by the Banking Institutions. The lending to agriculture sector include Farm Credit (Agriculture and Allied Activities), lending for Agriculture Infrastructure and Ancillary Activities.
Farm Credit – Individual farmers
Loans to individual farmers and Proprietorship firms of farmers, directly engaged in Agriculture and Allied Activities, viz. dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture includes the following :
(a) Crop loans including loans for traditional/non-traditional plantations, horticulture and allied activities.
(b) Medium and long-term loans for agriculture and allied activities (e.g. purchase of agricultural implements and machinery and developmental loans for allied activities).
(c) Loans for pre and post-harvest activities viz. spraying, harvesting, grading and transporting of their own farm produce.
(d) Loans to distressed farmers indebted to non-institutional lenders.
(e) Loans under the Kisan Credit Card Scheme.
(f) Loans to small and marginal farmers for purchase of land for agricultural purposes.
(g) Loans against pledge/hypothecation of agricultural produce (including warehouse receipt1) for a period not exceeding 12 months subject to a limit up to ₹50 lakh.
(h) Loans to farmers for installation of stand-alone Solar Agriculture Pumps and for solarisation of grid connected Agriculture Pumps.
(i) Loans to farmers for installation of solar power plants on barren/fallow land or in stilt fashion on agriculture land owned by farmer.
(j) The Self Help Groups (SHGs) or Joint Liability Groups (JLGs) i.e. groups of individual farmers, provided banks maintain disaggregated data of such loans.
Farm Credit – Corporate farmers
Farmer Producer Organisations (FPOs)/(FPC) Companies of Individual Farmers, Partnership firms and Co-operatives of farmers engaged in Agriculture and Allied Activities should be cover by the following parameter.
(a) Loans for the following activities will be subject to an aggregate limit of ₹2 crore per borrowing entity:
(b) Crop loans to farmers which will include traditional/non-traditional plantations and horticulture and loans for allied activities.
(c) Medium and long-term loans for agriculture and allied activities (e.g. purchase of agricultural implements and machinery and developmental loans for allied activities).
(d) Loans for pre and post-harvest activities viz. spraying, harvesting, grading and transporting of their own farm produce.
(e) Loans up to ₹50 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts2) for a period not exceeding 12 months.
(f) Loans up to ₹5 crore per borrowing entity to FPOs/FPCs undertaking farming with assured marketing of their produce at a pre-determined price.
(g) UCBs are not permitted to lend to co-operatives of farmers.
Farm Credit- Agriculture Infrastructure
Loans for agriculture infrastructure will be subject to an aggregate sanctioned limit of ₹100 crore per borrower from the banking system. An indicative list of eligible activities under Agriculture infrastructure covers the following:
(a) Loans for construction of storage facilities (warehouse, market yards, godowns and silos) including cold storage units/cold storage chains designed to store agriculture produce/products, irrespective of their location
(b) Soil conservation and watershed development.
(c) Plant tissue culture and agri-biotechnology, seed production, production of bio-pesticides, bio-fertilizer, and vermi composting
(d) 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.
Farm Credit- Ancillary Services
An indicative list of eligible activities under Ancillary Services covers the following:
(a) Loans for setting up of Agri-clinics and Agri-business centres.
(b) Loans to Custom Service Units managed by individuals, institutions or organizations who maintain a fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and undertake farm work for farmers on contract basis.
(c) 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.
(d) Loans sanctioned by banks to MFIs for on-lending to agriculture sector as per the conditions specified in paragraph 21 of these Master Directions.
(e) Loans sanctioned by banks to registered NBFCs (other than MFIs) as per conditions specified in paragraph 22 of these Master Directions.
(f) Further there is a list of Permissible Twenty Eight Activities under Food Processing Sector as shared by Ministry of Food Processing Industries (MoFPI)
However , the loans under ancillary services will be subject to limits prescribed as under:
(a) Loans up to ₹5 crore to co-operative societies of farmers for purchase of the produce of members (Not applicable to UCBs)
(b) 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.
