC, if necessary and submit a report to the DCC on the extent of damage caused to life and property in the area affected by riots/disturbances. Page | 21 Union Learning Academy, Rural & FI - Hyderabad  If the DCC is satisfied that there has been extensive loss to life and property on account of the riots/ disturbances, the relief as per the above guidelines may be extended to the people affected by the riots/ disturbances. In certain cases, where there are no District Consultative Committees (DCC), the District Collector will request the convener of the State Level Bankers' Committee (SLBC) of the State to convene a meeting of the bankers to consider extension of relief to the affected persons. The report submitted by the District Collector and the decision thereon of SLBC/DCC shall be recorded and shall form a part of the minutes of the meeting. A copy of the proceedings of the meeting shall be forwarded to the concerned Regional Office of the Reserve Bank of India. In the event of large-scale riots, where most parts of the State/Area are affected and the State Administration is not in a position to identify the riot /disturbance affected persons and subject to SLBC s specific decision, the onus of identifying ‘genuine persons” will rest with Banks. Natural Calamities Portal: Monthly Reporting The Reserve Bank of India has developed a dedicated portal (https://dbie.rbi.org.in/DCP/) for collection and compilation of data on natural calamities on a real time basis through a centralized system. The portal provides facility for uploading data files relating to relief measures extended by banks and notification issued by State Government with regard to natural calamities. Bank has to upload the actual data on relief measures every month by the 10th of the following month. In case there is no natural calamity and/or relief measures extended, a ‘NIL’ statement shall be uploaded. The SLBC Convener Bank shall upload the notification(s) issued by State/District Authorities on declaration of a natural calamity for which relief measures were implemented by SLBC/banks. IMP Branches have to add the label “NCRSTR” for Relief measures by bank in areas affected by natural calamities to all the accounts benefited under relief measure along with details of SLBC notification. DISCRETIONARY POWERS TO RH/FGM OF BANK As per RBI directives, Regional/Zonal Managers of commercial Bank should be vested with certain discretionary powers so that they do not have to seek fresh approvals from their Central Offices to the line of action agreed to by the District/ State Level Bankers' Committees. Accordingly, FGM in case the calamity has affected in a State covering the jurisdiction of respective zone will be vested with discretionary powers for adoption of relief measures, during the time of natural calamity for scales of finance, need based restructuring of loans, extension of loan periods, sanction of new loans keeping in view the total liability of the borrower, margin, and security as per their delegations. Page | 22 Union Learning Academy, Rural & FI - Hyderabad  Looking into severity of calamity, and number of accounts, FGM may allow the regional offices for restructuring/rephasement of eligible accounts. FGM shall ensure that all the restructuring/rephasement should be completed after proper documentation as per bank’s guidelines. If SLBC declares any special scheme for natural calamity affected area, wherein concession in Rate of Interest, processing charges or any other relaxation is required for new loans, approval for the same should be obtained from CAC-I. IMP ASSET CLASSIFICATION The restructured portion of the short term as well as long-term loans will be treated as current dues and need not be classified as NPA. The asset classification of these term loans would thereafter be governed by the revised terms and conditions. Nevertheless, Bank will make higher provisions for such restructured standard advances as prescribed by Department of Banking Regulation, RBI from time to time. Further, interest income from such restructured accounts classified as ‘standard assets’ will be recognized as per the norms prescribed in the RBI guidelines. The asset classification of the remaining amount due, which have not been restructured, will continue to be governed by the original terms and conditions. Consequently, the dues from the borrower shall be classified under different asset classification categories viz. standard, sub-standard, doubtful and loss. However presently Finacle does not allow separate classification of a single account, hence a new account for restructured portion is to be opened and classified as “Standard”, till the necessary modification in the system is made. Additional finance, if any, shall be treated as "standard asset" and its future asset classification will be governed by the terms and conditions of its