It is recognised that declaration of a natural calamity is in the domain of the Central / State Government. The inputs received from the State Governments revealed that there is no uniform procedure being followed for declaration of a natural calamity and issue of declarations/certificates. These declarations/certificates are called by different names such as Annewari, Paisewari, Girdawari, etc. in different States. Nevertheless, the common thread to extend relief measure towards agricultural loans including rescheduling of loans by banks, is that the crop loss assessed should be 33% or more. For assessing this loss, while some States are conducting crop cutting experiments to determine the loss in crop yield, some others are relying on the eye estimates/visual impressions.
In case of extreme situations such as wide-spread floods, when it is largely evident that most of the standing crops have been damaged and/or land and other assets have suffered a wide-spread damage, the matter shall be deliberated by State Government/District Authorities in a 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 that the decision to provide relief for the affected populace needs to be taken based on the eye estimate/visual impressions.
Types of natural calamities:
As per RBI guidelines, 12 types of natural calamities on relief measures by banks in areas affected by natural calamities:
- Cloud Burst
- Pest Attack
- Cold Wave/Frost
Relief measures by banks in areas affected by natural calamities:
Restructuring of Existing Loans:
Agriculture Loans: Short-term Production Credit (Crop Loans):
- 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 the natural calamity may be converted into term loan.
- The repayment period of the restructured loan may vary depending on the severity of the calamity, the impact on loss of economic assets and distress it caused. A maximum repayment period of up to two years (including the moratorium period of one year) shall be allowed if the loss is between 33% and 50%. If the crop loss is 50% or more, repayment period may be extended upto a maximum of five years (including the one year moratorium period).
- In all restructured loan accounts, moratorium period of at least one year shall be considered. Banks may not insist on additional collateral security for such restructured loans.
Agriculture Loans: Long term (Investment) Credit:
The existing term loan installments shall be rescheduled keeping in view the repaying capacity of the borrower and the nature of natural calamity viz.
- In a natural calamity where only crop for that year is damaged and productive assets are not damaged, banks shall 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 willfully in earlier years will not be eligible for rescheduling. The banks may also have to postpone payment of interest by borrowers.
- In a natural calamity where the productive assets are partially or totally damaged and borrowers are in need of a new loan, the rescheduling by way of extension of loan period shall be determined on the basis of overall repaying capacity of the borrower vis-a-vis total liability (old term loan, restructured crop loan, if any and 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 may differ on case-to-case basis, generally it shall not exceed a period of 5 years
- Depending on the severity of the calamity, SLBC/DCC shall take a view as to whether a general rescheduling of all other loans (i.e. besides the agriculture loans) such as loans granted for allied activities, loans to rural artisans, traders, micro/small industrial units or in case of extreme situations, medium enterprises are required. If such a decision is taken, while recovery of all the loans be postponed by the specified period, banks may assess the requirement of the individual borrowers in each case and depending on the nature of his/her account, repayment capacity and the need for fresh loans, appropriate decisions shall be taken by the individual banks.
- The primary consideration for extending credit to any unit for its rehabilitation shall be based on the viability of the venture as assessed by the bank.
The asset classification status of the restructured loans shall be as under:
- The restructured portion of the short term as well as long-term loans may 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, banks are required to make higher provisions for such restructured standard advances as prescribed by Department of Banking Regulation1 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 DBR guidelines.
- The asset classification for the remaining dues, which does not form a part of the restructured portion, will continue to be governed by the original terms and conditions of its sanction. Consequently, the dues from the borrower shall be classified by the lending bank under different asset classification categories viz. standard, sub-standard, doubtful and loss.
- 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 accounts as on the date of natural calamity will be available only if the restructuring is completed within a period of three months from the date of natural calamity. In the event of extreme calamity, when the SLBC/DCC is of the view that this period will not be sufficient for the branches to reschedule all the affected loans, it shall approach NABARD giving the reasons for seeking extension. These requests will be considered on the basis of merit of each case.
- The accounts that are restructured for the second time or more on account of recurrence of natural calamities shall retain the same asset classification category on restructuring. Accordingly, for a restructured standard asset, the subsequent restructuring necessitated on account of natural calamity shall not be treated as second restructuring, i.e., the standard asset classification shall be maintained. However, all other restructuring norms shall apply.