(c) Loans for Food and Agro-processing up to an aggregate sanctioned limit of ₹100 crore per borrower from the banking system.
(d) Outstanding deposits under RIDF and other eligible funds with NABARD on account of priority sector shortfall.
(e) KCC facility has been extended to Animal Husbandry farmers and Fisheries for working capital (FIDD. CO. FSD. BC. 12/05.05,010/2018-19 dated Feb 04 2019
Small and Marginal Farmers (SMFs)
For the purpose of eligible loan, Small and Marginal Farmers will include the following:
(a) Farmers with landholding of up to 1 hectare (Marginal Farmers).
(b) Farmers with a landholding of more than 1 hectare and up to 2 hectares (Small Farmers).
(c) Landless agricultural labourers, tenant farmers, oral lessees and share-croppers whose share of landholding is within the limits prescribed for SMFs.
(d) Loans to Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual SMFs directly engaged in Agriculture and Allied Activities, provided banks maintain disaggregated data of such loans.
(e) Loans up to ₹2 lakh to individuals solely engaged in Allied activities without any accompanying land holding criteria.
(f) Loans to FPOs/FPC of individual farmers and co-operatives of farmers directly engaged in Agriculture and Allied Activities where the land-holding share of SMFs is not less than 75 per cent, subject to loan limits prescribed in ancillary services loan limits.
(g) In terms of RBI Circular FIDD CO. FSD BC No. 13/05.05.010/2018-19 dated Feb 07, 2019; no collateral (i.e. mortgage on agricultural land) is required for agricultural loans up to Rs. 1.60 lakh.
(h) Small and Marginal Farmers loaning is considered as lending under Weaker Sections category as per RBI/FIDD/2020-21/72 Master Directions FIDD. CO. Plan. BC. 5/ 04.09.01/ 2020-21
Due diligence and Assessment of Requirements
An auditor should be aware of bank’s adherence to credit policy/guidelines based on the guidance note on credit risk management and revised KCC scheme issued by the Reserve Bank Of India in October 2002 and to check whether:
(a) necessary due diligence as per bank’s policy has been carried out for the following.
~pre-inspection report,
~lawyer search report,
~report of credit information company,
~copy of khasra and khatauni
(b) credit limits are assessed on the basis of relevant criteria as per bank’s policy, such as:
~operational land holding,
~cropping pattern and
~current scale of finance for short term farm credit and term loan components.
Disbursement and Documentation
An auditor is require to check whether
(a) Disbursement has been made to borrower’s SB account/as per bank’s guidelines;
(b) Mandatory crop insurance premium has been paid through KCC accounts;
(c) Check few account statements for potential transfer of disbursement to intermediary account or to close the existing NPA KCC account if any.
(d) Necessary documentation has been duly completed and held on records such as
- declaration from borrower for noting charge in land revenue records and mortgage of land
- hypothecation of crop and mortgage of agricultural land, if required, per bank’s policy
- noting of charge in land revenue records
- Simple registration of mortgage (SRM) of land, if mortgaged, with sub-registrar.
NPA Norms for Agricultural Finance
As per the Prudential Norms for Agricultural Advances granted for agricultural purposes are treated as NPA where interest and/or instalment of principal remain unpaid after it has become due for two harvest seasons but for a period not exceeding two half years. However, in the case of longer duration crops, the current prescription of not exceeding two half years is inadequate. In order to align the repayment dates with harvesting of crops, it is proposed that:
- A loan granted for short duration crops will be treated as an NPA if the instalment of the principal or interest thereon remains unpaid for two crop seasons beyond the due date.
- A loan granted for long duration crops will be treated as an NPA if the instalment of the principal or interest thereon remains unpaid for one crop season beyond the due date.
- All the above prescriptions of crop loans would also be applicable, mutatis mutandis, to agricultural term loans.