sanction. With the objective to ensure that banks are proactive in extending relief to the affected persons, the benefit of asset classification of the restructured account as on the date of natural calamity shall be available only if the restructuring is completed within a period of three months from the date of declaration of the natural calamity by the Government. In the event of extreme calamity, when the SLBC/DCC is of the view that this period shall not be sufficient for the banks to reschedule all the affected loans, it shall approach the Chief General Manager, Reserve Bank of India, Financial Inclusion and Development Department, Central Office, Mumbai through the concerned Regional Director of RBI. The request shall detail the reasons for not completing the exercise within the stipulated timeframe and outcome anticipated from such an extension. Such requests along with the specific recommendations of the Regional Director shall be considered on the merit of each case. The accounts that are restructured for the second time or more on account of natural calamities would retain the same asset classification category on restructuring. Accordingly, for once restructured standard asset, the subsequent restructuring necessitated on account of natural calamity would not be treated as second restructuring, i.e., the standard asset classification will be allowed to be maintained. All other restructuring norms, however, will apply. Page | 23 Union Learning Academy, Rural & FI - Hyderabad While restructuring the loans in the areas affected by natural calamities, Bank will take into account the insurance proceeds, if any, receivable from the Insurance Company. Bank will adjust these proceeds to 'restructured accounts' in cases where fresh loans have been granted to the borrowers. However, Bank will act with empathy and consider restructuring and granting fresh loans without waiting for the receipt of insurance claims, in cases where there is reasonable certainty of receipt of the claim. Page | 24 Union Learning Academy, Rural & FI - Hyderabad  POLICY ON LENDING TO MICRO FINANCE INSTITUTIONS (MFI) FOR ON LENDING TO MICRO BORROWERS IMP As per latest RBI Master directions dt: 14.03.2022, a micro finance loan is defined as a collateral free loan given to a household having annual income up to Rs 3.00lakhs. For this purpose, household shall mean an individual family unit i.e husband wife, and their unmarried children. All collateral-free loans, irrespective of end use and mode of application/ processing/ disbursal (either through physical or digital channels),provided to low-income households, i.e., households having annual income up to ₹3,00,000, shall be considered as microfinance loans. To ensure collateral-free nature of the microfinance loan, the loan shall not be linked with a lien on the deposit account of the borrower. The revised directions of RBI on regulatory framework for micro finance loans are applicable to all the regulated entities Such as Commercial banks, Small Finance banks, Local Area Bank, Regional Rural Banks, Primary Urban Cooperative Bank, State Cooperative Banks, Dist Central Cooperative Banks and including NBFCs, NBFC –MFIs & HFCs. The policy would govern all fund-based exposures to MFIs for on lending to eligible priority sector assets. The policy will encompass exposure to all types of Microfinance Institutions which are registered as NBFCs, NBFC-MFI and MFIs. PRIORITY SECTOR STATUS: Bank credit to MFIs which are members of RBI recognized SRO for the sector for on-lending to individuals and also to members of SHGs / JLGs will be eligible for categorization as priority sector advance under respective categories viz., Agriculture, MSME, Social Infrastructure and others provided the MFIs adhere to the conditions prescribed vide RBI/FIDD/2020-21/72, FIDD.Co.Plan.BC.5/ 04.09.01/2020-21 dated 04.09.2020updated upto 20.10.2022 and as updated from time to time. Not less than 75 percent of total assets of MFI (other than cash, balances with banks and financial institutions, government securities and money market instruments) are in the nature of “qualifying assets”. ELIGIBILITY NORMS FOR FINANCIAL SUPPORT TO MFI: ❖ MFI should be a registered body and should have certificate of registration (CoR). The Memorandum of Association and byelaws of the MFI should have explicit powers to raise loans from Banks and Financial Institutions, to offer security for loans availed from the Banks and Financial Institutions in such form as may be required by the lender and to carry on micro finance activities. ❖ MFI should have a track record of having undertaken micro finance operations at least for a minimum period of two years. It should have requisite experience in financing SHGs/JLGs/Individuals as its clients. ❖ It should comply with regulatory norms set by RBI/ other regulatory authority on various vital parameters