What changed
RBI observed banks sanctioning loans where borrowers put up 10% margin and the bank funded 90% for KVP purchase, with KVPs pledged as collateral. The circular explicitly prohibits any loans for acquiring or investing in small savings instruments including KVPs.
What it means for you
Banks can no longer offer loan products structured around small savings instruments like KVPs. This closes a loophole where bank deposits were being diverted into small savings schemes, undermining the original intent of these instruments to encourage genuine savings.
What you must do
- Immediately stop sanctioning any new loans for acquisition of KVPs or other small savings instruments.
- Review existing loan portfolios to identify and flag any such loans for corrective action.
- Communicate this prohibition to all branches and credit officers to ensure compliance.
- Acknowledge receipt of this circular to your respective Regional Office.
Who it affects
State Co-operative Banks (StCBs), District Central Co-operative Banks (DCCBs), Borrowers seeking loans for small savings instruments
Does this ban apply to all small savings instruments or only KVPs?
The circular explicitly covers all small savings instruments including Kisan Vikas Patras. Banks must ensure no loans are sanctioned for acquiring or investing in any such instruments.
What was the typical loan structure that RBI found problematic?
Borrowers were required to bring in 10% of the face value as margin, and the bank funded the remaining 90% as a loan. The KVPs were then pledged to the bank as collateral.
Why did RBI consider these loans problematic?
Such loans do not promote fresh savings; they merely shift existing bank deposits into small savings instruments, defeating the core objective of these schemes to encourage thrift and genuine savings.