- For the purpose of these guidelines, ‘long duration’ crops would be crops with crop season longer than one year and crops, which are not ‘long duration’ crops, would be treated as ‘short duration’ crops.
- The crop season for each crop, which means the period up to harvesting of the crops raised, would be as determined by the State Level Bankers’ Committee in each State.
- Depending upon the duration of crops raised by an agriculturist, the above NPA norms would also be made applicable to agricultural term loans availed of by him. In respect of agricultural loans, other than those specified in the Relevant extract of the list of direct agricultural advances from the Master Circular on lending to priority sector – RPCD. PLAN. BC. 42A / 04.09.01/ 2001-02 dated 11 November, 2002. and term loans given to non-agriculturists, identification of NPAs would be done on the same basis as non-agricultural advances which, at present, is the 90 days delinquency norm.
COVID-19 – 2020 Regulatory Package
Earlier, The reserve Bank Of India has come up with a notification RBI/2019-20/244 DOR.No.BP. BC. 71/ 21.04.048/ 2019-20 Dated May 23, 2020 referring the circulars DOR.No. BP.BC.47/ 21.04.048 /2019-20 dated March 27, 2020 and DOR. No. BP. BC.63/ 21.04.048/ 2019-20 dated April 17, 2020 announcing certain regulatory measures in the wake of the disruptions on account of COVID-19 pandemic and the consequent asset classification and provisioning norms and Rescheduling of Payments for term loans and Working Capital Facilities including agricultural term loans, retail and crop loans that the repayment schedule for such loans as also the residual tenor, will be shifted across the board. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period and in respect of accounts classified as standard as on February 29, 2020, even if overdue, the moratorium period, wherever granted in respect of term loans, shall be excluded by the lending institutions from the number of days past-due for the purpose of asset classification under the IRAC norms. The asset classification for such accounts shall be determined on the basis of revised due dates and the revised repayment schedule.
Covid-19 – Expiry of 2020 Regulatory Package
The Reserve Bank Of India, has come up with a notification RBI/2021-22/17DOR. STR. REC. 4/21.04.048/2021-22 dated April 7, 2021as follows.
♦ The Supreme Court Judgement
The Hon’ble Supreme Court of India has pronounced its judgement in the matter of Small Scale Industrial Manufacturers Association vs UOI & Ors. and other connected matters on March 23, 2021. In this connection, it is advised to Refund/adjustment of ‘interest on interest all borrowers, including those who had availed of working capital facilities during the moratorium period, irrespective of whether moratorium had been fully or partially availed, or not availed, in terms of the circulars DOR. No. BP.BC.47 /21.04.048/ 2019-20 dated March 27, 2020 and DOR.No.BP.BC.71/21.04.048/2019-20 dated May 23, 2020 (“Covid-19 Regulatory Package and the Lending institutions shall disclose the aggregate amount to be refunded /adjusted in respect of their borrowers based on the above reliefs in their financial statements for the year ending March 31, 2021
♦ Asset Classification and Income Recognition
Asset classification of borrower accounts by all lending institutions following the above judgment shall continue to be governed by the extant instructions as clarified below.
i. In respect of accounts which were not granted any moratorium in terms of the Covid19 Regulatory Package, asset classification shall be as per the criteria laid out in the Master Circular – Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances dated July 1, 2015 or other relevant instructions as applicable to the specific category of lending institutions (IRAC Norms).
ii. In respect of accounts which were granted moratorium in terms of the Covid19 Regulatory Package, the asset classification for the period from March 1, 2020 to August 31, 2020 shall be governed in terms of the circular .No.BP.BC. 63/21.04.048 /2019-20 dated April 17, 2020, read with circular DOR.No.BP.BC. 71/21.04.048/ 2019-20 dated May 23, 2020. For the period commencing September 1, 2020, asset classification for all such accounts shall be as per the applicable IRAC Norms.
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