viz: capital requirement, cap on margin, interest rate, other pricing guidelines, provisioning norms, etc. ❖ MFI should have been rated by an accredited external credit rating agency. Rating should be valid and should meet hurdle rate stipulations as mentioned in the policy. Page | 25 Union Learning Academy, Rural & FI - Hyderabad  ❖ MFI should have formulated a realistic business plan for the next 3-5 years demonstrating the financial sustainability of its operations. ❖ MFI should qualify benchmark of five standard ratios as mentioned in in the policy. ❖ MFI should be well governed and well managed. It should maintain a satisfactory and transparent accounting system, computerized & automated Management Information System and appropriate internal and external audit systems. ❖ MFI should not have on its Executive Committee or Board of Directors, any member who is currently holding a political office. ❖ MFI should have conducted at least one Annual General Meeting (AGM) within a period of six months from the close of accounting year. ❖ All elections in the MFI for various posts viz. Chairman, Committee, Secretary etc. must have been held in the manner specified in the bye-laws and the provisions of law as applicable to them. ❖ It should have got its accounts audited by qualified Chartered Accountant during last two years and placed the audited financial statements before its General Body within a period of six months from the close of relevant accounting year. ❖ It should have filed annual returns before the statutory authorities in accordance with the provisions of relevant laws. ❖ It should have minimum repayment performance of 90% of loan assets in performance category as at the end of previous accounting year. ❖ It should follow pricing guidelines and Fair Practices Code (FPC) stipulated by RBI. MFIs not registered as NBFC shall also follow pricing and FPC guidelines. IMP ❖ The aggregate loan provision to be maintained by MFIs at any point of time shall not be less than the higher of a) 1% of the outstanding loan portfolio or b) 50% of the aggregate loan installments which are overdue for more than 90 days and less than 180 days and c) 100% of the aggregate loan installments which are overdue for 180 days or more. ❖ As regards the criteria for selection of Micro Finance Institutions, it is desirable to deal with Micro Finance Institutions having proper credentials, track record, system of maintaining record with regular external and Internal audit in place, automated Management Information System, manpower for close follow-up and supervision. REGULATORY GUIDELINES: Bank can lend to the following types of Micro Financial Institutions. NBFC- MFI: An NBFC-MFI means a non-deposit taking Non-Banking Finance Company (NBFC) (other than a company licensed under Section 25 of the Indian Companies Act, 1956) that fulfils the following conditions: IMP Minimum Net Owned Funds (NOF) of Rs 5.00 crore. For NBFC-MFIs registered in the Northeastern (NE) Region of the country, the minimum NOF requirement shall stand at Rs 2.00 crores. Vide RBI circular RBI/2021-22/112 DOR.CRE.REC.No.60/03.10.001/2021-22 dated 22.10.2021 on Scale based Regulation (SBR) revised framework for NBFCs, regulatory net owned fund(NOF) for NBFC –MFIs shall be increased to Rs 7 Crores by 31.03.2025 (Rs 5 Crores in NE region) and to Rs 10 Crores by 31.03.2027 Pan India. Page | 26 Union Learning Academy, Rural & FI - Hyderabad  Not less than 75% of the total assets are in the nature of micro finance loans as per Master Directions dt 14.03.2022. In other words, the minimum requirement of qualifying assets/ micro finance loans for NBFC-MFIs stands revised to 75% of the total assets. Non NBFC –MFI (NGO, SHPI, and other FI) registered in any of the following legal forms whose principal object or principal business is the provision of micro finance services that are not regulated by Reserve Bank of India but are members of RBI recognized SRO for the sector. ❖ A Society registered under the Societies Registration Act, 1860. ❖ A Public Trust registered under the Indian Trust Act, 1882 or any state enactment governing religious or charitable public trusts. ❖ A Company registered under Section 25 of the Companies Act, 1956 and specifically exempted from registration by the Reserve Bank ❖ A Cooperative Society registered under the provisions of the State Cooperative Societies Act or under the Mutually Aided or Mutual Benefit Cooperative Societies Act or Multi State Cooperative Societies Act, 2002 or under any other law relating to Cooperative Societies in force in India. ❖ An NGO registered under any law in force in India. Registration: The NBFC-MFIs should be registered with RBI and shall be a member of RBI recognized SRO and in case of other MFIs (other than NBFC-MFIs) shall be a member of RBI recognized SRO. IMP Capital Adequacy: NBFC-MFIs shall maintain a capital