Utilization of Insurance Proceeds:
While restructuring the loans in areas affected by a natural calamity, banks shall also take into account the insurance proceeds, if any, receivable from the Insurance Company. The insurance proceeds shall be adjusted to the ‘restructured accounts’ in cases where fresh loan have been granted to the borrower. However, banks shall act with empathy and consider restructuring and granting fresh loans without waiting for the receipt of insurance claim in cases where there is reasonable certainty of receiving the claim.
Providing Fresh Loans:
Sanctioning of Fresh Loans:
- Once the decision to reschedule loans is taken by SLBC/DCC, pending conversion of short-term loans, banks shall grant fresh crop loan to the affected farmers based on the scale of finance of the crop and the cultivation area as per the extant guidelines.
- The bank assistance in agriculture and allied activities (poultry, fishery, animal husbandry, etc.) may also be needed for long term loans for a variety of purposes such as repair of existing economic asset(s) and/or acquisition of new asset(s). Similarly, rural artisans, self-employed persons, micro and small industrial units, etc. in the areas affected by a natural calamity may require fresh credit to sustain their livelihood. Banks shall assess the need and decide on the quantum of loans to be granted to the affected borrowers taking into consideration, amongst others, the credit requirement and the due procedure for sanctioning fresh loans.
- Banks shall also grant consumption loan up to ₹ 10,000/- to existing borrowers without any collateral. The limit may, however, be enhanced beyond ₹ 10,000/- at the bank’s discretion.
Terms and Conditions:
Guarantee, Security and Margin:
- Credit shall not be denied for want of a personal guarantee alone. 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. 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. For fresh loans, banks shall take a sympathetic view.
- Where the crop loan (which has been converted into term loan) was earlier sanctioned against personal security/hypothecation of crop and the borrower is not able to offer charge/mortgage of land as security for the converted loan, she/he shall not be denied conversion facility merely on the ground of his/her inability to furnish land as security. If the borrower has already availed a term loan against mortgage/charge on land, the bank shall be content with a second charge for the converted term loan. Banks shall not insist on third party guarantee for providing conversion facility.
- Where land is taken as security, in the absence of original title record, a certificate issued by the Revenue Department officials shall be accepted for financing to farmers who have lost proof of their title such as title deed or registration certificate 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 may be waived or the grant/subsidy given by the concerned State Government shall be considered as margin.
Rate of Interest:
- Banks shall take a sympathetic view of the difficulties of the borrowers and extend a concessional treatment to calamity-affected people. In respect of default in current dues, no penal interest shall be charged. The banks shall also suitably defer the compounding of interest charges. Banks shall not levy any penal interest and consider waiving penal interest, if any, already charged in regard to the loans converted/rescheduled. Depending on the nature and severity of the natural calamity, the SLBC/ DCC shall take a view on the interest rate concession that could be extended to borrowers so that there is uniformity in approach among banks in providing relief.
- 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 percent per annum will be made available to banks for the first year on the restructured loan amount. Such restructured loans shall attract normal rates of interest from the second year onwards.
Other Ancillary Measures:
Relaxation on Know Your Customer (KYC) Norms:
It needs to be recognized that many persons displaced or adversely affected by a major calamity may not have access to their identification and personal records. In such cases a basic saving bank deposit account on the basis of photograph along with signature or thumb impression rendered in front of the bank official shall be opened. The above instruction shall be applicable to cases where the balance in the account does not exceed ₹ 50,000/- or the amount of relief granted (if higher) and the total credit in the account does not exceed ₹ 1,00,000/- or the amount of relief granted, (if higher) in a year
Providing access to Banking Service:
- Banks may operate its natural calamity affected branches from temporary premises under advice to the concerned Regional Office of RBI/NABARD. For continuing the temporary premise beyond 30 days, banks may obtain specific approval from the appropriate authorities. Banks may also make arrangements to render banking services in the affected areas by setting up satellite offices, extension counters or mobile banking facilities etc. under intimation to RBI/NABARD.
- To meet the immediate cash requirements of the affected people, due importance may be given towards restoring the ATMs or other alternate arrangements shall be provided to avail such facilities.
- Other measures that banks may initiate at their discretion to alleviate the condition of the affected people could be waiving ATM fees, increasing ATM withdrawal limits; waiving of fees towards overdraft/early withdrawal penalty on time deposits /late fee for credit card/other loan instalment payments etc. and giving option to credit card holders to convert their outstanding balance to EMIs repayable in 1-2 years. Besides, all charges debited to the farm loan account other than the regular interest may be waived considering the hardship caused to the affected people.