adequacy ratio consisting of Tier I and Tier II Capital which shall not be less than 15 per cent of its aggregate risk weighted assets. The total of Tier II Capital at any point of time shall not exceed 100 per cent of Tier I Capital. To bring uniformity on par with other NBFCs while lending, it is prescribed that NBFC-MFIs shall maintain a CRAR at a level of 2% above the regulatory required level of 15%. Capital adequacy requirement guidelines shall not be applicable for Non NBFC-MFIs. Multiple lending, Over borrowing and Ghost borrowers: ❖ MFIs can lend to individual borrowers who are not members of Joint liability Group (JLG)/Self Help Group (SHG) or to borrowers that are members of JLG/SHG. ❖ A borrower cannot be a member of more than one SHG/JLG. ❖ Not more than two MFIs shall lend to the same borrower. ❖ There must be a minimum period of moratorium between the grant of the loan and the due date of the repayment of the first instalment. The moratorium shall not be less than the frequency of repayment e.g. in the case of weekly repayment, the moratorium shall not be less than one week. ❖ Recovery of loan given in violation of the regulations shall be deferred till all prior existing loans are fully repaid. Membership of Credit Information Companies (CICs): Page | 27 Union Learning Academy, Rural & FI - Hyderabad  Every NBFC-MFI has to be a member of all Credit Information Company (CICs) and MFI has to be a member of at least one Credit Information Company (CIC) established under the Credit Information Company Regulation Act-2005. Limit on Loan Repayment Obligations of a Household: Each MFI shall have a board approved policy regarding the limit on outflows on account of repayment of monthly loan obligations of a household as percentage of the monthly household income. This shall be subject to a limit of a maximum of 50 percent of the monthly household income. The computation of loan repayment obligations shall consider all outstanding loans (collateral free micro finance loans as well as any other type of collateralized loans) of the household. The outflows capped at 50 percent of the monthly household income shall include repayments (including both principal as well as interest component) towards all existing loans as well as the loan under consideration. Margin Cap & Interest Rate: The banks have to ensure that MFIs comply with the following caps on margin and interest rate as also other ‘pricing guidelines’, to be eligible to classify these loans as priority sector loans. IMP (i) Margin Cap: The cap on the difference between the amount charged to the borrower and cost of funds to the MFI shall not exceed 10 percent for large MFIs having loan portfolio exceeding ₹100 crore and 12 percent for others. (ii) Interest: The interest rates charged by an MFI to its borrowers shall be the lower of the following A) The cost of funds plus margin as in para (i) above or B) The average base rate of the five largest commercial banks by assets multiplied by 2.75. The average of the base rates of the five largest commercial banks shall be advised by RBI on the last working day of the previous quarter, which shall determine interest rates for the ensuing quarter. C) MFI shall ensure that the average interest rate on loans sanctioned during a quarter does not exceed the average borrowing cost during the preceding quarter plus the margin within the prescribed cap. D) The maximum variance permitted for individual loans between the minimum and maximum interest rate cannot exceed 4 percent. E) The average interest paid on borrowings and charged by the MFIs are to be calculated on average monthly balances of outstanding borrowings and loan portfolio respectively. The figures shall be certified annually by Statutory Auditors and also disclosed in the Balance sheet. F) Processing charges shall not be more than 1% of gross loan amount. Processing charges need not be included in the margin cap or interest cap. G) MFIs shall recover only the actual cost of insurance for group or livestock, life health for borrower and spouse. Administrative charges where recovered shall be as per IRDA guidelines. Provisioning Norms: For non-performing assets related to micro finance loans of NBFC-MFIs provisioning norms shall be as below. Page | 28 Union Learning Academy, Rural & FI - Hyderabad IMP ❖ The aggregate loan provision to be maintained by MFI at any point of time shall not be less than the higher of a) 1% of the outstanding loan portfolio or b) 50% of aggregate loan installments which are overdue for more than 90 days and less than 180 days and c) 100% of the aggregate loan installments which are overdue for 180 days or more. ❖ if the advance covered by Credit Risk Guarantee Fund Trust for low income Housing (CRGFTLIH) guarantee becomes non-performing , no provision need be made towards the guaranteed portion. The amount outstanding in excess of the guaranteed portion shall be provided for as per provisioning norms as mentioned in 13 of these directions ( RBI directions RBI/2016-17/44 Master Directions DNBR (PD) : 007/03.10.119/2016-17 dt : 01.09.2016 updated upto 29.12.2022). ❖ All other provisions contained in chapter IV of RBI directions ( i.e., Master Directions dt; 01.09.2016 updated upto 29.12.2022) where not contradictory to the contents of this paragraph shall be applicable to NBFC-MFIs ❖ An NBFC which does not qualify as an NBFC-MFI shall not extend loans to micro finance sector which is in aggregate exceed 25% of its total assets. BORROWER STANDARD: The financial strength of the borrower client shall be adequate, in relation to the project size/volume of operations proposed to be undertaken and risks involved therein. The benchmarks in respect of Current Ratio, TOL / TNW, DER, DSCR, Interest Service Coverage ratio, IRR etc shall not be applicable for financing to NBFC - Micro Financial Institutions (NBFC-MFIs) in view of the nature of industry and separate RBI Regulatory framework. However, benchmarks as per Regulatory Guidance will be applicable to NBFCs / Financial Institutions. The guidelines/benchmarks to be followed while lending to NBFCs shall be as per latest RBI Master Circular / Direction on “Bank Finance to Non-Banking Financial Companies (NBFCs)”. Following five standards ratios and their benchmark standards shall be considered for all microfinance proposals finance from our bank. Relaxation in benchmark ratios may however be considered on merits of the case by the respective sanctioning authority. IMP S.N Ratio Formula Benchmark 1 Operational Self Total operating income divided Above 100% Sufficiency Ratio (OSS) by total expenditure 2 Portfolio At Risk (PAR) Loan over dues greater than 30 Less than 5 % 30 days days divided by total outstanding loan portfolio 3 Operating Cost Ratio Total operating cost during the Less than 20% (OCR) period divided by average outstanding loan portfolio 4 Total Cost Ratio (TCR) Total cost during the period Less than 30% divided by average outstanding loan portfolio 5 Average Borrower per No. of Borrowers divided by Between 250 to Credit Officer (ABCO) No.of Credit Officers 600 Page | 29 Union Learning Academy, Rural & FI - Hyderabad  ❖ Institutions like MFI may not match the repayment obligations from internal accruals. MFI will repay mainly from the recovery from their members, not from cash profit. While assessing the loan, instead of Debt Service Coverage Ratio (DSCR), the past and projected recovery pattern (Micro clients to MFI) should be ascertained, which should be more than 90%. ❖ Only Term Loan facility is to be granted to MFI. No working capital limits (Running accounts eg; CC/OD) to be sanctioned. Bank’s Term Loan to MFI will continue to be a need-based appraisal. MFI is required to submit business plan for at least next 3 years. Business plan should be realistic and based on the past trend. Business plan will provide detailed fund requirement with breakup and assumptions behind reckoning. Fund requirement should be reasonable and in line with the projection. All projected parameters of business plan should be compared with the actual achievement in the current year and past 2 years. The assumptions behind preparation of business plan to be critically analyzed. The need-based loan requirement is to be assessed on following lines: S. No. Particulars for financial year ………….. Amount 1. Loan Disbursements for the year 2. Recovery from members during the Year 3. Net Fund Demand for the year (1 - 2) 4. Add: Repayment of loan for the year 5 Gross Fund Demand for the year (3+4) 6 Funds projected through Equity/Donation/Grant in the year Funds projected through other sources in the year (i.e. 7 Debentures/Sub Debt, if any) 8 Funds received in previous year, to be disbursed this year 9 Funds through securitization/ sell off of portfolio, etc 10 Surplus from operations/internal accruals 11 Borrowing Gap [5- (6+7+8+9 +10)] 12 Funds received through borrowing till date in the year 13 Balance Borrowing requirement in the year (11-12) RISK RATING: For borrowers with aggregate credit exposure of above Rs.5 crores or average turnover of above Rs.25 crores in the last 3 years or 3 years average projected turnover of above Rs.25 crores and exposures to Banks, NBFCs, CREs, Brokers & MFIs, initiators have to select the appropriate CRISIL RAM model. All accounts enjoying Fund Based and Non Fund Based limits above Rs.25.00 crores (exposure from the banking system) are to be rated by the External Credit Rating Agencies. MFI Model To be used to assess Micro Finance Institutions. RAM - MFI with grades ranging from UBC 1 to UBC10. UBC 1 to UBC 5 Investment Grade UBC 6 to UBC 10 Non – investment Grade Rating Grade For cases rated using Assessment Type– company without project. Score UBI1 8.5-10 UBI2 7.5-